UK profit figures expanded for the tenth successive quarter by the beginning of this year, but behind the headline figure there was a mixed picture, as growth remains heavily concentrated in the hands of some of the largest listed companies.
The UK’s 40 largest companies reported an 11.2% rise in profits, alongside an 8% improvement in revenue. Yet the picture appears to be bleaker for firms outside the group. Their profits plunged by -17.6%, according to the Share Centre’s quarterly profit watch report.
UK Plc’s profit growth continues to be predominantly driven by the oil, gas and energy industry. The biggest oil firms saw their pre-tax income grow by two-thirds while other sectors, telecoms and industrials in particular, reported a sharp decline in profitability over the past year.
While profit figures show a stark divergence between those towards the top of the market cap table and those lower down, underlying revenue trends are remarkably similar, with the top 40 firms reporting lower revenue growth of 7.7%, compared to 8.8% by the other firms, reflecting a growing profit margin for the largest multi-nationals.
According to Richard Stone, the Share Centre’s chief executive, said that the increasing concentration of profit growth in the hands of the biggest firms suggests that UK plc might be in the late stages of its economic cycle.
“Growth may be harder to come by, but that need not be a reason for pessimism on UK equities,” he added. “Even with little profit growth over the last decade or so, Britain’s companies have generated an enormous £767bn of dividends since 2009.”
Indeed, UK dividends rose by 15% to £19.7bn in the first quarter of 2019, boosted again by special dividend payouts from mining and energy firms, according to Link Asset Services.
Shareholders have also profited from favourable exchange rate effects, which account for almost two thirds of underlying dividend growth, Link Asset Services highlights. The firm has lowered its underlying growth forecast for this year from 5.3% in January to 3.9%.
While dividends among FTSE100 firms are still expected to rise over the next year, a number of high profile dividend cuts in May, including Vodafone and Marks and Spencer, suggest that modest revenue forecasts in some sectors represent a challenge for shareholders.