The latest wave of the QCA/YouGov Small & Mid-Cap Sentiment Index has been released following a survey of 111 small & mid-sized quoted companies and 42 advisory firms over June & July 2018.
Uncertainty around the Article 50 process and Brexit inevitably overshadows the results, but whilst optimism about the UK economy remains muted, many companies remain bullish about their own prospects and capacity for being able to ride out – or even take advantage of – disruption that may arise from Brexit.
1. Economic & company outlook
- The small & mid-size quoted company outlook on the UK economy remains muted but they are optimistic about their own prospects
- Many companies are indifferent to Brexit risks because they are either wholly domestic-focused or deal mostly with non-EU international customers and suppliers. Some in the sector also see political and economic uncertainty as an opportunity for these companies, as they view the larger, most established businesses as being the most vulnerable to potential disruption, with smaller companies able to take advantage.
- Job growth expectations are also high for small to mid-sized quoted companies – 77% expect to increase the number of full-time employees in the next 12 months and average job growth is 8.5% – the highest recorded since the survey began in 2011.
2. Access to capital
- 39% say they plan to raise capital in the next 12 months.
- Raising capital through public equity is the preferred option for small & mid-sized companies. 62% of respondents say this – the highest this figure has been in the 7-year history of this survey. Bank finance is the second most preferred option at 31%.
- While Brexit has yet to happen, around a quarter of small and mid-size quoted companies report that attracting (25%) and retaining (23%) EU nationals for roles has become harder since the 2016 EU referendum.
- Companies surveyed report that non-UK EU nationals are deterred from taking or remaining in jobs in the UK. Small and mid-cap leaders report that workers from continental Europe lack certainty about their future status and feel that the UK is now a less-welcoming place. The decline of the pound has also reportedly made working in the UK less attractive.
- Of those surveyed, 13% of companies also report that their growth is being curtailed as a direct result of skills shortages relating to Brexit.
4. Corporate Governance
- Corporate governance is a hot topic in the world of small caps at the moment – changes in the AIM rules mean AIM companies have to follow a corporate governance code for the first time and, in 2018, updated versions of the QCA Corporate Governance Code and FRC’s UK Corporate Governance Code have been released.
- Companies on the main market of the London Stock Exchange have no choice but to apply the UK Corporate Governance Code, but companies on AIM are free to choose which recognized code they want to adopt. This survey shows that 62% apply the QCA Code and 20% the UK Code, with 14% still deciding which code to apply.