The British exit (Brexit) from the European Union has been a concern for British and European markets. Given the current uncertainty around the deadline, this topic will continue to be a focus area for these markets over the next few days and potentially weeks. Based on earnings call citations, geographic revenue exposure, and stock price movements, this article will identify industries in the UK (using the FTSE 100 index) that may be impacted by Brexit.
All data in this article is as of October 9, 2019.
Which FTSE 100 Industries Are Discussing "Brexit" on Mid-Year Earnings Calls?
Companies in industries that may be impacted by Brexit are more likely to discuss the topic with analysts and investors than companies in industries that may not be impacted by Brexit.
During each corporate earnings season, it is not unusual for companies to comment on subjects that had an impact on their earnings and revenues in a given reporting period or may have an impact on earnings and revenues in future reporting periods. Given the upcoming deadline for Brexit, did companies in the FTSE 100 discuss Brexit during their mid-year earnings conference calls in 2019?
To answer this question, FactSet searched for the term “Brexit” in the conference call transcripts of the 67 FTSE 100 companies that conducted mid-year earnings conference calls between June 15 and September 14.
Of these 67 companies, 27 (or 40.3%) cited the term “Brexit” during the call. At the industry level, the Financials industry led all industries with 11 companies citing the term “Brexit,” followed by the Consumer Services (6) and Industrials (6) industries.
Which FTSE 100 Industries Have the Highest Revenue Exposure to the EU?
Companies in industries with high revenue exposure to Europe may be impacted by Brexit more than companies in industries with low revenue exposure to Europe. FactSet Geographic Revenue Exposure data (based on the most recently reported fiscal year data for each company in the index) can be used to analyze the level of revenue exposure of an industry or company to Europe.
The revenue exposure of the FTSE 100 to Europe is about 40%, which is the highest revenue exposure in the index to any super-region. After Europe, the FTSE 100 has the highest revenue exposures to the Americas (31%) and Asia Pacific (24%) super-regions.
However, the revenue exposure of the FTSE 100 to the European Union is 38%, which excludes about 2% of revenue exposure to countries that are not part of the European Union. Within the European Union, the FTSE 100 has 23% domestic revenue exposure to the UK and 15% revenue exposure to the rest of the European Union outside the UK.
At the industry level, the Telecommunications (78%), Utilities (62%), Financials (52%), and Consumer Services (51%) industries all have more than 50% revenue exposure to the European Union (including the UK).
Which FTSE 100 Industries Have Seen the Weakest Price Performance Since the Brexit Vote?
Industries that will be impacted by Brexit may be underperforming industries that will not be impacted by Brexit in terms of stock price performance since the Brexit vote.
Since the Brexit referendum on June 23, 2016, the value of the FTSE 100 has increased by 13.1% (to 7143.15 from 6338.1). Over this time frame (June 23, 2016 to October 9, 2019), the FTSE 100 outperformed the STOXX 600 (+9.8%) but underperformed the S&P 500 (+38.1%) and MSCI AC Asia Pacific (+22.6%).
At the industry level, the Telecommunications (-39%) and Utilities (-22%) industries are the only two industries that have reported price declines since the Brexit vote. The Consumer Goods (+1%), Financials (+6%), and Consumer Services (+8%) industries are the other industries that have underperformed relative to the overall index (+13%) over this time frame.
It is interesting to note that four of these five industries (Telecommunications, Utilities, Financials, and Consumer Services) also have more than 50% revenue exposure to the European Union.
Which UK industries will be impacted by Brexit?
In terms of “Brexit” citations on earnings calls, the majority (23 of 27) of the companies with these citations were in the Financials, Consumer Services, and Industrials industries.
In terms of revenue exposure to the EU, the Telecommunications, Utilities, Financials, and Consumer Services industries all have revenue exposures of more than 50% to the EU.
In terms of price performance since the Brexit vote, the Telecommunications and Utilities industries have recorded a decline in price since the vote while the Consumer Goods, Financials, and Consumer Services industries underperformed the index as a whole since the vote.
Based on these metrics, it appears the Consumer Services, Financials, Telecommunications, and Utilities industries are more likely to see an impact from Brexit than the other industries in the FTSE 100, as these industries appear on at least two of the three lists for each metric.