Reporting by William Schomberg, Editing by Kylie MacLellan
Finance
UK CFOs lose their appetite for debt after rates climb -Deloitte
/cloudfront-us-east-2.images.arcpublishing.com/reuters/VRL5HZCQ7VMV3FERT3DPJEXID4.jpg "UK CFOs lose their appetite for debt after rates climb -Deloitte")
[1/2]The Canary Wharf financial district is seen in east London November 12, 2014. REUTERS/Suzanne Plunkett/File photo Acquire Licensing Rights
LONDON, Oct 16 (Reuters) – Finance executives at top British firms are their most wary about borrowing than at any time since at least 2007, according to a survey which underscored how the climb in interest rates is weighing on businesses and the broader economy.
The survey by Deloitte, published on Monday, found the gap between chief financial officers who rated bank borrowing as attractive and those who saw it as unattractive stood at a net -37%, the widest since the survey was launched in 16 years ago.
A similar proportion said debt sales were unattractive while equity finance became more popular.
“Higher interest rates have flipped a decade-old consensus which was previously in favour of debt finance,” Ian Stewart, chief economist at Deloitte, said.
“Finance leaders are preparing for a period of high interest rates with predicted rates falling only slightly over the next year.”
Worries about high inflation were persisting although the quarterly survey also showed business confidence was running at above average levels and was up from three months ago.
The Bank of England raised rates 14 times in a row between December 2021 and August this year, before pausing its increases in September. Top BoE officials have stressed they are likely to keep borrowing costs high for a period and not cut them quickly even as the British economy struggles to grow.
The CFOs quizzed by Deloitte on average expected the BoE to cut Bank Rate to 4.75% in a year’s time from 5.25% now.
Other forecasts included one for inflation to be running at 3.1% in two years’ time – down from almost 7% now but still above the BoE’s 2% target – and wage growth to slow to 4.3% this time next year from 6.2% as labour shortages diminished.
The survey of 70 CFOs, 13 of them from FTSE 100 firms and 26 from FTSE 250 companies, ran between Sept. 19 and Oct. 2, before the escalation of the Israel-Hamas conflict which has threatened to worsen the global economic outlook.
Our Standards: The Thomson Reuters Trust Principles.
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Revenue: €147.4m (down 39% from FY 2023).
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Net income: €22.6m (down 73% from FY 2023).
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Profit margin: 15% (down from 35% in FY 2023). The decrease in margin was driven by lower revenue.
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EPS: €1.62 (down from €5.98 in FY 2023).
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All figures shown in the chart above are for the trailing 12 month (TTM) period
Revenue exceeded analyst estimates by 29%. Earnings per share (EPS) also surpassed analyst estimates by 3.5%.
Looking ahead, revenue is forecast to grow 46% p.a. on average during the next 2 years, compared to a 8.3% growth forecast for the Electrical industry in Germany.
Performance of the German Electrical industry.
The company’s shares are down 9.9% from a week ago.
Before we wrap up, we’ve discovered 3 warning signs for Energiekontor (1 is significant!) that you should be aware of.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Friday was another in the series of dramatic losses in the equity markets as investors pushed financial conditions into negative terrain because of mounting concerns around the costs linked to an expanding trade war.
Given the ever-widening scope of U.S. tariffs, with the next round set to take effect on April 2, the risks to the economic outlook through the financial channel are elevated and rising.
We anticipate that the economies targeted by the tariffs will retaliate in-kind. investors, firm managers and policymakers should also anticipate that retaliation will most likely include the tradeable services sector and not just agriculture, goods and politically sensitive industries like transportation.
Read more of RSM’s insights on the economy and the middle market.
The S&P 500 equity index peaked on Feb. 19 and has since lost 9% of its value with losses in seven of the past nine weekly sessions. On Friday alone, roughly $1.25 trillion in equity valuations were wiped away.
Interestingly, the Russell 2000 index of small cap corporations—a proxy for the health of privately held small and medium-sized businesses—has lost the most ground among the major stock indices.
The RTY index has now lost 17% of its value since peaking on Nov. 25, suggesting a loss of confidence in economic growth that will result in a slower pace of hiring and outlays on capital expenditures that will show up in hard data in the near term.
It is not just the equity market showing excessive levels of risk. Volatility in the Treasury market remains above its long-term average and corporate yield spreads are widening, offering more evidence of the concern over the direction of the economy.
While not yet significantly different than neutral, our RSM US Financial Conditions Index fell below zero on the last Friday of March.
Our index is designed such that negative values indicate increased levels of risk being priced into financial assets. Higher risk implies a higher cost of credit, which will affect the willingness to borrow or to lend that will hamper economic growth.
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Revenue: €476.9m (down 2.6% from FY 2023).
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Net income: €31.0m (up 11% from FY 2023).
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Profit margin: 6.5% (up from 5.7% in FY 2023). The increase in margin was driven by lower expenses.
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EPS: €2.32 (up from €2.09 in FY 2023).
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All figures shown in the chart above are for the trailing 12 month (TTM) period
Revenue was in line with analyst estimates. Earnings per share (EPS) surpassed analyst estimates by 2.0%.
Looking ahead, revenue is forecast to grow 5.1% p.a. on average during the next 3 years, compared to a 5.0% growth forecast for the Machinery industry in Germany.
Performance of the German Machinery industry.
The company’s share price is broadly unchanged from a week ago.
It is worth noting though that we have found 1 warning sign for WashTec that you need to take into consideration.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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