Anyone following the news out of the UK around its attempts to negotiate an exit deal from its European Union membership will know that a no-deal outcome on or before April 12 is increasingly possible in a result that could spell trouble for the majority of UK companies.
A no-deal scenario is likely to lead to an economic slowdown on the back of falling trade, economic confidence and investment in the country. In this outcome the UK could tip into recession to leave consumer-facing and services businesses facing particular problems.
The ASX has plenty of businesses that earn a lot of revenue and profits in the UK and as such look particularly vulnerable to a hard exit or even a soft exit if delivered on the terms currently proposed.
Here are four businesses I'd think twice about buying before we see a 'no deal' scenario made all but impossible.
Macquarie Group Ltd (ASX: MQG) claims it's made extensive preparations for "Brexit", but I doubt it planned much for something as extreme as no trade deal at all. Macquarie currently operates in Europe and out of the UK often under "passporting" arrangements under the MiFID II EU directive. If its significant UK operations are unable to passport services and operations into Europe anymore it could face falling business and rising costs. Not a good combo and I think the market is underestimating the Brexit risk facing Macquarie.
Iress Ltd (ASX: IRE) is a financial services software provider that also has major clients and a large proportion of its revenue and profit streams coming via the large UK financial services market. It doesn't look as directly exposed as Macquarie for example, but any downturn in the UK financial services industry is a net negative for the business.
Webjet Limited (ASX: WEB) is the online travel business that struck a 2016 deal with UK consumer-facing travel giant Thomas Cook to take over the bookings management for much of Thomas Cook's hotel inventory via Webjet's BSB business Sunhotels. However, Thomas Cook has already blamed Brexit and hot weather in the UK last summer for recent weak performance and the Webjet share price is already falling as the Brexit uncertainty increases.
Gentrack Group Ltd (ASX: GTK) is a software-as-a-service business that has already flagged "regulatory and investment uncertainty" in the UK as a headwind for its substantial operations supplying software to many of the UK's leading utility businesses. Gentrack has also talked up its growth outlook quite aggressively and failure to deliver could cause more selling in the stock.
