Shares in almost all marketing companies lost ground on news of the forthcoming general election, including those that might expect to benefit from any further devaluation of sterling that the more pessimistic of commentators expect.
However, after sleeping on the news, the market’s typically emotional over-reaction gave way to a calmer assessment and some shares, such as those of WPP, quickly recovered at least some of their initial losses.
Most observers would assume that the stock market had already absorbed the likely effect of Brexit – soft, hard or anywhere in between – and the medium term impact it may have on operating costs of agencies and clients. So the only other major cause of jitters would be the uncertainty of what lies ahead if this government is swept away, compounded by the unpredictable antics of Trumpton across the pond. Nobody, least of all the stock market, likes uncertainty.
It is difficult to judge whether any of these considerations have influenced the decline in the price of shares in Next Fifteen Communications Group. With 63% of its revenue derived from the United States, the group has already enjoyed material currency gains since the Brexit vote, but its shares lost 5.5% of their value between 12 April and markets closing on 19 April (the day after the general election was announced) and continued to decline this morning.
Shares in all the other companies that derive more than 70% of revenue from outside the United Kingdom (see table) also lost ground immediately after the announcement, implying a general loss of confidence in global trading opportunities.
Against the trend, four companies experienced a price improvement between 12 and 19 April. These were M&C Saatchi, Communisis, St Ives and The Mission Marketing Group. The reasons are probably as disparate as the companies themselves. For better or for worse, St Ives, Mission and even Communisis have relatively little exposure to overseas markets, and so perhaps their favourable share price movements have been prompted by a reassuring feeling (justified or otherwise) that these companies will be isolated from the worst scenarios that can be imagined.
M&C Saatchi has a broad international spread of businesses with only 39.3% of revenue generated in the UK, so it may be relatively well placed for the future whatever outcome the Government’s Brexit negotiations may achieve. By now investors may also have succeeded in unravelling its latest accounts that were seriously distorted by a bizarre accounting rule that had shown a post-tax profit of just £144,000 in 2016 when its operating profit had been a more meaningful £16.3 million (see M&C Saatchi profits hit by profitable subsidiaries).