Two thirds of UK companies have seen their sales rise by 9.1 per cent this year after a long period of falling profits, as analysts predict a positive future for UK-based corporates.
According to the latest Profit Watch from The Share Centre, UK company revenues fell by 0.8 per cent overall this year, dragged down by the multi-billion-pound losses at mining firm BHP Billiton. Excluding BHP Billiton, the UK’s largest 100 companies saw revenues grow by an average of 7.3 per cent.
The commodities sector has continued to struggle, with mining firms posting losses of £17.1bn over the past 12 months, down significantly from the sector's £49bn in 2011. Meanwhile, mid-cap sales rose by an impressive 11.2 per cent on an adjusted basis, compared with a fall of 6.7 per cent among the UK’s large-cap firms.
In total, UK plc profits rose by 6.8 per cent, and more than half of all companies reported profit increases. Analysts have suggested that the devaluation of the pound will boost profits at multinationals, improving next year’s bottom line.
“Multinationals have suffered from a variety of sector specific global headwinds, while companies with greater exposure to the UK have outperformed in sales and profits in recent years, buoyed by the UK’s relatively strong economy. This trend should now reverse on the back of changing economic and current conditions,” said Helal Miah, investment research analyst at The Share Centre. “Since the multinationals make up a huge portion of sales and profits amongst UK listed companies, it means UK plc profits may have finally bottomed out and should begin to rise.
“UK multinationals will now see their global profits translate at more favourable exchange rates to the pound, while exporters may benefit from sterling’s devaluation, although gains will depend on their reliance on international supply chains.”
The Share Centre’s analysts have also suggested that Donald Trump’s victory in the US election may actually benefit a number of London-listed companies, including Randgold Resources, Polymetal and Fresnillo, which has its operations in Mexico but reports revenues in dollars.
“Defence companies could also see an increase in demand as defence spending in general picks up and as the US becomes more isolationist,” added Miah. “It is possible that Middle Eastern countries will switch to increased orders of military equipment from British companies such as BAE and Cobham.
“Donald Trump has also pledged to improve infrastructure and this could be good for construction materials companies such as CRH and equipment hire company Ashtead which have significant exposure to the US.”