Was he testing the water? Or was Mark Carney seriously thinking about raising rates later on this year? Either way, he seems to have backed out of his comments regarding the possibility of an interest rate rise in 2014 and assured MPs that any increase in rates would be gradual, thereby lessening the chances of strangling the UK’s economic recovery.
One effect of a low interest rate is weak currency. While this means imports are more costly, it allows UK firms to compete far more easily abroad. Therefore, Mark Carney’s backtracking has caused sterling to depreciate and could mean that these three UK exporters have a brighter future as a result.
High-end fashion retailer Burberry (LSE: BRBY) has benefited from weak sterling in recent years, since it is very much focused on emerging markets. Indeed, China remains a key focus for the brand, which has benefited from the difficulties experienced by sector peer, Mulberry, in recent months. This has shown just how strong the Burberry brand is, which bodes well for the company’s future.
Trading on a price to earnings (P/E) ratio of 18.5, shares don’t look particularly cheap. However, earnings per share (EPS) growth of 9% next year (which could surprise on the upside due to an upturn in Chinese data) shows that the share price continues to have the potential, aided by weaker sterling, to move upwards.
Exporting continues to be a key part of BAE’s (LSE: BA) business, with the defence company selling its products across the globe. Therefore, it stands to gain from weak sterling. In addition, shares continue to offer great value at current levels, with BAE currently trading at a discount of 24% to the FTSE 100 P/E of 14.1.
Furthermore, BAE continues to offer an attractive yield of 4.9%, with dividends per share forecast to grow by 2.5% next year. Indeed, although bottom-line growth may be minimal over the short term, BAE’s yield and the scope for an increase in its P/E mean that it could have a bright future – especially if sterling depreciates.
As with BAE and Burberry, Rolls-Royce (LSE: RR) is a major UK exporter that stands to benefit from weak sterling. Although it trades at a premium to the FTSE 100, Rolls-Royce has the potential to expand into new markets and new product lines. Indeed, EPS is forecast to increase by 11% next year, as the company continues to beat the market average growth rate.
Certainly, its current yield of 2.2% is not all that impressive. However, there is scope for dividends per share to improve significantly, since the company’s dividend payout ratio is a rather mean 35%. A doubling of dividends could still be comfortably paid, which could make Rolls-Royce a star buy for income as well as growth investors.
Peter owns shares in BAE.