Compass - May 2020
In this issue of Spotlight, we consider whether the valuations being offered in emerging markets amount to an attractive long-term opportunity.
By Annabel Brodie-Smith
How are we all getting on in lockdown? For me, my family, colleagues and almost everyone I speak to it’s really beginning to drag now. It’s so repetitive – every day is Groundhog Day.
Combining work, home schooling, the demands of my Mother who’s staying with us and the never-ending household chores is challenging to say the least! I won’t be one of these people who are learning a new language, taking up yoga and posting pictures of banana bread on the internet…
Having said that, I can’t complain – we are all healthy, financially secure and I like the long walks in the Oxfordshire countryside.
On Monday I left Oxfordshire for China, Turkey, Mexico and Russia… Yes it was a virtual trip to talk to emerging markets managers - Andrew Ness of Templeton Emerging Markets, Ross Teverson of Jupiter Emerging & Frontier Income Trust and Mario Solari of Genesis Emerging Markets Fund. It was well worth it and do read their views on the prospects for emerging markets.
Some of the countries they invest in are already emerging from lockdown and it was fascinating to hear how it’s going. Andrew Ness quoted his colleague, clearly a Star Trek fan who described post-lockdown as, “It’s life Jim but not as we know it.” Of course, it’s too early to be confident in the short-term but they believe the demographic situation, more middle-class consumers and attractive valuations are compelling over time. Do watch the video below where I talk to Andrew Ness and Ross Teverson if you’d like to explore these captivating countries.
Managers discuss how emerging markets are responding to COVID-19
Our investment guru Ian Cowie this month explores the income possibilities that emerging markets can provide. This area is often overlooked by income seekers but Ian explains that the average yield of the 14 companies in the Global Emerging Markets sector is 2.7% and over the last five years this has increased by 14.4% per year. He delves into his extensive portfolio which includes BlackRock Latin American, Henderson Far East Income and the already mentioned Jupiter Emerging & Frontier Income as well as JPMorgan Indian and Vietnam Enterprise Investments.
On a different topic, I don’t know about you, but since lockdown I seem to be spending much more money in supermarkets. A Sunday treat of a tub of ice cream has turned into three tubs, never mind my husband’s barbecue beers and my Mother’s Welsh cake habit. I’m not alone in my new-found love for supermarkets. James de Uphaugh, Edinburgh Investment Trust, argues that supermarkets are “arguably one of the most essential industries.” Find out what investment company managers think about their investments in Ocado, Tesco, Sainsbury’s and Morrisons.
Another highlight of lockdown life is the Friday night takeaway and so far we have enjoyed numerous curries and a Chinese. We have taken a look at the world of takeaway food and recipe box businesses so we have found out which companies Scottish Mortgage, Allianz Technology and BMO UK High Income Trust have invested in and why.
Finally, I’d recommend this informative weekly investment company podcast from the highly experienced journalist, Jonathan Davis and Simon Elliott, head of investment trust research at Winterflood Securities. It’s great listening for fans of the sector and free to sign up for here.
Stay safe and enjoy the VE weekend!
Communications Director, AIC
Emerging markets' defence against COVID-19
Whilst there are encouraging signs of a return to normal business activity in some emerging markets, others are still seeing coronavirus cases and deaths rise from day to day. As in developed markets, the long-term impacts on emerging economies remain uncertain.
Investment companies in the Global Emerging Markets sector have reflected these mixed fortunes, with the average company bouncing back 7% in April, after losses of 15% the previous month. For investors prepared to take a long-term view, could current valuations provide an attractive entry point?
At a media webinar hosted by the AIC, Andrew Ness, Portfolio Manager of Templeton Emerging Markets Investment Trust, Mario Solari, Portfolio Manager of Genesis Emerging Markets Fund, and Ross Teverson, Co-Manager of Jupiter Emerging & Frontier Income Trust, discussed how they are dealing with the impact of coronavirus and their outlook for emerging and frontier markets.
Their views have been collated alongside comments from Michael O’Brien, Manager of Fundsmith Emerging Equities Trust and Austin Forey, Manager of JPMorgan Emerging Markets Investment Trust.
COVID-19 – China holding up better
Ross Teverson, Co-Manager of Jupiter Emerging & Frontier Income, said: “Going into 2020, we remained focussed on identifying those companies which in our view are exposed to specific or structural positive change that is underappreciated by the market. As a result of our fundamental stock picking process, we have consistently been underweight China, favouring higher conviction ideas in overlooked markets, including Turkey, Mexico and Russia.
