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Companies and sectors set to benefit in the post-Brexit market

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Written by: Joe Healey and Tom Rosser
28/01/2020
Since the Brexit vote in June 2016, a running theme for investors has been uncertainty. However, with Britain set to leave the EU on Friday, it’s hoped some degree of confidence will return to UK markets.  

The following sectors and companies are those we think stand to do well over the medium term provided additional certainty follows 31 January and investor sentiment continues to tick upwards:

Consumer Discretionary

This sector includes those industries which tend to be most sensitive to economic cycles. With interest rates and inflation at stubbornly low levels this creates a supportive environment for consumers to spend, meaning companies in this sector should benefit.

Games Workshop – manufactures and retails table top war-game systems and associated miniatures. A company which you may think would not do well in today’s e-commerce driven climate, but has gone from strength to strength in recent years. It has consistently beaten analyst estimations, and although may appear to be slightly pricey, it is certainly a stand-out performer within the sector.

Persimmon – is one of the UK’s largest homebuilders, and through selective and disciplined land strategy has been able to maintain superior margins against its peers. Couple this with a valuation which looks cheap compared to other housebuilders and a recent drive to improve both the quality of its properties and customer service, and you have a business in prime position to capitalise on a potentially resurgent UK housing market.

Money Supermarket – operates finance and travel comparison websites, allowing consumers and businesses to compare a wide range of products. The majority of revenues come from fees collected from the sale of loans and credit cards, while also earning money through advertising. The company has strong free cash flow margins and should stand to do well with increased consumer spending.

Information Technology

This is a sector which is going to continue transforming the way we live and conduct business. The sector offers various growth opportunities but also comes with higher risk.

Dot Digital – operates in the niche field of digital marketing and is the number one cross-channel marketing automation provider in the UK. The company boasts consistent and robust fundamentals with impressive margins and balance sheet strength. On top of this, they are actively expanding operations worldwide. Strong, growing strategic partnerships and improving product innovations makes this company a very promising proposition for the future.

FDM Group – offers IT services in the form of project management, business analysis and data operations. The group has benefited from consistent expansion on a global basis with its H1 2019 report acknowledging a solid number of new client wins across a variety of industries. It is likely demand for FDM’s services will remain consistent and with solid growth rates across all segments, the outlook is bright.

Sage – is a relatively defensive software company that pays a reasonable dividend of roughly 2%. It is also one of the UK’s biggest software providers. Operating in a sweet spot nicknamed ‘the golden triangle’ (accounting, payroll and banking) and reinforced by the group’s cloud computing – the business is set to push forward over the coming years. Recurring revenues also pave the way for sustainable cash-flows, offering the company opportunities to invest into new growth projects further down the line.

Healthcare/Consumer Staples

These two sectors are renowned for their defensive qualities and late-market cycle characteristics. Defensive stocks generally have the ability to weather difficult spells in the market thanks to consistent demand for products.

GlaxoSmithKline – over the coming years, ageing demographics are likely to spur demand for the group’s products. The company frequently acquires new companies and actively looks to innovate, boasting a relatively robust product pipeline. On top of this they offer a peer-beating dividend yield of over 4%.

Unilever – is the name behind a number of well-known brands across the globe. The company reported a slowdown in some of its emerging markets over the second half of 2019 causing shares to fall. We feel this offers an attractive entry point for a solid company, delivering defensive cash-flows. With a growing middle class globally, and an attractive valuation on offer, the shares show promise.

Cranswick – supplies meat products such as pork, gourmet sausages and other related products. The company has had a strong 2019 amid supply constraints in China which has caused pork exports to the region to double. Increased US demand also paves the way for further demand and should help guide the shares higher. The stock’s fundamentals are strong and they also have a secure balance sheet helping to provide a good foundation for growth.

Joe Healey and Tom Rosser are investment research analysts at The Share Centre

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