This article was produced by ELITE Connect and originally published on the ELITE Connect platform
Hot on the heels of the unexpected Brexit vote last year, June’s surprising general election result of a hung parliament has added further turmoil to an already troubled political environment within the UK.
Retail is one of the industries which has seen the post-election uncertainty hit hard, according to our IR director source at a leading FTSE 250 retailer. ‘It’s business as usual for us at the moment, but we're hearing that the UK retail sector is a less attractive investment proposition,’ he observes. ‘This is because of concerns around the double whammy of higher import costs following the drop in the value of the pound and the risk of weaker consumer demand. We have a lot of unique and defensive characteristics, and have been resilient in previous macroeconomic downturns, but for many potential investors (particularly overseas) UK retail is simply a no-go area for the moment, regardless of the company specifics.’
Another source, this time a head of IR at a leading FTSE 250 IT provider, has two main observations to share, both stemming from the recent election result, with the impact on overseas investors again featuring as a notable resulting effect: ‘The hung parliament and uncertainty makes the UK a less favourable place to invest – I have noticed caution from US investors in particular,’ says the senior IRO. ‘Coupled with this, the potential for a government that would greatly increase the corporate tax rate has significant implications for the earnings outlook.’
Echoing both sources’ observations on the reluctance of overseas investors to engage with the UK, Craig Marks, senior director, investor relations at AstraZeneca, shares his experience: ‘There hasn’t been any impact from the general election on our IR activities at AstraZeneca. However, investors and especially those outside the UK only see additional risk and uncertainty emanating from the UK,’ he says. ‘For a geographically spread business like AstraZeneca, the impact is limited, but investors may well be looking at UK-centric businesses with more associated risk. It would be great to fast-forward to when the political and Brexit risks have dissipated.’
Until those risks subside, how can IROs effectively combat the testing conditions? ‘IROs should carry on engaging with investors to ensure that they have the complete picture and continue to understand what’s under their business’ control,’ advises Marks. Adding to this, our retail source comments: ‘IROs need to listen to all of their stakeholders, be available and responsive and be ready to proactively step in to correct misunderstandings or calm disproportionate fears.’
Despite the post-election challenges, there can be positives to be gained from the current landscape, as our retail source remarks: ‘Uncertain and/or challenging times can bring opportunities, both for corporates and for investors. For the latter, it can be a value opportunity for those prepared to take a long-term perspective – we've had a number of new investors taking sizeable positions since the Brexit vote. For corporates, it can be an opportunity to take market share against weakened competition. Uncertain times don't have to mean battening down the hatches.’
