Charles Incledon, Client Director’s research quoted in The i and Bloomberg, 3rd September 2021
FTSE 100 companies have added £30bn to their cash piles in the past year, up 17% to £183bn compared to £153bn the previous year, shows research from Bowmore Asset Management.
In the early stages of the pandemic, there was a great deal of uncertainty regarding the potential effects of Covid-19 on the economy at large as well as the underlying companies. As a result, many of the UK’s largest companies started to build up their cash reserves in order to strengthen their balance sheets.
However, says Bowmore, as the economy reopens and the outlook for companies becomes clearer, FTSE 100 firms should perhaps be looking to use this cash to compete with private equity for acquisitions. Given the lower valuation of UK stocks compared to their peers, private equity groups have been quick to make acquisitions of listed UK businesses – an opportunity few corporates have taken.
Charles Incledon, Client Director at Bowmore, says: “Many FTSE 100 companies decided to bolster their cash reserves to provide a safety net for a worst-case scenario situation resulting from the on-going pandemic. However, as the economy continues to recover and the economic outlook becomes clearer, that money should be put to good use”
“In general, lower valuation levels in the UK presents plenty of M&A opportunities and UK corporates have not seized these opportunities as they would typically do under normal circumstances. This has left private equity groups with a great opportunity to capitalise without the same level of competition for such deals.”
While FTSE 100 companies have been slower than private equity groups in making acquisitions, they have been quick to draw on their cash reserves to reward investors.
An increasing number of firms have given cash back to investors in the form of share buybacks this year. A number of firms have also decided to reward shareholders through special dividends. Link Group forecasts listed UK firms will pay £12 billion in special dividends for 2021 alone.
Oil and gas giants BP and Royal Dutch Shell have the biggest reserves, with cash piles of £22.6bn and £23.1bn respectively. Both companies have announced share buybacks and have raised their dividends. This month BP announced a $1.4bn share buyback programme. Shell announced a $2bn share buyback and raised its dividend by 40%.
Another company with large cash reserves is consumer goods giant Unilever, whose revenues have remained steady throughout the pandemic. The firm’s cash pile has grown 33% in the past year to £4.7bn, and it has announced plans to reward shareholders with up to £2.6bn in share buybacks during 2021.
Pharmaceutical companies AstraZeneca and GlaxoSmithKline also have big cash piles, with reserves of £7.8bn and £6.2bn respectively. In the case of AstraZeneca, its cash reserves could be set to rise considerably throughout 2021 with the firm recently reporting double-digit revenue growth.
FTSE 100 cash pile jumps 17% to £183bn
Source: Companies House, 2021