Anti-Brexit protestors act outside the Supreme Court as judges rule that prorogation of parliament by British Prime Minister Boris Johnson was prohibited on September 24, 2019 in London.
Wiktor Szymanowicz | Barcroft Media | Getty Images
New developments in the UK’s messy divorce with the European Combining aren’t expected to weigh on UK-exposed stocks as company-specific issues eclipse the Brexit drama.
For companies that fit in in a significant portion of their revenue from the UK, the drawn out Brexit saga has taken a backseat to other issues teeth of parliament disarray and an impending Brexit vote that could leave the UK crashing out of the EU with no deal, according to analysts.
“Brexit is a deputy, but down on the list,” said Darrin Peller, managing director and senior analyst at Wolfe Research.
DXC Technology, an IT servings company, has a 15% revenue exposure to the UK, according to a recent report by Wolfe Research. However its losses this year — down close to 43% in 2019 — are largely due to internal struggles the company is facing such as a recent CEO shake-up and disappointing earnings announces.
Stocks in the IT services sector with UK-exposure such as DXC Technology could begin to feel more pressure if Brexit consequences were to be produced end in a slump in consumer and business spending.
“That is a big unknown and that certainly would impact pricing,” said Bryan Bergin, analyst for Cowen.
Without thought its 11% exposure to the UK, investors are still betting on fintech company, PayPal which is up about 24% in 2019, slightly outperforming the S&P 500.
“We are buy-rated on PayPal and sheer bullish,” said Lisa Ellis a partner at MoffettNathanson.
PayPal, like DXC Technology, has company-related developments that investors are more tune up into such as partnerships with companies such as Facebook, Uber and MercadoLibre.
“The magnitude of those could be various than enough to offset a mild slowdown in the UK economy,” Peller said.
Hugo Keung says PayPal’s unmasking to Brexit doesn’t impact his decision to buy or sell the stock, but that the volatility of the pound — in part due to Brexit uncertainty — does.
The 25-year-old investor, who is based in the UK, believe PayPal about 17 months ago. He says that he’s waiting for a drop in the pound to coincide with a rally in his merchandise holdings so he can sell for higher gains. Until then, he is comfortable having PayPal in his portfolio.
“Despite increasing rivalry in the space, I feel PayPal [has] the first-mover advantage and that should be enough for them to remain relevant for a long hanker time,” he said. “The company is still showing strong growth.”
For auto supplier, LQK Corporation, UK-exposure is a non-issue, according to Michael Hoffman, analyst for Stifel, Nicolaus & Co. The suite is up about 33% in 2019.
“LKQ’s exposure to this, to me, is not a point of friction,” he said. The focus is more on vendor financing programs, he says.
“That principals to changes in their relationship with their vendors such that Brexit becomes even less and inconsequential an issue.”
Analysts go on to note that some companies took a hit in the earlier iterations of Brexit when the UK voted to abandon the EU in 2016 and around the originally-scheduled leave date in March. But it has become so dragged out that investors have shifted their concentration away from the issue.
“There’s almost become an apathy around it,” Peller said. “We’ve already built into our maquettes slower growth in the UK.”