The UK shares most likely to gain from Trump’s win

Which UK sectors and companies are set to feel direct benefits from the policies emerging from the White House in the months to come?

Following Donald Trump's shock White House win, and with markets worldwide now heading downwards, analysts have been burning the midnight oil to tell us how the financial world will look a few months from now, and we've had a glimpse.

One key question is the extent to which Trump's policies may benefit companies this side of the pond. If they have direct exposure to the US, to emerging markets or rely on free trade for growth, then they're likely to gain, explains the team at Barclays.

Here's what to look out for.

Scaffolding for the infrastructure sector

Pledging to rebuild American infrastructure so it is 'second to none' and with a heightened possibility for domestic tax cuts and economic reforms, US-exposed heating and plumbing distributor Wolseley (WOS) and building equipment rental company Ashtead (AHT) should prosper.

Trump previously said he would 'at least double' Clinton's infrastructure spending. She wanted to increase the federal budget by $275 billion (£221 billion) over the next five years: direct investments would be allocated $250 billion, while $25 billion would create a new National Infrastructure Bank, which would itself support $225 billion in direct loans and guarantees.

'Doubling this would imply a one trillion dollar investment from Trump,' says Barclays analyst Paul Sullivan. 'Whether this is just hyperbole, however, we do not know at this stage.'

Even so, as 81% of Wolseley's profits are generated in America, the group is exposed to currency risk if the dollar weakness. Its Ferguson plumbing supplies operation and market leading position in big civil plumbing projects are a big positive, but as the core businesses relies on consumer and business spending more than infrastructure investment, post-election consumer confidence will be more important.

Ashtead, the second-largest equipment rental provider in the US, generates over 85% of revenue and 90% of profits there. As most of its construction clients operate in the non-residential market, any increase in infrastructure spend should drive business. With high operational gearing, management target a 60% drop-through from revenue to cash profit.

Currency risk

In this transitionary period, the dollar faces risks versus other developed market currencies. Those with the highest exposure include Ashtead, Wolseley, Bunzl (BNZL), Experian (EXPN) and Diploma (DPLM) - as shown in the chart below (click to enlarge).

However, it's a problem for those that earn big chunks of their revenues in emerging markets, with Mexico, unsurprisingly, most vulnerable.

graph 1

Employing structural growth

Another of Trump's policies is to strengthen America's manufacturing industry, which will provide structural growth to US recruiters over a number of years. With between 21-24% of Adecco (ADE) and Randstad's (RSH) turnover coming from the US, both of these companies should benefit.

Although Hays (HAS) and PageGroup (PAGE) have divisions across the pond, they do not have the advantage of scale or have exposure to manufacturing and industrial jobs. Page also works in the trickier Latin America market and China, which could be more difficult now.

But the health of the economy is more important to recruiters in the short-term, and although fiscal stimulus should underpin job creation, business and consumer confidence will again be the heaviest influencer.

Testing, Certification and Inspection (TCI)

Driven by increasing globalisation and complex supply chains, Trump's protectionist policies threaten expansion of trade agreements. Trump will struggle to get support for withdrawing from trade agreements, but Barclays thinks the Trans Pacific Partnership (TPP) could be 'diluted or shelved completely'.

'The extent to which Trump can pursue this agenda is uncertain, but it is nonetheless likely to be a detriment to market growth drivers,' says Sullivan. 'From the perspective of the TCI companies, the consumer divisions are the most profitable parts of the portfolio, representing c60% of Intertek's (ITRK) profits (the most exposed) and c20-30% of profits across SGS (SGSOF) and Bureau Veritas (BVI).'

While increasing regulation and a boom in legislation has underpinned TCI growth, Trump's anti-regulation rhetoric is also a concern.

There will be limits to what he can do, but at least there should be progress and the introduction of further red tape will be scarce, especially in the oil and gas sector.

Oil & Gas

In a bid to make America 'energy independent', Trump wants to erase all the oil and gas regulation and policies put in place by the Obama administration. Exploration and production levels from minerals and oil & gas should rebound, along with the construction for the infrastructure.

'This should be beneficial to TIC Industry growth in the US, more than offsetting any potential drags from environmental revenues if some regulations are repealed.'

Applus (39A) is first in line to benefit, with decent oil & gas exposure and a tenth of its sales in North America. Intertek should also benefit, although SGS and Bureau Veritas have smaller exposures.

Sullivan concludes: 'We remain "overweight" Wolseley, Ashtead, Experian, Adecco and Randstad. We are more cautious on the TIC sector due to a more challenging growth profile and full valuations.

'On the contrarian side we are 'overweight' Aggreko (AGK) and Edenred (EDEN), but note the potentially negative foreign exchange impacts to emerging market exposure in the short term.'

Subscribe to Money Observer Magazine

Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.

Subscribe now

Add new comment