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We are initiating our 2021 S&P 500 price target of 4050, representing 12.2% upside from current levels (10.8% annualized). This is based on EPS of $168 in 2021 (previously $155), and $190 in 2022 (previously $170). These estimates imply EPS growth of 20% and 13% in 2021-22. Our target suggests multiples will contract from 21.9x today to 21.3x by year-end 2021, as earnings grow into currently elevated multiples.

Our 2021 forecasts are designed to answer a simple question: what will the future (2022) look like in the future (end of 2021). From this perspective, we are forced to deemphasize the near-term, focusing instead on the return to a more normal world. As we look toward 2022, the virus will be a fading memory, the economy robust, but decelerating, the yield curve steeper and volatility lower, and the rotation into Cyclicals largely behind us.

• TECH+ (Overweight): We believe the fundamental case for TECH+ remains compelling with faster sales growth, superior margins, robust FCF, and low leverage, and recommend a positive bias toward this group on an ongoing basis.
• Financials (Overweight): Consistent with a typical recovery, Banks should benefit from improving credit conditions, increasing transaction volumes, and a steepening yield curve. The group is adequately reserved, likely resulting in a greater return of capital. Sector valuations are extremely cheap and estimates conservative for the group as a whole.
• Cyclicals (Neutral): We are positively inclined toward economically-sensitive groups, and believe their momentum should persist over the near-term. However, the greatest sequential improvement in economic activity is well behind us and moderating. Despite a strong expected EPS bounce, their 3-year CAGR is underwhelming.
• Non-Cyclicals (Underweight, Health Care Overweight): Non-Cyclicals should lag in an improving economy as falling volatility supports higher P/Es for riskier assets, and rising rates makes their high dividend yields less appealing. The one exception is Health Care which should outperform given a more robust earnings trend.

While optimistic, we see a number near-term risks: (1) investor optimism is extremely extended, (2) production and distribution challenges could hamper the vaccine’s rollout, (3) rising case counts could result in shutdowns, disrupting the holiday season, and (4) stimulus could remain politically unattainable. On a positive note, the successful vaccination of seniors and front-line workers could expedite the renormalization process well before herd immunity is achieved.

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New chief plans to sell some sites or convert them into warehouses and delivery centres

British Land said it has sold more than £400m of retail properties since the pandemic erupted and plans further disposals, as the FTSE 100 group revealed the damage the crisis has inflicted on its portfolio.

The group, which is best-known for its office buildings, including London’s Broadgate, said that the overall value of its portfolio had fallen from £11.2bn on March 31 to £10.3bn on September 30.

Its retail portfolio suffered the most, losing 15 per cent over the period for a valuation of £3.2bn at the end of September, British Land said on Wednesday. Since then, the UK government has imposed a further lockdown on all non-essential retailers in an effort to combat a resurgence of the virus.

Reflecting the fact that office properties have generally been hit less hard by lockdowns, British Land said office tenants had paid 97 per cent of the £48m in rent they owed during the period. Retail tenants paid just 62 per cent of the £64m they owed.

Colm Lauder, an analyst at Goodbody, said that the property group was “increasingly becoming a London office specialist”. It had “made real progress where its come to [retail] disposals, despite having an investment market that’s largely paralysed as a result of Covid”, he added.

Simon Carter, who takes over as British Land chief executive this week, said the group would look to repurpose its retail properties where selling them off was not possible.

Like rival Land Securities, British Land would seek to capitalise on the boom in ecommerce by turning some retail properties into warehouses and delivery sites, said Mr Carter.

Overall, British Land fell to a pre-tax loss of £757m for the first half of its financial year. That compared with a loss of £440m in the same period a year ago. Revenues fell to £255m from £328m.

Shares in British Land were down almost 4 per cent in early trading on Wednesday. In common with other companies disrupted by the pandemic, the group’s stock has surged since Pfizer and Germany’s BioNTech revealed a breakthrough in the development of a Covid-19 vaccine early last week, climbing more than 30 per cent.

The news sparked optimism that shoppers may soon return to high streets and employees to their offices. British Land said that just a tenth of workers across its portfolio were at present heading into the office.

“The vaccine is great news but there’s still a lot to navigate through to get it. The reaction of the share price demonstrates how Covid-specific [investor concerns] were,” said Mr Carter.

