World Cup boost for the UK

Graham Smith
Graham Smith
Market Commentator13 June 2018

With England’s debut in the World Cup against Tunisia fast approaching, UK service sector companies will, no doubt, be gearing up for some pre-Brexit sunlit uplands.

A splash of good news can’t come a moment too soon. After UK economic growth ground to a virtual halt in the first quarter of the year and with more famous retailers scaling back their high street operations this month, some much needed good cheer for the consumer sector feels overdue.

Retailers of sportswear will be hoping enthusiastic fans will prove less price conscious than normal this summer, allowing them to dispense with discounts.

Judging by their websites, Sports Direct and JD Sports Fashion are more than ready to supply us with all the replica team shirts and sports kit any soccer fan might wish for. Football boots similar to those worn by the likes of Ronaldo and Neymar are now available for the well-heeled.

ITV will be hoping for a good summer too – and not just because the latest series of the highly popular and BAFTA-award-winning Love Island has just returned to our screens. Advertising slots should command premium rates during key World Cup games.

WH Smith is another company that should benefit, both through its high street stores and travel division. Now with 282 units internationally – including eight recently won at Madrid Airport – this is a business with the capacity to tap into the footballing ardour of more than just English fans1.

The British Beer and Pub Association thinks the World Cup could be worth an additional £42 million to its industry during the early group stages alone, with favourable match timings and concerns among fans about travelling to Russia both a help2.

Those of us that decide to stay at home and watch could prove a boon to Just Eat or Domino’s Pizza as well as Dixons Carphone, should we decide our current TV isn’t up to the job.

Online betting via a smartphone is something else likely to feature in numbers this summer, a plus for Paddy Power Betfair and the new owner of Ladbrokes Coral – GVC Holdings. Incidentally, last November, GVC became the first foreign company to launch a licensed online betting brand – bwin.ru – in Russia3.

Such potential comes as a reminder of how the UK’s dull economic performance in the three months to March could easily be reversed in this and subsequent quarters.

Trade organisations agree. The Centre for Retail Research and VoucherCodes expect a £1.3 billion boost to the UK economy coming from the World Cup, with that figure ballooning to £2.7 billion should England (unexpectedly) reach the final4.

Of course, the overall effects will be hard to measure because what consumers spend on enjoying the World Cup could be funded from savings made elsewhere. A night in watching TV means one less trip to the pub or vice versa.

In that regard, more important perhaps is official data out this week confirming the UK’s average earnings adjusted for inflation continue to rise, as the effects of the removal of caps on public sector pay, the highest levels of employment since the 1970s and moderating inflation start to take hold5.

For investors, the upshot is that UK funds with a domestic, value bias may be looking to a brighter future too. The JOHCM UK Equity Income Fund, which features on Fidelity Select 50 list of favourite funds, invests in stocks expected to yield more than the market average in the year ahead and has a contrarian investment style. ITV is currently the Fund’s largest active position in relation to the FTSE All-Share Index6.

Meanwhile the Fidelity Special Situations Fund – another Select 50 choice – focuses on unloved businesses entering a period of positive change and has held a large position in Ladbrokes Coral for some time.

Investors in the LF Lindsell Train UK Equity Fund – a portfolio dedicated to investing in high quality businesses delivering growth over the longer term – will be hoping for an indirect exposure to World Cup fever via the Fund’s top-10 holdings in alcohol beverages specialists Diageo and Heineken.

Sources

1 WH Smith, 06.06.18

2 British Beer and Pub Association

3 Totally Gaming, 28.11.17

4 Retail Times, 02.06.18

5 ONS, 12.06.18

6 JO Hambro Capital Management Group, 30.04.18


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