The stock market may have been a profit machine since the financial crisis, with the FTSE 100 almost doubling since the lows of March 2009 when it languished around 3,500, but UKcompanies havent been so profitable. Happily, thats about to change.
Outlook bright
New research shows that the outlook is nowimproving withUK companies on course to reverse a long period of falling profits. However, you may haveto look beyond familiarfavourites in the FTSE 100 if you want to share in the next legof the profit surge.
The latest Profit Watch UK from The Share Centre analyses FTSE 350 companies that reported their annualresults between July and September, and found two-thirds reporting rising sales, with the average up9.1%.UK plc operating profit climbed 7.4% with well over half reporting healthy growth, discount pharmacy although three-fifths did so at a lower margin, asprofits rosemore slowly than sales.Housebuilders did particularly well, with their revenues increase on the back of a strengthened property market.
Mining misery
These figure exclude mining giant BHP Billiton, whose troubles have blackened an otherwise bright picture, as itreported a 4.9bn pre-tax loss. The troubled mining sector https://cialisonline-genericrxed.com/ posted total losses of 17.1bn as companies struggled to cut their fixed costs in line with falling revenues.
This is a world away from the 49bn profit they posted in 2011 but The Share Centre suggests the mining sectormay now be ready to fly againas commodity prices strengthen. The miners werent the only companies to suffer reversals,Sky and Diageo also booked lower exceptional income than in 2015.
Smaller is beautiful
Mining stocks arentthe only big boys to find the going hard. Other multinational companies also struggled, notably in the discountpharmacy-rxstore.com oil and gas, and banking sectors. However, Helal Miah, investment research analyst at The Share Centre, reckons FTSE 100 performance should revive once the impact of the devalued pound feeds into companyresults, as https://cialisonline-genericrxed.com/ this should boost the value of their overseas profits.
The FTSE 250 has beenthe real star.With lower exposure to global headwinds and troubled sectors, mid-caps have yet again postedstronger revenue and profit growth thantheir large-cap peers. Mid-cap sales rose 11.2% on an adjusted basis, compared to a 6.7% fall among the top 100 companies. Profits showed a similar pattern. FTSE 250 companies have been insulated from global volatility, with far lessexposure to the troubled energy, banking and mining sectors. This could change if Brexit undermines the UKs relative economic strength, and companies exposed to British consumers couldtrail those with international earnings streams.
Shining lights
Some sectors will always do better than others. Financials may continue to struggle, particularly if British banks lose EU passporting rights, and pharmaceuticals couldbe hit by 4 corners pharmacy greater generic competition. However, with returns on cash near to zero, and the prospect of a Trumppresidency threatening to burst the 30-year bond bubble, the fact that the UKs major companies are still piling on the profits is something to celebrate.
Brexit remains a wild card in this. So far itsimpact has been relatively smallbut that may change when Prime Minister Theresa May triggers Article 50.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Diageo and Sky. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
