There are plenty of reasons for UK citizens to celebrate London’s successful bid for the 2012 Olympic Games but don’t overestimate the economic impact, says F&C Asset Management. However, despite the relatively modest economic stimulus of hosting the games, fund managers have identified a number of stocks which could be significant beneficiaries of London’s coup at yesterday’s International Olympic Committee meeting in Singapore.
‘As a sports fan I’m over the moon, as an economist I’m un-phased,’ commented Steven Andrew, chief economist, F&C. ‘There is a large body of academic research analysing the economic impact of hosting major sporting events such as the football World Cup and the Olympic Games. The consistent finding of this research is that the impact of hosting such events is likely to be very small.
‘This has not prevented optimistic estimates of a favourable economic impact being produced by event promoters and host governments. While there are ample benefits likely to be seen in the specific areas involved in hosting the Games, most notably the area around Stratford where the Olympic Park is to be created, the aggregate impact is not discernible.”
The total budget for the Games is £1.5 billion. The UK Government is providing just 3% of this (£72 million) with the bulk of the funding coming from the IOC, ticket sales and sponsorship (although the government is committed to make up any shortfall in the budget). Around two-thirds of this money will be spent in 2011 and 2012, with just £24m being spent over the next two years. This is tiny. Annual personal consumption in the UK is around £750bn. Outside of this, there is to be capital investment of just under £10bn (spread over seven years), most of which (£7bn) is to be spent on roads and railways. This is less than 1% of UK GDP and compares to total UK business investment of about £120 billion per annum.
Whilst the aggregate economic impact is likely to be small, F&C’s fund managers have identified a number of companies that are well positioned to be beneficiaries of the bid, particularly in the building, transport and environmental planning sectors.
‘Morgan Sindall is a potential winner from this news,’ explained Catherine Stanley, Head of UK Smaller Companies at F&C, ‘as one of its key skills in its civil engineering side is tunnel construction. There are very few companies who can do this in the UK and it would be required for the building of rail links and venues.
‘We also own property consultants such as WSP and White Young Green who would be early winners on the construction and planning phase. Ennstone, an aggregates business, is also well positioned.’
‘On a medium term view we hold Workspace, which provides small serviced business units with an emphasis on service and creative businesses. They feel they would benefit in two ways – one from an improvement in asset values, and two from increased demand for space from businesses wishing to service the Olympics.’
However, F&C also warns that contractors will often accept trophy projects on thin margins and therefore some of the potential suppliers look more attractive.
‘Companies such as Marshall’s, who manufacture paving stones, could well benefit from the successful bid,’ said Hilary Aldridge, deputy manager of the F&C UK Growth & Income Fund and the ethical Stewardship Income and Stewardship Growth funds.
‘I also think there are opportunities for companies involved in improvements in transport infrastructure such as Mouchel Parkman as well as those involved in environmental assessment and planning such as RPS Group,’ she added.
‘Hosting the Olympics will require a large build of key worker / low cost housing so companies with experience in complicated multi-use developments such as Berkeley Group, Crest Nicholson could be involved.
‘I think the ‘greenness’ and sustainability of the project could be an interesting angle for the ethical funds.’
By F&C Asset Managemen