Wednesday, 6 April 2016

Three stocks to watch for in the event of a Brexit

Which companies could be set to either benefit from a Brexit or will defend against volatility caused by a ‘leave’ majority decision? The prospect of a Brexit has dominated headlines recently, with almost a month still to go before the official campaign period begins on 15 June. Understandably, this has left investors feeling confused as to where to put their money, given that nobody is able to predict how markets will behave whether the UK leaves or stays in the EU. It’s a commonly held view that a ‘leave’ vote could severely bruise the home market as we are more dependent on the EU as a trading partner than they are on us. However, there are still plenty of individual stocks that could offer attractive opportunities despite Brexit concerns.

Merlin Entertainments

This FTSE 100 stock hit the headlines last year following the tragic incident in which four Alton Towers visitors suffered life-changing injuries in a rollercoaster crash. Unsurprisingly, this caused the stock’s price to plummet and between June and the end of September it had fallen by 20 per cent.
In the event that sterling weakens in both the run-up to the referendum or as a result of a pro-Brexit vote, we believe the stock would be set to reap the benefits on a transactional basis. Sterling weakness could make it more attractive for tourists to come into the country, and which company has the number one amount of tourist attractions? It’s Merlin obviously and with London being a disproportionately big part of their portfolio, they would be a clear beneficiary.

British American Tobacco

The £76bn tobacco giant is renowned for being a ‘stalwart’ stock with a reliable income but many investors could be deterred by its seemingly hefty price tag. Visually it looks expensive but we think it’s cheap. It’s a well-run tobacco business and they remain at the forefront of innovative product launches, whether it’s the low heat cigarette they have coming out or the range of major e-cigarette brands they have, so we think that they’re in good shape. Primarily though, we like them from a valuation standpoint.

The stock has historically done well over the longer term, having outperformed the FTSE 100 more than six times over the last decade with a total return of 316.25%.


Centrica could be a good play for those worried about a Brexit but who still want to buy into the UK market. The UK imports a lot of gas from Norway, which would become quite expensive; we import electricity from France which would be more expensive; but we’d probably get a compensating increase in the power price, so some of the utilities like Centrica could be a viable option. You can avoid the stocks that will suffer a particularly hard landing. For example, you can paint quite a negative picture around financial services in the short term and as economic growth in the UK is likely to struggle too you don’t want to hold any purely UK based firms.

Utilities giant Centrica has been hit particularly hard by the plummet in commodity prices and the fall in household bills over the last 18 months, announcing last month that its energy profits were down to £255m during 2015. As such, it confirmed a dividend cut despite its major competitor British Gas announcing a significant increase in profits over the same time frame. This could mean that the stock is a good value play in the event of a Brexit given its current underperformance.

As always you should seek professional advice where appropriate from a qualified and CYSEC regulated advisor.

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