11 June 2020

Am I normal?

Head of research, John Royden looks at a bellwether stock in his quest to determine when normality returns.

by John Royden

Head of Research


Most of us want life to go back to normal. I want to walk about my local high streets and shops, without wearing a mask. I don’t want to queue two metres apart for an hour outside the super market. I want to drive my car and fly to France for my summer holidays and visit my daughter in Canada. I want the pubs, restaurants and cinemas to open. I want to see my friends and hug my daughters. I want my mother to be free of her complete isolation. I don’t want either myself or others to be fearful of the virus any more. 

I want people back at work, so that we can all pay our mortgages, rent and local taxes. 

I want to see electricity usage and road congestion return to pre-COVID 19 levels. Well … perhaps not with road congestion. I want GDP to be back where it was and government tax receipts flowing to pay off their elevated levels of debt. I want companies to be paying their employees again and not the government stepping in with my tax receipts.

Am I normal with my aspirations?  What is normality? How do we measure it and when do we know when we have got there? What’s the quick all-encompassing metric to watch? I am often asked what my bellwether stocks or indicators might be, and when it comes to getting a measure of the consumers’ appetite to spend, looking at certain leisure stocks can help.

One company we look at is Disney. Best known for making and sells films, but also for running its Parks & Resorts division. Disney also own a variety of other TV and film production businesses, including ESPN (sports), Hulu and Hotstar as well as 21st Century Fox.  Film banners include Pixar, Marvel, Touchstone and the Star Wars franchise.

Disney’s net income was down by over 90% in Q1 of this year and they furloughed over 100,000 staff and cancelled their dividend.  However, this week, they opened, albeit tentatively and with limited capacity and a range of restrictions, their Disneyland park in Shanghai. The atmosphere was apparently muted, but tickets sold out in a matter of hours and the sign that normality might be approaching was not lost on investors. Clearly, there are no indications of when their other parks around the world will open but, as and when we see families brave enough, free enough and flush enough to pay for the travel to stand in queues at the Big Thunder Mountain Railroad, I will declare that we are back to normal again. 

Disney is a good bellwether on another metric as well. As I wrote in our last edition of Prospects, JM Finn’s quarterly client periodical, the Disney film business model involves selling its films to cinemas for a few months and then digitally (on DVDs or via digital purchase). Previously, Disney used to make the films available to subscription video businesses like Netflix. Disney has stopped this final leg of the distribution chain, cancelled the Netflix contract, and are now selling their content direct to consumers across the Disney+ channel. They hope for 75 million subscribers by 2024.

After the first quarter since the geographically limited launch of Disney+, they had registered 26.5 million subscribers, which then, thanks to the global lockdown, swelled dramatically to 54 million by 6th May - a level of success, which exceeded even Disney’s own expectations.

What will be interesting to watch will be whether, as and when the lockdown restrictions are relaxed around the world, those subscribers leave and flock back to the cinema. Disney are clearly wary of this and have subsequently announced that they will release a film version of Hamilton, a year before schedule. By offering new and exciting content to their new subscribers, they hope they will retain these new customers once normality returns.

As ever, it is not quite as simple as watching a stock’s price performance, but by understanding the key drivers within a business and monitoring them closely, you can gain an excellent insight into the broader consumers’ current frame of mind and therefore gain a more informed view of how the local economies are likely to perform. So as signposts towards normality go, Disney is one to watch.

This article should not be seen as a recommendation and does not take into consideration an individual’s investment objectives and financial circumstances. Any views expressed are those of the author. The value of securities and their income can fall as well as rise and past performance should not be seen as an indication of future performance.


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