While Brexit is often viewed as a negative for the economy and for many companies, it could prove to be a positive catalyst for others. Victrex (LSE: VCT) and Ashtead (LSE: AHT) have both reported encouraging financial performance today, with the two companies having been boosted by Brexit. Here’s how it could continue to send their financial performance higher.
Weaker sterling
Manufacturer of high performance polymers Victrex has been helped by weaker sterling. Since the EU referendum in June, the value of the pound has declined by around 18% versus the US dollar, while it’s also much weaker against a number of other currencies. This has helped the company since it’s a global exporter that reports in sterling. Over 97% of its sales are outside of the UK and while it hedges up to 12 months in advance, a more favourable currency environment should be felt in 2017 and 2018.
Victrex now expects its profits for 2017 to be ahead of previous guidance due to the positive currency effects. This will enable it to support front-end growth investment, which should help to drive adoption of its mega-programmes. As a result, the long-term profitability of the company should be improved. Alongside its rise in core volumes of 9% in the second half, this could help to push Victrex’s share price higher.
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Improving performance
It’s a similar story for rental equipment company Ashtead. Weaker sterling boosted its top line by 15% in the first half of the year. However, even without the effects of currency included, its rental revenue still increased by an impressive 13% on an underlying basis. This was aided by a sound strategy that includes a clear and consistent focus on organic growth, supplemented by bolt-on acquisitions.
The effect of this on underlying earnings in the first half of the year was positive, with the company’s bottom line up by 9% versus the same period of the previous year. That’s despite currency gains being partially offset by the impact of lower gains on fleet disposals as the company reduced its capital expenditure. But with EBITDA (earnings before interest, tax, depreciation and amortisation) margins being at the highest ever level of 49%, Ashtead’s profitability is likely to rise.
Outlook
Ashtead expects its full-year results to be ahead of expectations after today’s update. It currently trades on a price-to-earnings growth (PEG) ratio of just 1.2, which indicates that it’s a sound long-term buy. And with next year’s expected 12% rise in earnings likely to happen as currency effects have a positive impact, now could be a good time to buy it.
Similarly, Victrex is likely to benefit from weaker sterling. Although its bottom line is due to rise by just 4% this year, the fact that nearly all of its sales are outside of the UK means that it stands to be a major beneficiary of Brexit. With negotiations between the UK and EU set to start next year, sterling could weaken further and boost Victrex’s guidance and share price over the medium term.
