Private equity seeks FTSE deals as corporate angst mounts

Profit warnings from UK-listed companies are soaring as inflation and labor shortages take their toll.

The number of profit warnings issued by UK-listed companies in the first six months of 2022 rose by 66% compared to the same period in 2021, with a record number of companies citing the increase in costs as the reason for its warning, according to EY-Parthenon. the latest profit notices report.

The report reveals that 136 profit warnings were issued in the first half of 2022, compared to 82 in the first six months of 2021.

The findings come as private equity firms continue to seek deals on London’s listed markets.

“UK companies are once again in the spotlight for private equity and we are seeing a repeat of the first half of last year when a number of high-quality cash generating companies were acquired at discounted prices,” he noted an analyst at investment bank Canaccord Genuity late last month.

According to broker Peel Hunt, there were 27 UK-listed companies on offer at the end of May, marking the highest amount since August 2021, when there were 32 on offer .

During the second quarter of 2022, 64 advisories were issued, slightly below the 72 issued in the first quarter, but still 10% above the pre-pandemic average and double the 32 issued in the second quarter of 2021.

Of the warnings issued in the second quarter of 2022, a record 58% of companies cited rising costs as one of the main reasons for the warning, up from 43% in the first quarter, while 19% point out labor market problems.

In total, of the 1,222 UK listed companies, 70 have issued at least two consecutive notices in the last twelve months. On average, one in five companies delist within a year of the third warning, mostly due to insolvency.

The FTSE sectors with the highest number of notices in the second quarter of 2022 were travel and leisure (eight), retail (seven) and personal care, drug and grocery stores (seven), all which have been significantly affected by the increase in costs, the supply chain. problems and lack of staff.

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Despite also struggling with rising costs, labor and supply chain strains, FTSE construction and materials companies issued just three profit warnings in the first half of 2022, with many larger companies able to absorb or pass on price increases and take advantage of their purchasing power to avoid material. shortages

“During the first half of this year, we’ve seen profit warnings driven primarily by cost and supply chain issues, but as we begin to see a fall in demand and consumer confidence, it’s likely that other underlying tensions are exposed,” he said. Alan Hudson, EY-Parthenon’s UK and Ireland Restructuring and Restructuring Strategy Leader.

“Companies will need to prepare for lower growth, tighter capital and significant market volatility in the coming months. As earnings announcements and stress levels rise, we are starting to see more companies they issue multiple profit warnings and a return of companies approaching the “three-warning rule.”

Half of all profit announcements issued in the first half of 2022 by UK listed companies came from consumer-facing sectors, compared with a third in the first half of 2021. At a sector level, almost half of all FTSE personal care, drug and grocery stores (47%) ) and 15% of FTSE retailers issued a profit warning in the second quarter.

Three-quarters of FTSE retailers that issued a warning in the first half of 2022 came from businesses that operate exclusively or mostly online.

These companies have been particularly hard hit by the shift in sales to “bricks and mortar” stores and were disproportionately affected by rising delivery costs and product returns, EY-Parthenon said.

This article was published by sister title Financial News Private Equity News

To contact the author of this story with comments or news, please email Sebastian McCarthy

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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!