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Profit warnings rise in Q3

UK equity indices generally rose over October; however, this was driven more by rising optimism about global prospects than by confidence about the UK’s economic outlook. The number of profit warnings issued by UK quoted companies during the third quarter of 2017 rose at an annualised rate of 10%, according to EY. An increase in the number of companies issuing multiple profit warnings reflects some firms’ inability to adapt to changing conditions.

  • The FTSE 100 Index reached a new all-time high during the month
  • UK firms issued a total of 75 profit warnings during the third quarter
  • Dividend payouts from UK companies rose at an annualised headline rate of 14.3% during Q3

“For 2017 as a whole, Capita calculates that UK companies will deliver a record dividend payout”

UK equity indices generally rose over October, and the FTSE 100 Index reached a new high; however, this was driven more by rising optimism about global prospects than by confidence about the UK’s economic outlook. The FTSE 100 Index  rose by 1.6% over October as a whole, and the FTSE 250 Index  climbed by 1.8%.

The yield on the FTSE 100 Index fell from 3.92  to 3.86%  during October, while the FTSE 250 Index’s yield declined from 2.73  to 2.68% . In comparison, the yield on the ten-year gilt eased from 1.41% to 1.37%  over the month.

The number of profit warnings issued by UK quoted companies during the third quarter of 2017 rose at an annualised rate of 10%, according to a study undertaken by EY . UK firms issued a total of 75 profit warnings during the period. Moreover, 42% of these companies were issuing at least their second profits warning in the past year. An increase in the number of companies issuing multiple profit warnings reflects the inability of some firms to adapt to changing conditions. During October, consumer goods company Reckitt Benckiser  issued its second warning of the year  alongside restructuring plans designed to boost long-term growth. Elsewhere, support services and construction company Interserve  issued its second profit warning in two months  and warned that it might breach its banking covenants. Interserve’s share price plummeted, and has fallen by around 80%  over the year to date.

UK profit warnings during the third quarter were led by companies in the support services sector and the general retailers sector, who issued 14 and 8 warnings respectively. Profit warnings from general retailers reached their highest third-quarter total since 2008, and were particularly concentrated in the home improvements subsector. EY believes this represents an “early warning” of waning consumer confidence and mounting pressure on discretionary spending.

Dividend payouts from UK companies rose at an annualised headline rate of 14.3% during the third quarter, according to Capita Asset Services , reaching a total of £28.5 billion. The prospective equity yield over the next twelve months is 3.7%, making equities the most attractive of the major asset classes for income. For 2017 as a whole, Capita calculates that UK companies will deliver a record dividend payout totalling £94 billion, boosted by special dividends, sterling’s weakness, and high payments from the mining sector.

 

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