UK company revenues plunged by a record £349bn in the first year of the Covid-19 crisis but a strong recovery is under way, according to a survey.
Public companies’ income dropped by 19% in the 12 months to March 2021, JO Hambro Capital management said. The impact was deeper and more widespread than in any recent downturn and was eight times bigger than during the financial crisis.
Sales fell at more than half of UK listed companies for four straight quarters, causing total profit to plunge 61% in the year. In the first three months of lockdown 46% of companies posted losses – an unprecedented event.
Oil revenues fell furthest, down by 41% or £158bn, and accounted for almost half the decline as oil prices collapsed. Consumer discretionary companies lost a third of their sales, with travel and leisure companies hardest hit, losing three fifths of their revenues to travel bans and hospitality closures. Housebuilders, mining groups, banks and media companies all suffered double-digit declines.
The low point was reached in September and since then profits have recovered quickly as companies have adapted, Hambro said. By early spring 2021 revenues were just 5.8% lower than the first quarter of 2020 before the pandemic took hold.
Despite lower sales, 57% of companies reported higher profit in the first quarter. Trading in the first half of 2021 will show a “dramatic” recovery and in the year to March 2022 earnings will roughly double to about £110bn, Hambro predicted.
The investment manager said UK stocks are cheap and valued at deep discounts to historical averages an international peers. Private equity firms have been swooping on UK companies to pick up bargains with share prices depressed by the pandemic and Brexit.
Alexandra Altinger, Hambro’s chief executive for the UK and Europe, said: “After the shock of the pandemic the change of mood in Britain’s boardrooms is palpable. The recovery is now very strong indeed: high government spending, low interest rates, strong consumer demand, resurgent employment and a buoyant housing market mean that profits are now growing very fast, much faster than market expectations.
“Surging profits are complemented by enticing valuations. Valuations across the stock market appear cheap, and in some segments very cheap.”
