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Mid-cap revenues and profits storm ahead of FTSE 100 stocks

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11/08/2014
Revenue and profits of UK mid-cap companies have beaten those of their FTSE 100 peers over the past year, as larger firms have seen their margins squeezed.

According to the latest Profit Watch UK report from retail stockbroker The Share Centre, FTSE 250 companies have beaten the UK’s largest 100 companies on both profits and revenue growth: revenues are up 3.3% and gross profits are 5.1% higher.

FTSE 100 firms, on the other hand, have seen profit margins squeezed over the past year, despite promising sales growth.

Operating profits across UK plc are down 6.6%, while gross profits increased just 0.2% on a like for like basis, reaching £77bn. Of the 20 industry sectors, just eight managed to grow profit margins.

However, drilling deeper into company specifics, the report reveals Vodafone was the main culprit in the disappointing overall figures posted by the UK’s largest stocks.

The telecommunications giant reported a £2.5bn drop in operating profits for the year ending 31 March compared to a year ago. Without it, operating profits for the top 100 UK companies would have risen year on year.

Annual sales by UK companies just managed to beat inflation to rise 2.2% to £353.4bn, boosted particularly by companies tapping into rising consumer spending: the likes of general retailers saw 12.1% growth in sales. The Share Centre said this was a weaker performance than expected, given the pace of recovery over the period, and attributed this to the strength of the pound and its impact on overseas sales.

Total pre-tax profits showed a more positive picture, up 5.8% to £18.9bn as a result of reduced asset writedowns, while net profits jumped to £80.5bn, boosted this time by Vodafone’s gains from the sale of Verizon Wireless.

Helal Miah, investment research analyst at The Share Centre, said: “The sun might be shining on the UK economy, but listed company profits are being left in the shade. There have been a large number of profit warnings so far this year. While revenues are showing promising – if modest – growth, they are not keeping pace with costs.

“It is mainly a problem for the large caps though. Mid caps are storming ahead of the top 100 at every level, from revenues to profits.

“It is, however, very encouraging to see pre-tax and net profit rise briskly, though these are poor quality earnings as they are due to lower writedowns, over which finance directors have broad discretion.”

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