The FTSE 100 is having a right old riot in Wednesday business. It’s mounted the 6,000-point marker for the first time since the middle of March. And it continues to gain ground this afternoon. A 7% rise so far in April suggests that one of the index’s best monthly performances in a very, very long time is imminent.
I don’t think Footsie investors should get too giddy, though. Buying has picked up on expectations that quarantine measures across the globe will keep being lifted. But, any signs of a pick-up in infection rates could prompt a fresh clampdown from authorities. A rise in the number of diagnosed cases in Germany following relaxed lockdown conditions there is a serious warning.
I wouldn’t suggest that share pickers keep their wallets firmly fastened, however. There are plenty of FTSE 100 bargains out there which, from a long-term perspective are mighty attractive at current prices. Still, the threat of a painful and prolonged economic slowdown following the Covid-19 outbreak means that investors need to be extra careful.
A FTSE 100 trap?
One blue chip that I for one am very happy to walk past today is British Land Company (LSE: BLND). It’s a Footsie firm for whom annual profits drops have become a familiar thing. And City analysts don’t expect the retail property owner to break out of this tailspin. The City predicts bottom-line drops of 7% and 10% for the fiscal years to March 2020 and 2021 respectively.
These forecasts fail to underline the extent of the meltdown that physical retailers are facing, however. And consequently the colossal threat to British Land. According to the Confederation of British Industry (or CBI) a stunning 96% of retailers are experiencing cash flow problems following the coronavirus outbreak. And 31% of these companies are having difficulties accessing outside finance.
It’s hoped that the easing of lockdown measures will help large parts of the UK retail sector. Just when any such relaxation will come remains clear as mud, however. Besides, the imminent economic downturn – one which many commentators believe will be worse than the Great Depression almost a century ago – threatens to keep a sea of retailers in peril.
One to avoid
Expect, then, that British Land will continue struggling to collect rent from its tenants. Last month the FTSE 100 firm said it was releasing its smaller retail, food & beverage, and leisure tenants from paying rent between March and June. This would cost it £3m, it said. As well, the Footsie company is allowing its other clients to defer March quarter-day rents and spread repayment of this over the six quarters from September. It should be prepared for more waves of emergency action as the year rolls on and possibly into 2021, too.
British Land’s share price has rocketed more than 100p from the record closing lows of 313.8p per share punched at the top of April. I fear that this recent bounce is built on fragile foundations, however. Full-year financials are slated for 27 May, and I reckon that this could prove the catalyst for another share price crash. I’d avoid it at all costs despite its undemanding forward earnings multiple of around 14 times.