“Though the COVID-19 outbreak originated in China, the Chinese market has surprisingly held up better than the rest of emerging markets and our underweight position has acted as a headwind for us, as has our higher allocation to smaller companies. We have not significantly altered positions within the portfolio, as we believe that the long-term investment case for our holdings remains intact and that the companies in which we invest are well positioned to weather the economic impact of coronavirus.”
Mario Solari, Portfolio Manager of Genesis Emerging Markets, said: “Our China domestic A-share investments have been among the most resilient year-to-date. There seem to be several reasons for this. One is fundamental; China appears to have successfully controlled the number of new COVID-19 infections, even while releasing restrictive measures. Buoyed by this containment success, many management teams we have spoken to are optimistic about a ‘V-shaped’ recovery, especially in the second half of the year.
“That said, a key next question is the degree to which falling global demand for manufactured exports will undermine hopes for a rapid economic rebound in countries like China, Korea and Taiwan.”
Andrew Ness, Portfolio Manager of Templeton Emerging Markets, said: “At a time when coronavirus-driven country shutdowns have exacerbated investor concerns, the crisis hasn’t altered our investment philosophy towards emerging market stocks. We continue to favour competitive, well-managed companies with long-term sustainable earnings power and attractive valuations. Our approach has been calm and rational, without panic. Hence, we have not made significant changes to our portfolios on account of the crisis. However, we have reduced or exited some investments in companies where we believe there is a longer-term negative impact on the business or where share prices have not corrected in line with the expected negative impact on the business.”
Opportunities and risks
Mario Solari, Portfolio Manager of Genesis Emerging Markets, said: “We have been busy reassessing the range of outcomes for our portfolio holdings. Some portfolio holdings have benefitted from social distancing. NetEase, for example, a leader in the Chinese video game market, has seen a boost in user engagement, as social distancing and the temporary closure of schools has increased the consumption of digital entertainment. Recent data indicates 60% to 70% of Chinese gamers increased playing time during the outbreak. By contrast, the impact on our Indian bank holdings has been more negative. India has a young population, but a weak public healthcare system, and the country is in near lockdown in most areas. This exacerbates the economic slowdown we have seen in the last couple of years.
“During this period of extreme volatility we have been assessing dislocations between share price moves and underlying fundamentals, taking the opportunity to upgrade the quality profile of the portfolio.”
Ross Teverson, Jupiter Emerging & Frontier Income, and Andrew Ness, Templeton Emerging Markets, discuss how their portfolios are being affected by COVID-19
Austin Forey, Manager of JPMorgan Emerging Markets, said: “At the industry level, e-commerce companies, media content companies including mobile games developers, food retailers and pharmacies are net beneficiaries of the nature of this downturn. On the other side, businesses associated with travel and those reliant on physical stores – restaurants, fashion retail – are under pressure. The sell-off has been pretty indiscriminate; it’s created some opportunities in companies we liked fundamentally but which previously looked expensive, especially in areas like IT services, e-commerce and mobile gaming.”
Ross Teverson, Co-Manager of Jupiter Emerging & Frontier Income, said: “We certainly see longer-term opportunities being created in companies that offer a combination of low valuations and very strong balance sheets – around a third of the portfolio is in companies with net cash on their balance sheets. We see these qualities in companies across a diverse range of sectors and markets, including our holdings within Taiwanese tech, Chinese pharma, Indonesian property and Pakistani autos. Beyond the risks presented by coronavirus, we would highlight political risks in emerging and frontier markets as being significant, yet difficult to forecast.”
Outlook for emerging and frontier markets
Michael O’Brien, Manager of Fundsmith Emerging Equities Trust (FEET), said: “The vast majority of companies in FEET’s portfolio have net cash and resilient business models based on repeat, low-ticket transactions and backed by high barriers to entry. We believe that the businesses in our portfolio are going to continue to benefit from the rise of the emerging market consumer and trends such as formalisation and consolidation. This is something which the crisis will likely accelerate even before economic recovery takes hold at some point later on this year or next year. We would not be surprised if there is greater investor interest in emerging markets once recovery becomes visible given their stronger long-term growth trajectories.”
Mario Solari, Portfolio Manager of Genesis Emerging Markets, said: “Countries that are likely to be relatively better off are those that combine high levels of testing with relatively robust economies and this includes Taiwan and Korea. At the other end are Brazil and South Africa where testing is low and existing budget and current account deficits make it harder to turn on the fiscal taps. We remain bullish on the long-term opportunity in emerging markets. The long-term growth outlook is compelling considering the demographics and income convergence opportunities, and our markets are often inefficiently priced. We believe this is particularly the case today. We seek to identify a diverse group of quality companies and combine them into an attractive portfolio offering good long-term returns.”
