It’s surreal to think that it’s been five years since the outbreak of COVID-19.
It heralded the era of lockdowns, face masks and social distancing, which threatened the very survival of many businesses and even industries.
When restrictions were brought in, nobody knew how long they’d last. Many companies took the precautions of asking the markets for fresh investment, even if it meant doing so at a relatively low valuation. Investors who backed companies during their hour of need were in some cases handsomely rewarded, but in others incurred losses, once again showing the importance of maintaining a diversified portfolio.
The pandemic also changed some of the ways we live and work, and gave the pharmaceutical sector the chance to shine. Here’s how the most affected sectors are faring five years on.
This article isn't personal advice. If you're not sure an investment is right for you, seek advice. Investments and any income from them will rise and fall in value, so you could get back less than you invest. Ratios also shouldn't be looked at on their own and past performance isn’t a guide to the future.
Pharmaceuticals
The unprecedented speed at which vaccines and treatments for coronavirus were rolled out played a vital role in the return to normality.
It also provided bumper profits for some of the key developers. But demand for these products proved to be short-lived. For those that could demonstrate underlying business strength, it’s not proved to be a problem. For others, it exposed shortcomings in their product portfolio.
The Pfizer-BionTech vaccine was the world’s best-selling biopharmaceutical product in both 2021 and 2022.
Sales have since dropped off sharply. Excluding COVID-19 medicines, sales were only up 7% to $46bn in 2023, with underlying profit plummeting 72%, even with the contribution from those medicines.
2024 numbers should see an improvement but some of that’s down to one of the biggest pharma acquisitions in recent history, and it’s too early to tell if that investment’s paid off.
AstraZeneca’s COVID-19 vaccine didn’t quite enjoy the same success as Pfizer’s and has now been removed from the market.
But the group is seeing strong growth in its diverse portfolio of speciality medicines and is making strong progress towards its ambitious medium-term growth targets.
That’s seen it take the crown as Britain’s most valuable company, a title it still holds despite high-profile corruption allegations against senior staff in China.
Travel and Leisure
Few sectors felt the impact of the pandemic more acutely than the travel and leisure sector. Entire cruise fleets and airlines were grounded, and the tourism trade ground to a near-complete halt.
At the same time pubs, restaurants and entertainment venues either had to shut their doors for prolonged periods or severely restrict visitor numbers. This saw many businesses hang up the closed sign forever, and for those that survived, many emerged with huge debt balances.
But adversity can also present opportunity.
The supply that emerged from these markets has enabled the stronger players to take market share. And pent-up demand after the trauma of being with your family 24-7, combined with a build-up of excess savings saw demand for the good things in life come roaring back despite soaring inflation.
That’s been particularly true in travel, with airline traffic now above pre-pandemic levels. Demand for holidays, cruises and memorable experiences continues to boom. Businesses like Disney, tour operator TUI, cruise company Carnival, and British Airways parent IAG are all benefitting.
The better operators in the pub sector are also prospering. But with debt levels still high, there’s extra pressure for some of these companies to keep delivering, and in many cases, dividends remain off the table.
Contract caterer Compass saw underlying revenue plunge 19% in 2020, but the pandemic has accelerated trends in outsourcing and business has since recovered strongly.
Oil & Gas
When the world stopped moving, its thirst for fuel also dried up leading to a crash in the oil price.
The re-opening of borders and Russia’s invasion of Ukraine subsequently saw prices surge to the highest levels in over a decade.
This ushered in a period of huge profits and cash generation with a large chunk of those spoils being returned to shareholders. More recently the market has stabilised.
Margins in the refining end of the industry have also come under pressure, so there’s not as much cash about as there was. But investment commitments in new production remains high, which raises some questions about the sustainability of shareholder returns.
The energy transition complicates matters further.
Greener sources of energy are an area where the industry has struggled to generate profits. We welcome the improved discipline the industry is showing towards investment opportunities in new technologies. But it’s a tricky balancing act.
If the transition accelerates, it could result in lower demand for the company’s core products. This could impact not just the performance of existing assets, but also returns on the current round of investment spending in hydrocarbons.
Those companies with strong balance sheets and lower production costs are best placed to both cope with fluctuations in commodity prices. They can also prioritise shareholder interests by either returning value, or investing in both traditional and future growth opportunities.
Financial Services
The potential for a lengthy period of economic malaise saw investor sentiment towards the financial services plummet during the pandemic.
But the global economy has managed to avoid a deep recession, and levels of capital across both industries are stronger than pre-pandemic levels.
In traditional UK banking, loan defaults are under control, and margins on lending are holding up better than anticipated, with interest rates coming down slower than expected.
What’s more, the pace of consumers switching their deposits to more costly longer-term accounts is slowing.
Lately investment banks have benefitted from increased levels of deal activity and equity trading. Meanwhile, some areas of the insurance industry have seen trading conditions improve.
The overall picture provides some comfort around the attractive yields the sector has to offer.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Investments rise and fall in value so investors could make a loss.
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