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JO Hambro predicts strong recovery in UK company profits

recovery in UK

The recovery means that profits for UK listed companies should roughly double to nearly £110bn in the 12 months to March 2022

Asset manager JO Hambro Capital Management is predicting an unprecedented recovery in UK company profits, in both scale and speed.

This follows the most dramatic hit to corporate revenues and profits on record as sales plunged 19% (£349bn) in the 12 months to end March 2021.

The impact was deeper than any downturn in recent history – eight times bigger than during the global financial crisis, the firm said. Never before have more than half of all companies seen sales fall, yet during Covid-19 this happened for four quarters in a row, it added.

Lower sales and Covid costs also caused an unprecedented profit squeeze.

The most notable individual quarter was the first three months of full lockdown, when 46% of companies posted outright losses, a proportion never seen before, JO Hambro said.

Profits dropped 61% year-on-year (YOY) at £55.3bn in the year to end March 2021.

But the firm believes the next set of results will show a dramatic recovery.

After the shock of the pandemic, the change of mood in Britain’s boardrooms is palpable, said Alexandra Altinger, JO Hambro’s chief executive for the UK, Europe and Asia. 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.

Since a low point last September, sales had recovered by early Spring to just 6% below pre-pandemic levels. Collectively, pre-tax profits jumped 181% year-on-year, led by banks, oil and mining companies, the firm found in its UK Profit Index.

Building materials, industrials and even general retail also enjoyed a significant rebound in profits and even the battered travel and leisure sector has significantly pared back its losses, JO Hambro added.

The recovery means that profits for UK listed companies should roughly double to nearly £110bn in the 12 months to March 2022. They should then “regain their pre-pandemic levels” within a year.

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