Ryanair and C&C shares ‘most ex­posed’ as UK exit risks mount

Irish Independent - Business Week - - BUSINESSWEEK - Colm Kelpie

RYANAIR, drinks group C&C and agri-ser­vices com­pany Ori­gin En­ter­prises are among the com­pa­nies most ex­posed to a fur­ther weak­en­ing in ster­ling, spe­cial­ist bank In­vestec has warned.

The pound hit a seven-year low against the dol­lar yes­ter­day and touched 79 pence ver­sus the euro as bank­ing gi­ant HSBC warned that a vote to pull out of the Euro­pean Union could see the value of ster­ling slump by a fifth against the green­back.

And it if the pound were to slip fur­ther, the most ob­vi­ous win­ners in­clude Ir­ish com­pa­nies re­port­ing in ster­ling, but with sig­nif­i­cant earn­ings in euro, such as Paddy Power Bet­fair, DCC and Grafton.

It’s well known that a weak­en­ing pound is bad news for Ir­ish ex­porters into the UK as it cuts mar­gins. A re­port by In­vestec an­a­lyst Ger­ard Moore and chief econ­o­mist Philip O’Sul­li­van sets out the pos­si­ble win­ners and loser from the ster­ling volatil­ity, with Michael O’Leary’s Ryanair among the busi­nesses vul­ner­a­ble to tak­ing a hit.

About 27pc of its sales are in the UK, ac­cord­ing to In­vestec.

The spe­cial­ist bank be­lieves that if a so-called Brexit were to oc­cur, for the air­line any im­ped­i­ment to the free move­ment of pas­sen­gers would likely add to costs, and would be passed on to cus­tomers.

Ori­gin En­ter­prises would see the op­er­a­tional risk of with­drawal of EU sub­si­dies to its farm­ing clients, In­vestec said, with 60pc of its sales in Bri­tain.

As­sum­ing ster­ling weak­ens fur­ther, the bank said the most ob­vi­ous win­ners in­clude Paddy Power Bet­fair, DCC and Grafton, the In­vestec re­port said.

In­vestec said that al­though DCC has 59pc of its sales in the UK, a 10pc fall in the value of ster­ling would be an ac­count­ing boost for the com­pany as its new op­er­a­tions in France and ex­ist­ing busi­ness across Europe would be trans­lated at bet­ter rates.

Ryanair yes­ter­day called for Bri­tain to re­main in the Euro­pean Union, with chief ex­ec­u­tive Michael O’Leary ar­gu­ing that the UK econ­omy and its fu­ture growth prospects are stronger in­side the EU.

“Leav­ing Europe won’t save the UK money or red tape be­cause, like Nor­way, the UK will still have to con­trib­ute to Europe, and obey its rules if it wants to con­tinue to trade freely with Europe, so it’s clear that UK vot­ers should vote Yes to Europe and Yes to the re­formed Europe, that David Cameron has de­liv­ered,” Mr O’Leary ar­gued.

Ster­ling sank to a seven-year low yes­ter­day as com­pa­nies and in­vestors rushed to in­sure them­selves against the chances of a Bri­tish exit from the Euro­pean Union that HSBC said could knock off a fifth of the value of pound.

The af­ter­math of Prime Min­is­ter David Cameron’s an­nounce­ment of a June 23 ref­er­en­dum on ‘Brexit’ has driven the worst three days for the world’s fourth most traded cur­rency since the depths of the fi­nan­cial cri­sis in 2009.

An­other wave of sell­ing in Lon­don yes­ter­day morn­ing drove it to less than $1.39, within 4 cents of lev­els not seen since it sank to par­ity to the dol­lar in the mid-1980s.

Bri­tain’s big­gest bank, HSBC, warned that ster­ling could lose up to 20pc of its value against the dol­lar and UK eco­nomic growth could be up to 1.5 per­cent­age points lower next year if Bri­tons vote to leave the Euro­pean Union.

The hit to growth could be even more se­vere if the Bank of Eng­land raises in­ter­est rates to counter the sharp fall in ster­ling, HSBC added.

“There are very few peo­ple will­ing to take the other side of the move lower,” said Josh O’Byrne, a strate­gist at Citi.

“Know­ing now that the vote will be in June, there is a greater in­cen­tive for those that haven’t hedged GBP ex­po­sure to do so.”

The lat­est poll showed the “In” camp only nar­rowly ahead at 51pc, ver­sus 39 per­cent for “Out”, with 10pc un­de­cided. Other polls have been even closer.

Ster­ling fell to $1.3878 with an­a­lysts say­ing the 2009 low of against the dol­lar a real prospect. It fell 0.6pc to its weak­est in 16 months against the euro.

The cost of cur­rency de­riv­a­tives, which al­low com­pa­nies, big in­sti­tu­tional in­vestors and hedge funds to pro­tect fu­ture rev­enues, jumped to their high­est in more than four years.

An­a­lysts at In­vestec said they con­tinue to be­lieve that a so-called Brexit will not hap­pen, in which case, ster­ling should strengthen again af­ter the ref­er­en­dum on June 23.

“If we’re wrong, the un­cer­tainty that a de­ci­sion to leave would gen­er­ate would clearly hurt many Ir­ish ex­porters and likely lead some firms to de­fer in­vest­ment de­ci­sions in the short term,” one an­a­lyst said.

“In the longer-term, the en­dur­ing im­pact of Brexit on Ire­land will be likely framed by the trad­ing re­la­tion­ship agreed be­tween the UK and the rump-EU.

“In the near term, we would likely see more down­side pres­sure on ster­ling, which would be neg­a­tive for Ir­ish ex­porters to the UK.”

Ryanair boss Michael O’Leary cam­paigns for UK to stay in EU

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