Here are three cyclical FTSE 100 shares that could participate in the stock market rebound when the green shoots begin to appear after this coronavirus crisis.
Hospitality
In an update on March 24, Whitbread (LSE: WTB) told us that most of its hotel, pub and restaurant operations had been closed to comply with social-distancing requirements. Indeed, the effects of the coronavirus pandemic have been dramatic for the hospitality company.
To help Whitbread survive the crisis, the directors have taken several actions. For example, they’ve put most of the staff on temporary furlough with the aim of collecting financial support from the government. And they’ve stopped all non-essential expenditure and investment. It almost goes without saying that the shareholder dividend for the full-year to February 2020 has been a casualty of the cuts.
Now it’s a game of waiting. In the meantime, the directors reckon the company has “material headroom” on its funding facilities. And a “valuable” freehold property estate backs the business. My guess is that the cost-cutting will combine with government support measures to see the company through the crisis. When social-distancing measures ease, we could see a return to trading and a resurgence in the fallen share price.
Insurance
Aviva (LSE: AV) said on 8 April that it has no intention of using the government scheme to furlough its employees. Since the crisis began, the firm’s staff have “maintained high service standards” to customers across all the company’s markets.
But the directors have axed the final dividend for 2019. They said in the update it’s too early to quantify the effects of the crisis on claims expenses in the company’s life and general insurance businesses. Neither can they estimate how much damage the weakness in the stock market will cause Aviva’s financial results. But because of the deterioration of the general economic outlook, the directors are reviewing all “material discretionary and project expenditure.”
The company’s trading performance is closely linked with the health of the general economy and financial markets. When conditions improve, I reckon we could see Aviva’s share price rebound as well.
Engineering
International engineering company Meggitt (LSE: MGGT) updated investors on March 27. The company specialises in high-performance components and sub-systems for the aerospace, defence and some energy markets. The business is suffering from the reduction in air traffic in 2020 and a decrease in demand for original equipment and aftermarket services.
The directors have taken a series of actions to reduce costs and manage cash flow through the crisis. One casualty is the final shareholder dividend for 2019. Today’s share price close to 258p is well down from the 680p we saw at the beginning of the year. However, with the lifting of social-distancing restrictions and a return to better levels of business, my guess is the share price will respond well.
We last saw the stock at these levels around 10 years ago. But there’s been a lot of operational progress since then. I’d be willing to take a chance with Meggitt despite the unknowns.
