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We expect the online and delivery-orientated businesses to continue their strong performance post-lockdown. Of the closed subsectors, we believe low-cost gyms and bowling have the best economics and unit capacity to cope with operating under social distancing constraints. Also offering strong structural growth and having substantial liquidity in place, these operators are highly undervalued in our view. Too much risk has been priced in.

Under closure, all major costs should be reduced significantly. Closure is toughest on gyms and bowling companies as they would normally have low purchasing and labour costs (now mostly paid by the government), and high rent costs. However, rent costs (unlike rates, purchasing and most labour costs) have only been postponed.

However, this levelling of the playing field is only temporary. When the lockdown lifts, the low-cost gym and bowling operators will be the most capable of operating profitably in our view. This is due to having high gross margins and low labour costs (and less to lose from the CJRS ending).

In our view, low-cost gyms should be the first to exit the lockdown, followed by bowling. They both have huge unit capacity and, in the case of gyms, exercise may reduce the risk of Covid-19-related complications. Add to this 24/7 operating hours and increased working/leisure flexibility, and the number of members that can access low-cost gyms safely increases significantly.

Government intervention is required on rent to avoid a big reduction in jobs and supply in the restaurant sector, in our view. It is difficult for the government to isolate restaurants here.