Despite the recent rally, shares in British Land remain some way below the £6.28 at which they were trading at the start of the year.

• Microsoft co-founder Bill Gates said Tuesday that he predicts over 50% of business travel and over 30% of days in the office will go away in the pandemic’s aftermath.
• Moving forward, Gates predicted that there will be a “very high threshold” for conducting business trips and
• there will always be a way to work from home.

“My prediction would be that over 50% of business travel and over 30% of days in the office will go away,” Gates told Andrew Ross Sorkin during the New York Times’ Dealbook conference.

Moving forward, Gates predicted that there will be a “very high threshold” for conducting business trips now that working from home is more feasible. However, some companies may be more extreme with their efforts to reduce in-person meetings than others, he said.

Gates, whose foundation has been working to deliver a coronavirus vaccine to people most in need, said during a new podcast, “Bill Gates and Rashida Jones Ask Big Questions,” that he’s had a “simpler schedule” due to the pandemic now that he doesn’t travel for business.

The philanthropist and tech executive, who appeared alongside Pfizer CEO Albert Bourla during the livestreamed conference on Tuesday, said he’s already held five virtual roundtables this year with pharma executives — a meeting that’s usually held in person in New York.

“We will go to the office somewhat, we’ll do some business travel, but dramatically less,” Gates said.

The pandemic has devastated air travel demand, particularly for lucrative business trips. Business travelers before the virus accounted for half of U.S. airlines’ revenue, but just 30% of the trips, according to Airlines for America, an industry group that represents most U.S. carriers.

However, Microsoft executives have predicted that business trips will make a rebound, even as the company moves to make air travel more sustainable.

“We believe that as we return to the skies, the travel routes we’ve had ... will resume at the level they had been before,” said Judson Althoff, executive vice president of Microsoft’s worldwide commercial business, said in October.

The race to dominate the market for meat and dairy substitutes is heating up with packaged-foods giants launching new products and increasingly investing in alternative sources of protein.

Unilever UL -1.16% PLC, owner of Ben & Jerry’s ice cream and Hellmann’s mayonnaise, this week announced a target to increase its sales of meat-and-dairy alternatives to $1.2 billion over the next five to seven years—a fivefold increase from current levels.

It plans to sell more vegan and dairy-free versions of its mayo and ice cream and expand the Vegetarian Butcher, its meat-alternatives brand that supplies soy patties and nuggets to Burger King in Europe. It also is exploring algae as a potential source of protein.

Unilever’s move is the latest from a consumer-goods company capitalizing on surging demand for products perceived as more climate-friendly and humane. The global market for meat substitutes is forecast to hit $23.81 billion by 2023, a 28% rise over last year’s sales, according to Euromonitor. The milk-substitutes market will climb 23% over this period, the research firm estimates.

Unilever already sells vegan mayonnaise in 30 markets, and a pea-protein based vegan Magnum ice cream, which it says have sold well.

Nestle SA in September launched what it said was a plant-based version of a bacon cheeseburger, using yellow pea protein for the patty and plant-based fibers to resemble cheese. It has also started selling an oat-and-pea nondairy version of its Nesquik powdered drink in Europe.

Elsewhere, General Mills Inc. has invested in plant-based alternatives to seafood, while Kellogg Co. recently launched a new line of plant-based burgers, bratwurst and sausages. Danone SA, which owns the Alpro and Silk dairy-substitute brands, said in May it would create a new division dedicated to more than doubling its plant-based sales to the equivalent of almost $6 billion a year by 2025.

The moves mean many of the world’s largest food companies are now jockeying with startups like Impossible Foods Inc. and Beyond Meat Inc. BYND 2.16% for a foothold in a plant-based market that is growing much faster than that for traditional meat. Seeking an edge, companies are searching for protein sources—beyond existing alternatives like pea, rice mung bran and faba bean—that can offer lots of nutrients with a low environmental footprint.

Unilever has high hopes for a microalgae called chlorella vulgaris, which it says is rich in nutrients. The problem so far is that chlorella vulgaris tastes bitter because it is high in chlorophyll—the pigment that gives plants their color—hindering mainstream adoption. Unilever has invested in a biotech startup, Algenuity, that says it can reduce the chlorophyll content of microalgae without reducing the nutrients.

