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Post-Brexit sterling weakness caused UK company revenues to rise for the first time in four years.
Revenues for UK plc grew 4.2% to a combined £1.11 trillion over the first three months of the year. This represents the first increase since 2013. Revenues grew at their fastest rate since 2010, according to The Share Centre’s latest Profit Watch report.
The struggling pound may not have done much for domestically-focused companies, but it certainly provided a welcome boost for Britain’s largest multi-national companies and exporters. Two thirds of companies analysed by The Share Centre report profits and revenue in dollars or euros, which added £77 billion to the top line.
However, when the effects weaker sterling are stripped out, revenues fell overall.
The encouraging performance from UK companies has not gone unnoticed by investors, who piled into UK stocks in March. According to data from the Investment Association, UK All Companies funds were the best-selling sector in March. This was the first time the sector has topped the charts since 2013. Investors ploughed £650 million into the funds, marking the end of a year-long trend of withdrawing money from UK equity strategies.
Oil, miners and banks represent the three biggest sectors in the UK. A drop in the oil price last year caused oil company revenues to fall by £27 billion over the year to £317 billion, marking the fourth year they have fallen. Miners and banks, on the other hand, saw revenues grow. In the mining sector, income rose by 5.9% to £174 billion, with the exchange rate adding £18 billion.
Bank revenues also climbed 9.6% to £168 billion for the first time since 2009. Of the major banks, HSBC and Standard Chartered benefited from a weaker pound.
‘With the world economy now enjoying synchronised growth, and monetary policy beginning to normalise, the environment for the banks is increasingly positive,’ explained Share Centre analyst Helal Miah.
Consumer goods companies and housebuilders also enjoyed revenue growth, alongside healthcare stocks and pharmaceuticals enjoyed growth after what Miah described as ‘six lean years’.
‘Encouragingly, 13 sectors increased revenues compared to six that saw declines,’ he said. ‘While some of this is due to the effects of the weaker pound, it also reflects improving trading conditions for many companies.’
While the UK’s largest companies, which derive a large portion of their earnings overseas, benefited from the weak pound, mid-caps saw revenues increase the most.
‘Mid-cap revenues rose 6.1%, compared t o 3.9% among their large cap peers, as domestically-focused firms profited from the relative strength of the UK economy.’
He expects UK-focused mid-caps can continue to outperform but notes they are vulnerable to an economic slowdown, particularly if inflation curtails consumer spending.
The positive revenue figures for listed UK companies may have been ‘airbrushed’ by exchange rate effects, but Miah believes there could be more good news if global growth remains positive, oil and commodity prices prove resilient and monetary policy normalises.
‘When we peel back the veneer of exchange rate gains, recent results are nevertheless encouraging,’ he said.
‘Although the top 100 firms are still struggling to grow sales, the sight of healthier operating margins is very welcome, and reflects an improved ability to manage costs. It also means they are well positioned for the improving trading conditions that will accompany the uptick in global growth.’