The most useless results season ever?

The most useless results season ever?

The Q1 2020 results season is upon us. Of course, we are long-term investors and aware of the lack of information in one quarter’s unaudited results.

Sense check – quarterly results

The Q1 2020 results season is upon us. Of course, we are long-term investors and aware of the lack of information in one quarter’s unaudited results. Nonetheless, we normally look forward to each results season as it can mark a return to fundamentals and away from whatever political, economic or other market-related issue is dominating at the time. Yes, the timescale covered is short but there can be clues as to whether our investment theses remain on track.

For most companies this time it’s different

This time is different, radically different. Except for businesses with large Chinese exposure, Q1 will capture little of the COVID-19 impact. That means they’re a snapshot of business across the world before everything changed. In every high street and shopping centre most of the shops are now closed, on every business park or industrial estate most businesses have paused operations. As we approach the summer in the Northern hemisphere the beaches, theme parks and other tourist destinations are all empty.

There are, as always, exceptions. Many healthcare businesses continue to operate but for most companies, the normal forward-looking comments that accompany results can be no more than a guess. Bar a few special cases, most countries that have introduced lockdown measures still have them in place. Even in China, experience varies widely, with many parts of the country continuing to enforce strict social distancing and other restrictions. Encouragingly, it appears that we can start thinking about exit strategies but until such time as we have some certainty it is difficult to think too far ahead.

Normal will be different

And then when we start resuming ‘normal’ life and head back to work, what will be the new normal? What will be the shape of the recovery? There are a plethora of different views but the truth is no-one knows. The COVID-19 pandemic and its impact is unprecedented and there is no comparison to draw on in modern economic history, not 2008/9, nor the early 2000’s not even the 1930’s. Perhaps the famously styled ‘four most dangerous words in investment’ are true – “This time it’s different!” Never before outside of wartime, have we seen such an abrupt cessation of economic activity. There are no neutral countries this time, just different magnitudes of impact.

When we move towards the ‘new normal’ there are lots of questions to be asked. And as we start getting clarity then maybe companies will be better placed to offer more reliable guidance on the future.

The big questions

  • Does the crisis and the collapse in oil price advance the climate change debate greatly or delay transition to a low carbon world in the face of super cheap oil and more immediate things to worry about?
  • Do supply chains become less global as countries worry about not having the ability to manufacture important components at home? What are the impacts of this on efficiency and inflation?
  • Does the way we consume change, do we rush back to eating out or do we realise the benefits both on cost and on family make-up of eating at home?
  • How quickly, especially in the absence of a vaccine, are we prepared to return to using urban mass transit or gather at big events such as concerts, festivals and conferences?
  • Many people are working from home – the tech works, it can be done and the commute is a lot easier. Do we go back to previous working patterns and if not, what are the implications for office property and the service industries around them?
  • And what about all those people who aren’t working – those that are already unemployed or the many who will be once government support runs out? What is the impact on consumption, the single largest contributor to GDP in all developed economies?
  • The really big one for European investors is what happens to the Eurozone if they cannot agree on at least limited mutualisation of debt as the split between the North and South widens?
  • Lastly, how do we ever pay back the enormous quantum of debt that’s being taken on to drive a fiscal stimulus that dwarfs the Global Financial Crisis? It is difficult to see austerity being the answer for repayment this time around.

Fiscal stimulus – the most expansionary year since 2009

Fiscal stimulus

Source: UBS, Haver, European Commission, CBO

Companies can provide little concrete guidance (and nor can analysts)

Some pretty big questions that need answering plus no doubt lots more that will emerge. No company management team can answer these, nor can they really give us an educated guess and if they can’t guide us then the analyst community is equally in the dark. After all, all analysts and most investors take our lead on the direction of future profits from the companies. The result, in our opinion is that we have seen far less earnings downgrades than we should have. In our view, stock markets currently have re-rated to reflect expectations around the downturn in Q1 and Q2 with an assumption of a big bounce back in H2 and 2021.

Current earnings expectations

2020e EPS Current
Growth, % Jan ’20
2021e EPS Current
Growth, % Jan ’20
MSCI World
S&P 500
Stoxx 600
Euro Stoxx
FTSE 100

Source: IBES. *Topix refers to FY ending Mar’21 and ‘22

‘Quality, management and valuation’ remains our mantra

What do current events and lack of future clarity mean for us in the Columbia Threadneedle European equity team? In some respects, not a lot. Anyone who has met us in the last 10 years will have heard us talk about the three things we look for – ‘quality, management and valuation’ and we believe a focus on these elements will hold us in good stead in the world we now find ourselves. A focus on strong balance sheets and good liquidity run by management teams that have consistently run their businesses for long-term shareholders remains key as this will better ensure a business can survive. Valuation had been key for us as many quality businesses were valued in a way that left us with no margin of safety. March saw that change in some circumstances, and during the indiscriminate sell-off we took the opportunity to upgrade the quality of our portfolios even further. Additions included companies such as Ferrari, Lonza and Ubisoft, all highly liquid with business models we are confident will thrive into the future at valuations we haven’t seen for some time.

The good news is clearly that authorities have learnt lessons from the past and responded, in the main, quickly and aggressively with both monetary and fiscal stimulus. Our hope is that this limits the downside and we see a quick recovery. Of course, there is the fear is that we don’t and that both the direct impact of COVID-19 and the economic and societal impacts that follow will be bigger than anticipated. Whatever the outcome, our focus will remain on buying good businesses at attractive prices, run by management teams that understand they run the business on behalf of shareholders. Why? Because we believe that this approach is the best way to grow our clients’ capital over the long-term whilst at the same time protecting it during more difficult times.

David Moss
David Moss
Managing Director, Portfolio Manager

David has worked for 25 years at the Company's Investment Manager, which became part of Columbia Threadneedle Investments in 2021 and is currently Head of European Equities Research Strategy. David has 27 years' industry experience, the majority of them in managing assets on behalf of a wide variety of clients, including Investment Trusts. Prior to his current role at Columbia Threadneedle Investments, David held the role of Co-Head of Global Equities at BMO Global Asset Management and is currently the lead manager on the CT Select UK Equity Income Fund and the CT (Lux) European Growth & Income Fund.

David Moss
Share on twitter
Share on linkedin
Share on email

Key topics

Risk Disclaimer

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.
Views and opinions have been arrived at by Columbia Threadneedle Management Limited and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.
The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Team member placeholder


Legal and regulatory disclosures

For professional clients and/or qualified investors only

Nothing on this website is, or is intended to be, an offer, advice, or an invitation to buy or sell any investments, in any jurisdiction where, or to anyone whom it would be unlawful to do so. Please read our full terms and conditions before proceeding further with any investment product referred to on this website. This website may not be suitable for everyone, and if you are at all unsure whether an investment product referenced on this website will meet your individual needs, please seek professional advice before proceeding further with such product. I have read and accept the terms and conditions and cookie policy of this site.