UK-listed companies that reported their annual results in the third quarter saw sales and profits climb substantially, according to the latest Profit Watch report from The Share Centre.
The top 350 companies’ revenues rose by 17.3 per cent to £113.1 billion, the biggest jump since 2011. Half of the £16.7 billion increase was down to BHP Billiton, which benefitted from weaker sterling and a rebound in commodity prices.
Even without the BHP Billiton effect, revenues soared 11.5 per cent year-on-year, as over 90 per cent of companies grew their sales. Industrials and housebuilders were supported by a weaker pound. Strong sales from Sky boosted the media sector, also given a helping hand by the weak pound.
Meanwhile, the retail sector saw sales rise, partly on the back of new store openings, but profit margins were lower. Pre-tax profits from Dunelm and Sports Direct plummeted by close to a quarter year-on-year.
Helal Miah, investment research analyst at The Share Centre says: ‘Strengthened demand abroad is an important part of the story, bringing higher commodity prices and improved consumer and corporate confidence – especially in Europe.’
But he cautions that the domestic picture is more nuanced. ‘Housebuilders’ results suggest the economy is in rude health, but these companies tend to lag the economic cycle, and their forward-looking statements are much less positive. Retailers are the canaries in the coal mine. While their sales grew strongly, this came at the expense of lower margins as consumers’ spending power was squeezed by higher inflation and low wage growth.’
Currently, inflation stands at 3 per cent, meaning consumers have less disposable income to spend, which in turn is set to slow down economic growth.
The UK is lagging behind developed world counterparts in terms of growth, with Brexit-related uncertainty still casting an ominous shadow. Further, investors are turning to global and European funds, while UK fund sales are negative.
Miah adds: ‘A slew of profit warnings in the third quarter points to potential trouble ahead. Rising import costs will intensify pressure on real incomes, while Brexit-related uncertainty drags on the economy. Productivity remains in the doldrums. Domestically-sensitive stocks are now underperforming their global peers and this is likely to intensify as global demand grows faster than the domestic UK economy.’
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