“It’s definitely worth experimenting with given it’s such an excellent source of protein in food,” Hanneke Faber, head of Unilever’s food business, said in an interview. Algae could be used in Unilever’s ice cream or soup, she added but said it was too soon to tell.

One concern for companies, including Unilever, is whether consumers will take to these lesser-used protein sources—what Ms. Faber calls “the yuck factor.” She previously worked at Stop & Shop owner Koninklijke Ahold Delhaize NV when the company experimented with using insect protein but says ultimately it didn’t take off because consumer acceptance was low. “That’s our challenge too,” she said.

Another big hurdle for Unilever and others developing meat-and-dairy substitutes are the legal challenges posed by these industries.

Last month, the European Parliament ruled that meatless products can continue to label themselves sausages, steaks or burgers, rejecting a meat-industry backed proposal to disallow this because it is misleading.

Ms. Faber said she was disappointed by a less-favorable ruling saying nondairy products can’t use terms like “cheese” or “milk,” even as reference points for consumers. ”Those things are really important because they are nudges” that encourage consumers to switch over, she said.

Big consumer groups muscle in on market for climate-conscious customers

Unilever is aiming to increase its annual sales of plant-based meat and dairy alternatives to €1bn in five to seven years, intensifying the battle for the plates of climate-conscious consumers.

The target far exceeds the €200m of sales the consumer goods group expects from plant-based substitutes this year. Unilever said its Vegetarian Butcher brand acquired two years ago was growing “explosively”.

Hanneke Faber, president of Unilever’s food division, which generated sales of €19.3bn in 2019, said: “It’s the right thing for the world to figure out how we can eat more plant-based, versus eating as much animal protein as we do today. That way we may not lose the planet.”

Unilever will focus on products such as milk-free ice cream and mayonnaise as well as soyabean and algae-based meat substitutes.

The group was a relative latecomer to technologies, started by “food-tech” entrants, which use plant proteins to replicate the taste and texture of meat, but with lower greenhouse gas emissions. It scored a coup a year ago when it was chosen over rival Nestlé and specialist Beyond Meat to team up with Burger King in Europe on a plant-based burger.

Ms Faber said: “I think we are at the very beginning, for meat and dairy substitutes, of their market growth — they are still tiny compared to the overall meat and dairy markets. In the most developed countries it’s 5 per cent of meat or dairy — some predictions say it could go to 50 per cent.”

She added: “It’s a very, very crowded market, but we’re up for it.”

Multinationals pushing into this area — with their production and distribution capacity — would probably result in cheaper plant-based products and eventual consolidation, said industry experts.

“The big boys are entering the stage and there will be large movements in the industry,” said Frank Mitloehner, professor of animal science at University of California, Davis.

Plant-based foodmakers have battled for market share in supermarkets and through tie-ups with restaurant and fast-food chains.

Burger King has a US partnership with Impossible Foods, while Beyond Meat is developing products with McDonald’s in the US for its McPlant platform. Nestlé supplies McDonald’s German outlets with plant-based burgers.

Unilever is open to acquisitions but is mainly focused on organic growth, Ms Faber said, with a focus on meat substitutes and milk-free ice-cream and mayonnaise, rather than milk substitutes such as those produced by rival Danone.

Unilever produces soyabean-based imitation meat and will also look to use microalgae nutrients through a partnership with UK-based specialist Algenuity. “Algae is going to have a big role in providing nutrition to us all,” said Ms Faber.

Soy does have links with deforestation, but Ms Faber said Unilever was committed to remove deforestation from its supply chain by 2023.

Meat alternatives are expected to become a $21bn industry globally this year, a rise of 13 per cent, while milk substitutes will reach $16.9bn, up 5 per cent from last year, according to Euromonitor. 

Consumption of such alternatives has kept rising during the pandemic: sales of meat substitutes were up 61.5 per cent in the UK in the year to August 5 from a year earlier, according to Nielsen, and up 140 per cent in the US.

Shares in Beyond Meat plunged last week, however, when it reported far lower third-quarter sales than analysts had expected, saying consumers had decreased purchases after filling their freezers at the start of the pandemic, while restaurant and fast-food chains continued to suffer.

Unilever also said it would halve food waste in its direct global operations by 2025, five years earlier than its previous pledge.