Ross Teverson, Co-Manager of Jupiter Emerging & Frontier Income, said: “The current environment presents significant challenges to many emerging and frontier market companies. However, it is also important to recognise that valuations are very low relative to history for many companies and sectors within the asset class. These low valuation levels only ever tend to be reached during periods of greater uncertainty, but it is also the case that they have typically created compelling long-term buying opportunities in emerging and frontier market equities.”
Austin Forey, Manager of JPMorgan Emerging Markets, said: “Current market conditions reinforce that the way we have always invested, focusing on strong balance sheets and large competitive moats, is the right philosophy. We have been careful through this time to re-evaluate all our investments to try to ensure that they meet these high standards, and sales have reflected where we had doubts in this regard. The corporate world is rapidly changing and there will be big winners and losers; for investors in emerging markets, we believe the opportunity set is bigger and more diverse than ever before, particularly in China.”
Andrew Ness, Portfolio Manager of Templeton Emerging Markets, said: “In our view, domestic recovery in north Asia as well as lower oil prices are supportive of a number of emerging markets, but the extent to which stimulus policies can offset demand destruction remains to be seen. Valuations relative to developed markets also look more appealing than they have for some time, although there will be significant volatility in earnings forecasts over coming months. There will be a hit to earnings in Q1 for most businesses and most likely Q2 due to supply shocks and weaker demand activity globally. Although we expect some normalisation in the second half of 2020, we can’t rule out a delayed recovery should there be a more prolonged and severe global recession.”
Ian Cowie considers the attractions of emerging markets
Contrary to what many investors imagine, emerging markets are not just for those seeking capital growth; they can deliver decent dividends with increasing income too. For example, according to independent statisticians Morningstar, the 14 companies in the AIC's Global Emerging Markets sector deliver an average dividend yield of 2.7%.
That’s not bad at a time when interest rates are near historic lows but what might be more surprising is the rate at which shareholders’ income from this sector is rising. Over the last five years, it increased by an average of 14.4% per annum. If that rate of income increase is sustained in future, which is by no means guaranteed, dividends would double in less than five years.
Here and now, emerging markets investment companies deserve wider consideration, including as part of a retirement portfolio or 'forever fund' like mine, because they provide professionally-managed, convenient and cost-effective exposure to some of the most dynamic economies in the world. These are often found in developing nations that are becoming more engaged with global trade as they grow. Traditionally, that growth was heavily dependant on exports to the developed world but, increasingly in recent years, growth has been generated by domestic demand from, for example, a rising middle class in emerging economies.
Since 1988, the benchmark for this sector has been the MSCI Emerging Markets Index, which includes 26 countries and spans 1,100 stock market listed businesses across five continents. These include China, which alone represents 33% of the MSCI EM Index; Korea (13%); Taiwan (11%); India (9%); Brazil (7%); South Africa (6%); Russia (4%); Mexico (3%); Thailand (2%) and Others (12%). All percentages have been rounded to the nearest integer.
It can immediately be seen that a very wide variety of economies are included within the emerging markets category. Several investment companies outside the global sector also give exposure to individual emerging markets, delivering dividends now in addition to hopes of growth in future.
For example, in the AIC’s Latin America sector, my shares in BlackRock Latin American (stock market ticker: BRLA) currently yield 8.8% from a portfolio where more than 60% of assets are invested in Brazil, with the next largest national allocations being Mexico and Argentina. Dividends increased by an average of 7.2% per annum over the last five years. If that rate of increase is sustained, which is not guaranteed, dividends would double in a decade.
Similarly, Henderson Far East Income (HFEL) sits in the AIC’s Asia Pacific Income sector but one reason I have been a shareholder for many years is that a third of its portfolio is invested in MSCI EM index members Taiwan, South Korea, Thailand and Indonesia. Contrary to the stereotype of emerging economies relying heavily on commodities, HFEL’s two biggest underlying holdings, Taiwan Semiconductor Manufacturing and Samsung, give access to digital new technology. Even so, HFEL yields 7.4%.
