Post Brexit share price winners and losers

It’s been 25 days since the UK electorate took the decision to quit to the EU. The Grocer looks at who the share price winners and losers have been since the vote.

An examination of the 30-day share price movement available on thegrocer.co.uk/finance suggests food and drink manufacturers and retailers have been spared the worst of the post-Brexit share price falls.

Losers so far

Those most exposed are overwhelmingly retailers and overwhelming retailers in the non-food space.

There are worries that Brexit could cause an economic downturn, which would have a knock-on material effect on high street trading. The supermarkets were driven into chaos by the post-2008 recession consumer behaviour as they fled the big four and shifted to Aldi and Lidl.

But those woes were because they were losing share to cheaper competitors in a broadly growing market. People don’t stop buying food and drink in a recession – though their preferences and priorities might change.

Instead it is those items that are seen as conditional, or even luxury, spends that the market thinks are most likely to be hit if the economy heads south. So that is why Carpetright (CPR) and Dixons (DC.) are amongst the biggest fallers – if there is an economic downturn, enough people will put-off buying new carpets or upgrading their TVs to have an impact on their trading momentum.

The same applies slightly more tangentially to department stores – hence Debenhams (DEB) – and Halfords (HFG) (fewer bikes are likely to be bought from them and a slowdown in the car purchases market could hit the motoring accessories side of the business).

But clothing is also a key theme amongst the fallers and that is mostly driven by currencies. While an economic slowdown will inevitably hit trading momentum on the high street, it’s the risk to margin that analysts are worried about for apparel retailers.

The vast majority of clothing is sourced internationally and imported as well as being dollar denominated. The post Brexit crash in the strength of the pound (although it has recovered somewhat as the UK political situation resolves itself) dramatically increases costs for theses retailers leaving them with only the option of increasing shelf-prices or accepting lower earnings. Neither of which is supportive to their share price.

Bubbling under the top 10 fallers are representatives from the leisure industry, where worries over consumer spend on non-essentials has hit trading momentum and pub and restaurant groups.

Winners so far

It may seem odd to see online clothing retailer ASOS (ASC) at the top of the tree given the Brexit woes of its high-street contemporaries. But again the ASOS story is about currencies.

Specifically, ASOS differs from its rivals because it buys the vast majority of its products through wholesalers and agents in sterling – around 85% of its costs are thought to be sterling denominated. So while its trading partners absorb the margin depressing costs of importing goods, ASOS’ own costs have been slashed and margins fattened because of its business model.

Burberry (BRBY) doesn’t enjoy the same economic benefits from Brexit, but has had a share price bounce from a boardroom shake-up in the past few weeks.

Away from clothing, food and drink/fmcg firms are better represented in the risers table than the fallers. Diageo (DGE), GSK and British American Tobacco (BAT) are good examples of why.

These multinational giants report revenues in sterling, but the vast majority of their sales are international. Therefore since Brexit currency translation has effectively boosted sales by more than 10% at such global giants simply because of the falling pound. Their strong share price performance – along with Imperial Brands (IMB) and Reckitt Benckiser (RB) – suggests the market doesn’t believe the fall in the pound is a short-term blip. Instead the market is pricing in the view that weakness in sterling will continue to have a margin strengthening effect on these companies for some time to come.

Unilever (ULVR) reports its revenues in euros, which means it doesn’t benefit particularly from converting its global sales into its reporting currency, but it is also spared any particularly negative impact as the vast majority of its sales are not in sterling either.

Premier Foods (PFD) is an interesting member of the ‘winners’ group given most of its costs are in pounds and it is still reliant on the UK for the majority of its sales, despite growing its international business. The Premier Foods share price rise seems to be driven by external factors despite the slight negative Brexit would seem to suggest – I.e. consumers trading down from brands to own-label in tough times.

Premier Foods was trumpeting its growth plans as an independent player as it battled off bid interest from US food group McCormick and there are signs that message is beginning to resonate. A recent investor day was followed by a number of broadly supportive analyst notes and price upgrades, citing improved sales momentum.

The supermarkets don’t make the winners or losers list, but online rival Ocado (OCDO) does. Ocado is generally seen as a more upmarket grocery player, but Aldi and Lidl are not online rivals which helps to protect Ocado from the grocery downtrading that took place in the post-2008 period. Crucially Ocado is desperate to sign an international distribution deal and the fall in the pound makes that deal look more attractive – certainly cheaper – to other international grocery placers, or even Ocado itself as a takeover target.