View from the City: Looking ahead to 2024 after a better than expected 2023

Gaming companies had a tough time in Q3 2023, but they weren’t alone. The share prices of UK companies fell by 18%, much worse than the UK market return of +1%, and the European companies underperformed with a fall of 11% versus the 3% market decline. This was broadly spread despite upgrades to aggregate 2023 profit estimates, including downgrades for Entain.

The International Monetary Fund’s latest economic forecasts for October 2023 are consistent with a soft landing, albeit the forecasts are for below-average economic growth in 2023 and 2024. It’s fair to say 2023 has turned out better than many expected at the start of the year, which began with the mini-financial crisis.

The year has been challenging for investors given the focus on how slowing economic growth, high inflation and interest rates will affect consumer spending and corporate profits. The consensus expects around one-third of consumer-facing companies will report lower profit in 2023 than 2022, despite some enjoying easy comparatives from 2022 due to Covid-19.

Once they get past the uncertainty about profits, investors have had to contend with rising bond yields, which currently represent a significant headwind for share prices. We are seeing many companies report good results only to be rewarded with a negative share price reaction. 

Investors are beginning to look forward to 2024 where, based on the current level of profit estimates, optimism abounds. Consensus is expecting strong profit growth for the UK gaming sectors of 27%, and, more broadly, 90% of consumer-facing companies are forecast to generate more profit in 2024 than 2023.

Woe betide any company that disappoints these growth expectations. But do keep an eye out for M&A; low valuations and low economic growth are good catalysts for this type of activity – if it can be financed, of course.