Despite suffering a record decline during the COVID-19 pandemic, revenues for UK companies are rebounding rapidly and could see a strong run going forward, according to new data.
In a report published on Wednesday, asset manager JO Hambro said in its new UK Profit Index that the pandemic had caused a “record decline in UK PLC revenues”, which fell 19% to £349bn between April 2020 and March 2021.
The report also highlighted that the impact of the pandemic and subsequent lockdown restrictions had been “deeper and more widespread than any downturn in recent history”, with over half of all listed UK firms seeing their sales fall.
As a result, profits for UK businesses dropped 61% in the first 12 months of the pandemic, with asset write-downs inflicting a particularly heavy impact.
The report said the impact on revenues had been “over eight times larger than during the global financial crisis, when revenues fell £42bn peak to trough, and more than twice as large as the decline that accompanied the commodity crash in 2015”.
“In each of those downturns, the revenue impact was focused on a narrower range of sectors and companies. In the Covid-19 recession, however, a majority of companies posted lower sales for the first time ever, and they did so for four quarters in a row”, the report added.
Strong rebound in 2021
Despite the sharp declines in sales and profits, the report said that recent results from UK firms published between April and June 2021 covering the trading period into early Spring showed that sales were “returning rapidly to normal”, down just 5.8% year-on-year.
The report also flagged that profits in the period had rocketed 181%, with 57% of companies reporting higher profits for the individual quarter compared to the same period a year ago.
Banks, oilers and miners had made the strongest contribution to the recovery thus far, the report said, adding that building material, industrial and general retail firms had also enjoyed a “significant rebound”.
Even the travel and leisure sector, one of the worst affected by the pandemic, had managed to pare back its losses in the period.
“Compared to the 2020 low point, sales are rising strongly, despite ongoing restrictions, indicating that many companies have successfully adapted their operations during the first part of the outbreak. This stands them in good stead for the further lifting of the remaining restrictions in the UK and, for those large companies with multinational operations, elsewhere in the developed world”, the report said.
UK equities steeply discounted
As a result of the strong rebound from the pandemic slump, the report said that UK equities were now “valued at a steep discount to international peers” and that the upside surprise on earnings coupled with cheap valuations made British stocks “very appealing”.
“Low weightings to UK stocks accompany low valuations, and mean the UK now looks very attractive in a global context… With valuations so low, it is no wonder we are seeing increased interest from overseas acquirers”, the report said.
Looking ahead, the report highlighted that the data seemed to indicate that the recovery for UK companies “has some way to run”, predicting that earnings for British firms could “roughly double” to about £110bn over the next 12 months before returning to pre-pandemic levels by March 2023.