A rise in the number of profit warnings issued by UK-listed companies in 2022 does not necessarily translate to a worst case scenario, analysts said.
According to EY, the number of profit warnings issued in the UK grew from 203 in 2021 to 305 last year, with 25% of the roughly 1,190 UK-listed firms saying they would miss full-year profit guidance.
Retail, travel and software companies were among the worst affected, with hiked costs driven by higher fuel prices mainly being blamed.
AJ Bell analyst Russ Mould commented: “Profit warnings don’t necessarily mean a recession is coming,” though, “it could just be that lofty growth forecasts have not been met”.
Over two-thirds (67%) of the firms which issued profit warnings in the fourth quarter are listed on London’s AIM junior market.
“Big firms have more pricing power than smaller ones, generally, so they may be better placed to withstand input cost inflation and pass it on to customers or suppliers,” Mould said.
“The mid and small cap firms may not have quite so broad a geographic reach either so those relying more heavily on the UK […] may have suffered more,” he added.
Many firms have already upgraded profit guidance this year, including B&M, Jet2, JD Sports and Dunelm, begging the question of whether the growth in warnings last year really represents the entire economy.
Among broker-rated companies, just 14 out of 200 firms had ratings downgraded between Monday and Tuesday based on their outlook, according to Market Watch.
UK-wide gross corporate profits fell steadily during 2022 from £139bn in the first quarter, to £134-132bn in the third quarter, as per Trading Economics data, as higher costs and recessionary fears hit.
New orders rose towards in the third quarter meanwhile, climbing from £11.6bn in the previous period, to £12.9bn, showing economy-wide spending on goods and services grew.
The FTSE100 reached a record high early this month, with Mould adding: "The market won’t wait for profit upgrades necessarily. It will just want to see things becoming worse less quickly."