Both Taiwan Semiconductor and Samsung are among the top 10 holdings at Jupiter Emerging & Frontier Income (JEFI), which also gives me access to even more early-stage economies in Kenya and Nigeria. An eclectic collection of underlying businesses includes Norilsk Nickel, the world's leading producer of nickel and palladium. The former metal is used to strengthen steel; the latter in exhausts and fuel cells. Norilsk is co-owned by Roman Abramovich, the Chelsea Football Club supremo, not a man the small shareholder often gets a chance to invest alongside. JEFI yields 4.9%.
Meanwhile, JPMorgan Indian (JII), my longest-held share, where I first invested in 1996, and Vietnam Enterprise Investments (VEIL) both seek to benefit from capital growth in low-cost, highly entrepreneurial economies. They may even gain from rising tension between America and China, as the former economic superpower seeks to source imports away from the latter.
It’s an ill wind that blows no good. Emerging markets investors can buy a stake in the future while being paid to be patient with attractive income today.
Every little helps
How are supermarkets responding to COVID-19?
With queues of people two metres apart outside supermarkets and online delivery slots a coveted rarity, shopping for food is a very different experience since COVID-19. How have supermarkets responded to this surge in demand?
The AIC has spoken to investment company managers about Ocado, Tesco, Sainsbury’s and Morrisons. Managers discuss whether COVID-19 has changed the public’s perception of the supermarket industry and what effect the experience of lockdown could have on the future of food.
The effect of COVID-19
Douglas Brodie, Manager of Edinburgh Worldwide which holds Ocado, said: “Recent COVID-19 related events have seen Google searches for online groceries increase more than six-fold compared to even one year ago. This is clear evidence of the previous inertia towards online grocery shopping falling away and consumers’ increasing willingness to try it. Short term these events conjure up understandable feelings of immediacy, shock and awe. Longer term, though, the online grocery market has probably achieved several years’ worth of progress in a couple of months.”
Steven Noble, Adviser to Supermarket Income REIT which owns properties leased to Tesco, Sainsbury’s and Morrisons, said: “In March, UK consumers spent an extra £1.9bn in UK supermarkets, leading to a like-for-like sales increase of 20.6%, the highest sales growth ever recorded. Whilst much of this was initial stockpiling, we expect quarterly like-for-like sales will continue to grow as consumers shift spending from pubs and restaurants and switch to staycations which will impact on sales of general merchandise and clothing. Although the cost of complying with social distancing measures has been high for supermarket operators, operational leverage in the business model makes sales growth very profitable with margins of 15-20% achievable on incremental grocery sales.”
James de Uphaugh, Fund Manager of Edinburgh Investment Trust which holds Morrisons, said: “Demand has certainly increased: out-of-home meals accounted for about 25% of total UK calorie consumption; this has switched back into the home, primarily bought from the major supermarkets. For Morrisons this meant an initial sales peak followed by a fall-off, but with sales still running above prior-year levels.
“The effect on profitability is more nuanced: to deliver the step-up in sales and make the shopping environment safe, Morrisons has put significant cost into remodelling its stores as well as rightly increasing colleague bonuses for this year. Combined with markedly lower petrol volumes, much of the benefit of extra grocery sales and the business rates relief will therefore be offset by increased operating costs and community contributions to food banks; the latter reflects Morrisons’ deep sense of responsible capitalism. Profitability will likely be flat year-on-year and dividends only marginally higher, given the societal sensitivity on dividend payments.”
Alasdair McKinnon, Manager of The Scottish Investment Trust which invests in Tesco, said: “The COVID-19 crisis caused customers to stockpile essential items and Tesco, along with the other supermarkets, saw a boost to sales volume. The lockdown restrictions have led to higher costs, particularly staffing costs, and the increased sales have tended to be concentrated in categories that attract a lower margin, as chilled and other short shelf life items have been less popular.”
Gervais Williams, who manages the Diverse Income Trust with Martin Turner, said: “For our investors, it is really important that we remain sure-footed on their behalf, minimising portfolio risk where appropriate, but also remaining alive to their need for ongoing income from their savings through this period. Sainsbury’s is a good example in our portfolio. We remain confident in Sainsbury’s ability to weather the current recession well, and importantly at this time, we are pleased they can also make a meaningful contribution to those on the front line of the caring community. In contrast to many others, Sainsbury’s is also expected to sustain its dividend, so that our ultimate clients, those that are in retirement or working at charitable foundations, won’t be forced to go hungry through this unsettled period.”
Public perception – “arguably one of the most essential industries”
James de Uphaugh, Fund Manager of Edinburgh Investment Trust, said: “This episode has led to a reassessment of the role the grocery industry plays in society. The public now realises that groceries are not elastic in supply and that this is arguably one of the most essential industries.
