Publicly listed companies in the UK have seen an average 21 per cent drop in their share price in response to profit warnings issued in recent months.
Fewer companies issued profit warnings in the third quarter of 2018 as compared with the same period of last year but the consequences have been notably more significant in terms of share prices.
Indeed, the suggestion from the professional services firm EY in its latest ‘Profit Warnings’ report is that share price drops in response to profit warnings are now comparable with those seen 10 years ago during the global financial crisis.
A third of all the ‘general retail’ companies listed in the UK have issued profit warnings at some point in 2018 and the figure already exceeds the total recorded last year, with numbers for the crucial fourth quarter and Christmas trading period yet to come.
The overall number of UK-listed businesses that have warned shareholders that their profits will not match expectations increased during the 12 months to the end of September 2018 from 14.4 per cent to 15.6 per cent.
EY’s report on the subject says that while consumer sectors “still dominate” the number of profit warnings being recorded each month, there are also signs of warnings “starting to spread back into industrial and financial segments of the economy”.
A total of eight general retail companies issued profit warnings in the third quarter of this year, which is a figure that has not been higher in a Q3 period at any time since the financial crisis.
According to EY’s analysis, some retailers were able to benefit from an exceptionally hot and sunny summer this year but others saw their sales activity decline as a consequence of the extreme weather.
“Increasing capital market volatility and crisis-level investor reaction to profit warnings underlines a growing market concern about what comes next and how ready companies are to face the unknown,” said Alan Hudson, EY’s head of restructuring for the UK and Ireland.
“With so much of the UK and global economic and political outlook on the line, investors clearly want to be backing the fittest, most agile companies.”