UK companies are set to suffer a £170bn hit to profits from the coronavirus crisis, according to a study from Link Group.
UK plc could see a year's worth of profits wiped out in the space of 18 months as companies continue to warn over a lack of economic activity stemming from lockdowns in various countries around the world as governments attempt to slow the spread of Covid-19.
In its latest Profit Watch report, Link Group said it has pencilled in a 75% decline in UK company profits by autumn 2020, before a bounce-back occurs into 2021. The combination of the two will slash corporate profits by £170bn, it said.
The figure was arrived at after the firm assessed the damage from the 2008/09 recession, the impact of the last collapse in oil and commodity prices, and Covid-19 specific factors such as the hit to retail, travel and leisure.
The figures present yet another leg down for UK corporate profitability, which slid into an "earnings recession" in Q3 2019 that has deepened since with pre-tax profits plunging 29.8% year-on-year in the first three months of 2020, according to Link.
Just 42% of companies across the whole UK market grew their bottom line year-on-year in Q1, the report continued, the lowest proportion since 2009 and down from 67% in Q3 2017.
In addition, revenues from companies reporting during the quarter fell by 2.4%, the second successive quarter of declines. The oil sector was hardest hit amid a weakening oil price, with banks and utilities also seeing sharp falls.
Market sell-off could create 'historic buying opportunity'
CEO of global corporate markets at Link Susan Ring said that "firm evidence of how companies are faring will take time to emerge", noting that even profit warnings would "only be of marginal use given the rapidly moving situation".
"This is why the stockmarket is showing such unprecedented volatility," Ring said.
"It is impossible to value companies accurately until investors can nail down with greater certainty the severity and duration of the disruption, and work out how effective the policy response will be from governments and central banks. Share prices are blown from pillar to post as a result."
Despite that, Ring believes if the current crisis proves short-lived, the market sell-off may end up being "a historic buying opportunity".
Ring explained: "Lower profits mean lower share prices are justified. But most of the value of a share derives from its ability to deliver profits over the next 15-20 years, not just from the next year or so.
"If the damage from the crisis is short term, and if profits start to rebound later this year, then the elimination of almost £800bn of value from UK stocks during the crash is a clear overreaction to the loss of perhaps £170bn of profits.
"The gap is the value of uncertainty. Covid-19 will cause a huge amount of economic damage, but does it justify value destruction on this scale?"