There will come a point during the current economic cycle when it will be the perfect time to start investing again in businesses that lend – or funds that lend. Judging by corporate activity in the listed fund space that point may already be close. I’m not entirely convinced that we are there yet though. It seems to me that the worst is still to come in the UK and I am concerned that we could see a snowballing of defaults in the late autumn. But I’m happy to be proved wrong and one person who is a good deal more positive is Jeremy Grime, via his Daily Grime. On a side note Jeremy is now at Canaccord Genuity, which is great news.

Anyway, he thinks that the gloom on listed lenders is overdone. He points to share price activity at Provident which rose 27% after reporting a loss, OneSavingsBank which rose 15% as reported profits fell 14% while Arrow Global rose 40%. I must admit that last share price move has caught me by surprise – its on one of my watch lists. If investors think Arrow is past the worst, then I think its fair to argue that the outlook should be much brighter for everyone else. Jeremy argues that “this is the time in the cycle to own lenders. Credit quality improves as companies write the better risks while share prices are low. This is a travelling and arriving market. A time to benefit from fear.”

The table below nicely sums up the potential for big share price moves in listed lending sector in the next quarter.  My watch list would have on it Paragon, Morses and OneSavings.

Company Price Mkt Cap YTD P/Book Next Event
(p) (£m) % X
IPF 66 148 -59% 0.36 H1 8 Sept
Morses 60 81 -56% 1.1 Update 17 Sept
OnePM 18 16 -48% 0.28 FY 22 Sept
Close 1112 1115 -30% 1.2 FY 22 Sept
S&U 1490 179 -29% 1 H1 30 Sept
Arbuthnot 722 722 -46% 0.6 Q3 14 Oct
NSF 6.2 20 -71% 0.16 Q2 15 Oct
Secure Trust 640 119 -60% 0.46 Q4 15 Oct
OneSavings 302 1347 -30% 0.91 Q3 12 Nov
Amigo 13 64 -81% 0.38 H1 28 Nov
Paragon 354 914 -34% 0.81 FY 3 December
PCF 19 48 -46% 0.79 FY 4 December
Provident 244 621 -46% 0.83 Q3 4 December


WFH, WTF?? Please get me back in the office

I’m not sure about you but most senior (in rank and age) I talk seem to be still working from home, either full time or part time. By contrast nearly every sub 35 year old I talk to is absolutely desperate to get back into to an office ! That demographic has been royally screwed by the Covid emergency.

Back in the world of investment, the continuing WFH push by more experienced professionals must – I believe – have some real world consequences for listed property businesses. Most investors seem to have shrugged off these concerns, but I wouldn’t be so confident. It seems to me that we won’t be past the worst until spring next year.

In the meantime, it’s worth picking up on yet another excellent special report from Morgan Stanley analysts, this time on the WFH trends – this is I think the third iteration of their market data sets.

Their most recent report observes of office workers working from home during Covid, that 82% would like to do so more in the future (unchanged). However, the mix of demand has shifted slightly to more days at home: 36% would do this 1 to 2 days a week (last survey: 39%, first survey: 42%), 43% would do so 3-5 days a week (last survey: 40%, first survey: 39%).

Employer policy (vs. employee demand) also more generous? 64% of office workers (last survey: 60%) believe their employers will allow 1-2 days working from home (44%, last survey: 42%) or more (20%, was 18%). Geographic differences remain minimal. For our survey of recent corporate commentary on the topic, see here.

Willingness to share desks. Responses here remain inconclusive: 40% are comfortable with ‘hotdesking’ once Covid-related concerns have died down (last survey: 39%); 37% are uncomfortable (unchanged), with the remainder indifferent. UK workers remain most resistant. We see desk-sharing as an important component in any reduction in space demand (Exhibit 43).

New data on levels of returning to work – all countries increasing; UK still lagging. 74% of employees, and 70% of office workers (last survey: 72% and 68% respectively) have now returned to working at their normal location UK figures still lag; only 37% have returned, 3pp more than last survey.”

So, what’s the read across to property funds? The Morgan Stanley analysts are a tad cautious – “. Near-term stock valuation looks optically cheap in most cases; but we still fear investor appetite to play a recovery via offices could be offset by structural concerns; hence our few office Overweights are confined to the strongest economies (Alstria) and/or the strongest balance sheets (Gt Portland, Derwent).” I would echo that caution. The worst is still to come, especially as those second waves start to worry us in the autumn and winter. I’d be short most property funds as a result.

Working from home demand – if anything, the mix of demand has shifted modestly to more days at home

Source: AlphaWise, Morgan Stanley Research