Go long sunscreen, perhaps? Barbecue sausages and patio furniture?
What about going short old people?
That idea comes via Brewin Dolphin analysts Sahill Shan and Chris Glasper in a note on Southern Cross Healthcare, Britain’s largest provider of care homes for the elderly.
Here’s a taster:
The current heatwave is reportedly leading to a dramatic increase in the number of 999 calls made and the DoH has issued special advice for the elderly and other vulnerable groups. A similar heatwave in France in 2003 caused 14,802 people - mostly elderly - to die from heat, according to the French National Institute of Health. A lack of air conditioning and night time temperatures staying high were both significant factors – similar to the UK situation at the moment.
Phew! And if you need further convincing, there’s the pestilence outperformance opportunity.
Secondly, and more worryingly, cases of the swine flu outbreak in the UK are doubling week on week and the Government has said could reach 100,000 per day by the end of August. This projection raises the possibility that millions of people will have had the virus even before the start of the traditional flu season.
The elderly are particularly vulnerable to flu and any outbreak over and above the “normal” flu season in winter could well lead to a spike in mortality rates.
The big problem for Southern Cross, of course, is that old people stop paying rent after they’re dead (or, as Messrs Shan and Glasper prefer to phrase it, the company has a “reliance on spot contracts, with no volume guarantees”.) The pair estimate group profit drops about 20 per cent for every percentage point occupancy falls.
So Brewin downgraded Southern Cross shares to a “reduce” on Friday, with a 124p price target. How has the stock reacted?
.