Blaming the UK economy for company profit warnings is easy but the reality is more complex, Lazard Asset Management’s Alan Custis has said.
Asked whether investors in UK equities should be worried about the number of companies which have issued profit warnings this year, Mr Custis, who is head of UK equities at the asset manager, said he put them into three categories.
“There are those companies who have been slow to adjust to changing dynamics within their industry, different channels, the way that consumers are purchasing their products,” he explained.
“I think there are those that have been challenged in terms of business transformation and then I think there is the group of companies which have been impacted by the weaker consumer.”
“When we look across the piece it’s very easy to blame the UK economy for the majority of these profit warnings,” Mr Custis admitted. “But I think when you distil down, actually, quite a small percentage are directly related to the pressures on consumer spending we’re seeing at the moment.”
He gave Provident Financial and Merlin as examples of companies which faced business challenges.
“To draw direct parallels with the UK economy and a number of these profit warnings I think is quite a challenge. Yet, for a lot of people it’s an easy answer to glibly give, but I think it’s a more complex situation than that,” he suggested.
Mr Custis is manager of the £176m Lazard UK Omega Equity fund.
The equity manager observed UK equities may be the best hedge against inflation in 2018 and pointed to opportunities in UK domestics after they were sold quite aggressively.
He confirmed uncertainty was the biggest risk for investors going into next year
“The whole Brexit situation continues, I think, to weigh on the market,” Mr Custis added.
The total return of the UK market year-to-date has been about 8 per cent, he confirmed.
But he pointed out “compared to other international markets, it’s the worst performing international market and I think overseas investors have studiously avoided the UK market because of these concerns”.
Watch the full interview at the top of the page.
eleanor.duncan@ft.com
