Invest in World Cup winners
The forthcoming World Cup promises to give companies worldwide a hefty kick. Find out which companies are likely to be winners regardless of which nation lifts the trophy.
The re-naming last week of Belfast's airport now George Best Belfast City Airport' is a testament to the huge popularity not only of the flamboyant footballer, but of the beautiful game itself.
Next week, on 9 June, the four-yearly jamboree that is the football World Cup kicks off in Munich, with teams representing 32 countries competing to take home the famous FIFA trophy. And this year, more than ever, the world's most popular sporting festival promises to give the performance of companies worldwide a hefty kick.
For the host, Germany, the tournament is set to play a major role in the national economic upturn, says Michael Woodhead in The Sunday Times. Analysts estimate that visiting fans will spend some £700m over the next month and overall, according to Deutsche Postbank, the World Cup will account for 0.5% of this year's 1.6% growth in GDP. Naturally, there is no shortage of global corporate giants aiming to take advantage of that kind of upswing.
Firms such as Adidas and McDonald's have forked out more in sponsorship this time than for the previous World Cup and the European Cup put together. Overall, the 15 main sponsors are paying FIFA, the organisers, £465m for sponsorship and merchandising rights. That might sound like a large outlay, but the benefits are already being felt. For example, Adidas's net profits have risen by 37% in the first quarter of this year and it expects total sales of football equipment to reach £820m this year, "helped in large part" by sales of 15 million World Cup replica footballs.
With England widely expected to perform strongly this time, the British Retail Consortium (BRC) predicts an extra £1.25bn of consumer spending in the UK, says Joanna Geary in The Birmingham Post. Where will all this cash go? Pubs, off-licenses and clubs will be big gainers: the BRC predicts they will see an extra £285m in sales that's a like-for-like boost of "around 10%", according to analyst Charles Wilson at Bridgewell Securities. Other industries will cash in too. According to the BRC, the advertising industry will receive a £300m fillip, an extra £124m will be spent on food and a host of other consumer sectors will benefit too, such as flat-screen TVs (see below), sporting goods and all manner of England-branded items.
As ever, the other big winners will be bookmakers. A huge £1.3bn is set to be wagered on the World Cup alone, making the tournament the "biggest single-betting occasion ever", says Jonathan Brown in The Independent. This wall of money is due in part to the increasing range of bets available to punters especially the ability to place running bets while matches are in progress. So unless Beckham & Co. really do end 40 years of hurt and win the thing, the happiest fans over the next month will be the bookies.
Three firms that could score whether England wins or not
Britain's biggest electrical retailer DSG International (DSGI, 195p) it owns Dixons, Currys and PC World expects to beat profit forecasts this year, thanks to an "explosion" in demand for flat-screen TVs, says Eoin Callan in the FT. CEO John Clare says flat-screen sales thanks in large part to the World Cup have "more than doubled" in the second quarter, with stores selling one set every 15 seconds. DSG is clearly on the "right track", reckons Callan. And the recent discount on its shares trading on a p/e ratio of about 15 is "harsh", especially given the more-than-respectable 4.6% yield.
Punch Taverns (PUB, 860p) is likely to do well this summer, with a huge football-related lift. Results for the six months to March beat forecasts and the company is successfully integrating its recent acquisition, Spirit Group. Punch trades at around ten times forecast earnings for 2007 (compared with Enterprise Inns at 13 times) and is raising the interim dividend by 19%. The Spirit acquisition means it is capable of 15%-20% earnings growth, making the shares look cheap.
Britvic (BVIC, 205p), the soft drinks group, which sells PepsiCo products such as Tango and Gatorade, has had two profit warnings since its December float, says Michael Jivkov in The Independent and it recently confessed that its full-year results would "miss forecasts". But investors should not write it off. If the fizz has been going out of Britvic's carbonated drinks, soft drinks products such as J2O and Fruit Shoot are performing well, and now make up half the firm's sales. Britvic's marketing campaign during the World Cup is "key", with PepsiCo a sponsor of the England team. At current lows, the stock is valued at just 13 times forecast earnings, with a 4.5% dividend yield. What's more, a private-equity bid for the firm looks "distinctly possible".