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Client Update - 10th June 2022

When the CEO of Heathrow Airport, John Holland-Kaye, announced there would be further flight delays expected, I wasn’t really concentrating. When he then said “for another 18 months”, he caught my attention. This is the length of time he felt it would take to recalibrate the sudden post pandemic demand side of travel with the COVID weakened supply side. At the height of the pandemic airlines, airports and support services dramatically cut costs and removed staff – over 10,000 workers were cut by BA alone. Such was the pent-up demand for a foreign holiday, two months after restrictions were formally lifted, the travel industry is struggling to catch up leaving many passengers let down and stranded. Hiring new staff takes longer than in many retail jobs due to training and the sensible security checks that are required with shortages being particularly prevalent in baggage handling. The great summer get away, appears to have stalled.

On the topic of stalling, the Boris led recovery of the UK post Brexit also appears to be on tricky ground. Whilst surviving a no confidence vote, with a much tighter count than many expected, the level of dissenters were such that the rhetoric of a lack of confidence remains and there seems to be several other opportunities available for party dissenters to challenge him once again this year. Ultimately, the Prime Minister has been presented with one last chance to try and solve the cost of living crisis and other pressing issues, but after the last few months, even Boris’s good ideas in the future, may be tarnished and dismissed.

As inflation continues, for now, to rise in the UK, focus remains on stocks that are able to pass these price rises onto customers, and this usually means the string brand names we deem “consumer staples” like Kelloggs and Kraft Heinz. Our investment team have favoured these staples in 2022 to date, a shrewd move as Kellogg’s delivered a 15% rise in profits last month. This increased profit was remarkably made on reduced product sales, as they were able to pass cost increases through to faithful customers. On a valuation basis, food stocks have normally traded on a discount to the S&P 500 (US Equity market) but this gap has closed as investors have shunned fashionable tech stocks and focussed on defensive names instead. This has been a good strategy to pursue from an investment angle, however this ability to pass on price rises may not last forever as the cost-of-living squeeze continues, and as the sector starts to look expensive, we are on the lookout for new opportunities.

As seems to be the case these days, there remains much to think about. Do have a good weekend.

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