Will ComfortDelGro’s profits get hammered by the weak British pound?

UK operations account for almost 20% of bottomline.

The weak British pound will not be sufficient to derail ComfortDelGro’s profit growth this year, according to a report by DBS.

DBS estimated that the group’s bus and taxi operations in the United Kingdom account for around 20% of ComfortDelGro’s operating profit. At the net profit level, ComfortDelGro’s UK operations contribute just around 18%, on back of higher tax rates in the UK,

“With the recent weakness of GBP, there have been concerns that this will have a significant impact on ComfortDelGro given its presence in the United Kingdom. Our estimate shows that, while our net profit forecasts could be marginally affected, these are largely translational in nature. on a theoretical basis, every 10% depreciation of the GBP against SGD would have c.1.8% impact on the bottom line,” DBS said.

DBS estimated that assuming the current exchange rate stays at this level, the weaker GBP would shave about 1.1% off ComfortDelGro’s projected FY16 earnings.

“Notwithstanding this, we would highlight that the effects of weaker exchange rate are translational in nature and there are minor cashflow impacts,” DBS said.