>500 Company forecasts reviewed
Across a series of coordinated research reports, our sector, strategy, economic and mid-cap teams
have updated forecasts to capture the immediate impact of the UK Brexit vote. Despite the political
and economic uncertainty, we have moved to quickly capture the big FX moves, higher demand
risk and hence higher risk premia in our valuation methodology.
EPS changes across 30 sectors
With their global exposure, overseas and commodity price dependency, UK listed companies are
relative winners supporting our EPS forecasts in Industrials, Pharma and Staples. Pan-European
industry sectors that have seen the biggest downgrades are Autos, Building Materials and
Diversified Financials. These forecasts do not capture the near-term risk of political decisions or
policy response. Longer term, uncertainty remains over the growth outlook, global trade patterns
and immigration flows.
The “Exane 20”
A re-pricing on Friday’s scale will inevitably drive some strong stock picking opportunities. In this
report we highlight the investment cases for our strongest 10 Outperform and Underperform
investment ideas, the ‘Exane 20’. These are all backed by post Brexit analysis and updated
forecasts. Our key Outperform ideas include ENGIE, Prudential, Shire and WPP. Our key
Underperform ideas include Anglo American, Credit Suisse and UBS. Within our mid-cap
universe we favour Marie Brizard and are most cautious on Nordex.
Strategy: The Commodity Anomaly
So far, on a top-down basis, the equity market has reacted quite rationally. Staples & Healthcare
were the big winners while Financials and UK cyclicals were hit hardest. However, we note the
relative strength of commodity sectors, which aren’t obvious beneficiaries of rising risk premia,
growth concerns, US Dollar strength or European QE. Given the measured equity market response
to the Brexit announcement, we see downside risk before we reach an equilibrium level.