“A perusal of past Morrisons’ annual reports demonstrates that the company has long been a standard bearer of responsible capitalism, but events like COVID-19 really hit home that no company can make profits in a vacuum and that they need to work for all stakeholders. Morrisons got this long ago. The big change is that many more customers have now discovered online grocery shopping and many will keep shopping online when the crisis subsides. Online shopping is lower-margin for the industry and so this is a profit challenge that Morrisons and others will have to offset in their cost structures.”
Alasdair McKinnon, Manager of The Scottish Investment Trust, said: “Tesco has behaved in an exemplary manner during the past few weeks. It is everything you would want to see from a good corporate citizen. These extraordinary times have demonstrated the critical nature of the UK’s food distribution network. Tesco’s decision to increase their dividend reflects the operational turnaround they have achieved in recent years and really predates the outbreak of the pandemic.”
Steven Noble, Adviser to Supermarket Income REIT, said: “The current impact has highlighted the importance of supermarket stores. We believe that well located supermarket stores will continue to supply the majority of the UK’s £200bn grocery spend. In the longer term, if online groceries grow above their current 7% market share, we expect more of these supermarkets stores to be converted to omnichannel stores capable of fulfilling future growth in online grocery sales.”
Douglas Brodie, Manager of Edinburgh Worldwide, said: “Our overriding feeling is that everything happening just now will likely serve to accelerate the structural themes that were already playing out. At a high level the primary theme is that of long-term structural, digital-led growth and automation. Online shopping generally, and Ocado’s superior proposition specifically, should be clear beneficiaries of these trends.”
What has the surge in demand for food delivery companies meant?
For over a month, the UK’s cafés, pubs and restaurants have been shut unless operating takeaway or delivery services. With the country now in its seventh week of lockdown, enjoying a takeaway might have become a rare treat for many within an otherwise repetitive routine.
What effect is lockdown having on takeaway or recipe box businesses, both at home and further afield? The AIC has gathered comments from investment company managers on Just Eat, Uber Eats, Takeaway.com, Deliveroo, Hello Fresh, Meituan Dianping, Grubhub and more.
COVID-19 – “Food delivery has gotten a charge”
Philip Webster, Fund Manager of BMO UK High Income Trust, said: “All things considered, demand has held up reasonably well for both Just Eat and Takeaway.com. Both companies experienced a dip in sales towards the end of March 2020, as consumers began to stockpile supplies and cut back on ordering. However, numbers for April 2020 evidence an uptick in demand for Takeaway.com, highlighting that the demand side is still resilient in such an uncertain trading environment.
“On the supply side, whilst many restaurants have been forced to shut down to cut their overheads, Takeway.com has added over 3,000 new restaurants to the platform since the start of this crisis out of 9,000 applicants. The average spend-per-order has been rising across both companies, which suggests they are handling the current downturn reasonably well.”
Walter Price, Portfolio Manager of Allianz Technology, said: “Food delivery has gotten a charge from stay at home, eat at home. People like variety and they are often bored cooking what they know. But Grubhub has taken the opportunity of increased revenue and earnings to reinvest in its restaurant variety and its delivery network, as Uber Eats and DoorDash are burning money to build these aspects of the business.”
Catharine Flood, Corporate Strategy Director for Scottish Mortgage, said: “HelloFresh enables customers to prepare home-cooked meals by delivering the exact amount of ingredients with clear instructions on how to cook pre-defined recipes. Scottish Mortgage first invested in 2015. Since then the company has been credited with driving forward the meal kit delivery market towards becoming a mainstream habit and it is now a global leader, supplying households with its food boxes across 12 different markets. While its subscription business model had already facilitated a shift in the way its customers shopped for food, the current pandemic has broadened HelloFresh’s reach to new households as many people seek to avoid going out to shop.”
Joshua Henshaw, Investment Executive at Mobeus, Manager of the Mobeus VCTs, said: “Parsley Box delivers quality ambient ready meals directly to customers across the UK. In March, the business saw a threefold increase in orders delivered compared to February from both new and existing customers, as people sought to ensure they had a store of healthy, convenient and long-lasting food. Although that level of demand has settled a little, it remains much higher than previously. Parsley Box is an early-stage business that was not projected to be profitable until 2022. However, recent levels of demand mean it’s currently profitable on a monthly basis.”
The challenges of COVID-19
Walter Price, Portfolio Manager of Allianz Technology, said: “Partnering with restaurants has been hard. What was a minor part of revenues for restaurants has become their lifeline. Grubhub is trying to build its partnerships by helping them survive.”
