The Big Picture
Larger companies, larger profits
100 120 140 160 180
20 40 60 80
Revenue Index
Pre-Tax Profit Index
Source: The Share Centre
UK public company profits expanded for the tenth successive quarter at the beginning of this year, but behind the headline figure there was a mixed picture, as growth remains heavily con- centrated in the hands of some of the country’s largest listed companies. These businesses reported an 11.2% rise in prof- its, alongside an 8% improvement in revenue. Yet the picture appears to be bleaker for firms outside the group. Their profits plunged by -17.6%, according to the Share Centre’s quarterly profit report. UK plc’s profit growth continues to be predomi- nantly driven by the oil and gas industry. The big- gest oil firms saw their pre-tax income grow by two-thirds while other sectors, telecoms and industrials in particular, reported a sharp decline in profitability over the past year.
While profit figures show a stark divergence between those towards the top of the market cap table and those lower down, underlying revenue trends are remarkably similar, with the top 40 firms reporting lower revenue growth of 7.7%, compared to 8.8% by the other firms, reflecting a growing profit margin for the largest multi-na-
tionals. According to Richard Stone, the Share Centre’s chief executive, the increasing concen- tration of profit growth in the hands of the big- gest firms suggests that UK plc might be in the late stages of its economic cycle. “Growth may be harder to come by, but that need not be a reason for pessimism on UK equities,” he added. “Even with little profit growth over the last decade or so, Britain’s companies have gener- ated an enormous £767bn of dividends since 2009.”
Indeed, UK dividends rose by 15% to £19.7bn in the first quarter of 2019, boosted again by special dividend payouts from mining and energy firms, according to Link Asset Services.
Shareholders also profited from favourable exchange rate effects, which account for almost two thirds of underlying dividend growth, Link said. The firm lowered its underlying growth forecast for this year to 3.9% from 5.3% in Janu- ary. While dividends among blue chips are expected to rise this year, several cuts in May, including by Vodafone and Marks and Spencer, suggest that modest revenue forecasts in some sectors represent a challenge for shareholders.
12 | portfolio institutional | May–June 2019 | issue 84
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