Joshua Henshaw, Investment Executive at Mobeus, Manager of the Mobeus VCTs, said: “The first priority was the safety of the call centre staff dealing with increased volumes of calls from vulnerable and anxious people. Extra staff were recruited and, to ensure they could work in a socially distanced way, Parsley Box took on additional office space. Where technology allowed, employees started working from home. Parsley Box also moved rapidly to invest in IT, securing the bandwidth needed to send increased orders correctly to the warehouse. Picking and packing those orders was equally critical.
“Parsley Box employed 50 new warehouse staff, many of whom were recruited via social media and had been seeking work because of the COVID crisis. In one week, the warehouse moved from a one-shift system to three shifts a day. Although the business had a buffer stock of its meals, such a material increase in demand reduced it quickly. Parsley Box worked hard with its food and packaging suppliers to strengthen its supply chain, even co-investing with one supplier in a new production line.”
Catharine Flood, Corporate Strategy Director for Scottish Mortgage, said: “Food delivery platform Meituan Dianping has seen demand for their services rising as a result of this pandemic. In China, Meituan’s yellow-jacketed couriers zipping around city streets on scooters had already become synonymous with the rapid growth of the region’s online food delivery market. Its order rate recently reached a peak of 30 million a day. One impact of COVID-19 has been a shift from Meituan’s takeaway services towards its grocery delivery arm which saw a huge surge as customers opted to cook for themselves. Meituan has also been developing artificial intelligence systems-based autonomous driving technology. It has used its driverless ‘Modai’ delivery vehicles to distribute food and groceries while minimising human-to-human contact to help to reduce the risk of transmission of the virus.”
Changing public perception
Joshua Henshaw, Investment Executive at Mobeus, Manager of the Mobeus VCTs, said: “Before COVID-19, just 7% of all UK supermarket shopping was done via online delivery and many subscription box services were perceived as inflexible. As demand for home delivery inevitably skyrocketed, people sought out alternatives to unobtainable supermarket slots and many actively chose to support local or smaller businesses. Just a few weeks later, there has been a paradigm shift; consumers have direct experience of food delivery as easier, more convenient and safer than shopping in person, and have developed powerful loyalty to smaller brands and businesses. At the same time, the drawbacks are either more acceptable – it’s preferable to have healthy, quality food in the house than to go out for the sake of choice – or have temporarily disappeared as the majority of households can accept deliveries at more times than before. While rampant stockpiling has thankfully stopped, more consumers are recognising the importance of having a store cupboard of long-life food.”
The long-term effect on the food delivery industry
Philip Webster, Fund Manager of BMO UK High Income Trust, said: “With the Competition and Markets Authority clearing the merger of Just Eat and Takeaway.com on 22 April and the new group raising €700m in capital, the business seems well placed to retain its strong market position. Its main competitors, namely Deliveroo and Uber Eats in the UK, are still inherently loss-making businesses, which will need to figure out a way to become profitable and remain competitive. Amazon’s recent injection of capital into Deliveroo in late April 2020, something which could be described as a bailout, displays the precarious position Just Eat and Takeaway.com’s competition find themselves in. In the shorter term, whilst we would expect sales to fall as lockdown measures are eased and consumers make up for lost time in restaurants and pubs, the customers they have acquired over this period may turn out to be ‘sticky’, which bodes well for the future.”
Walter Price, Portfolio Manager of Allianz Technology, said: “We have pulled forward the penetration curves by at least a year, but the adoption will continue to grow after COVID. Depending on life after lockdown, the industry may do very well if COVID proves persistent.”
Catharine Flood, Corporate Strategy Director for Scottish Mortgage, said: “Delivery Hero, established in 2011 in Berlin by charismatic founder and CEO Niklas Ostberg, has gone on to become the largest food delivery platform outside China. Scottish Mortgage invested as it became a public company in June 2017, as the emerging trend for consumers seeking restaurant-style meals in the comfort of their own homes started to expand. This shift in behaviour has underpinned strong growth for Delivery Hero since then. Today, it has over half a million restaurants on its platform, operating through 30 brands in 40 countries, dealing with over 1,000 orders a minute. As the company scales its network, Ostberg’s focus remains on keeping both its restaurants and customers happy by personalising the service they receive.
“Again, the pandemic may well accelerate Delivery Hero’s near-term growth, as more restaurants and customers sign up to its platform, but the relevant question for us as long-term investors is whether the immediate impacts from the pandemic lead to longer-term shifts in behaviour.”