In the words of New York Yankees Hall of Famer, Yogi Berra…
…it’s déjà vu all over again
News broke last week that the United Kingdom will invoke Article 50 on March 29th in a move that will formally initiate that nation’s departure from the European Union, an event known colloquially as the “Brexit.”
[ad#Google Adsense 336×280-IA]I don’t believe investors have fully priced in the consequences and, as a result, you’ve got an incredible opportunity on your hands.
Before I get to that, I’d like to spend a moment on what the Brexit means for your money.
Then we’ll move on to one company you’ll want to own before the Brexit negotiations start.
Make no bones about it, the “Brexit” is a big deal.
Not only is the U.K. the first sovereign state to leave the EU since it was formed 60 years ago, but it also won’t be the last. Possibilities include a Frexit (France leaving), a Spexit (Spain leaving), a Nexit (the Netherlands leaving).
Still more headline-worthy possibilities could include a Departugal. Quitaly, Fruckoff. Czechout. Oustria. Finish. Slovlong. Latervia. Byegium. It’sSpainreal.
Triggering Article 50 means that Prime Minister Theresa May will officially inform the EU that the U.K. intends to depart. It’s the first step towards negotiating the U.K.’s departure.
Political apparatchiks will have you believe that the process will be complicated and drawn out when it actually could be short and simple for one reason.
Both the EU and the U.K. want to maintain close relations.
The U.K. simply wants to be on its own, a point voters made abundantly clear. Plenty of nations will want to do business. German Finance Minister Wolfgang Schäuble has already gone on record calling Britain a reliable partner in international agreements despite being the last person on Earth you’d think would make such a statement given Germany’s pre-vote political posturing.
China’s also looking to do more business in London. So are dozens of other countries – including the United States – with a combined GDP of more than £40 trillion or approximately $50 trillion USD.
European Commissioner for Economic and Financial Affairs, Pierre Moscovici, has publicly said the EU will try to seek a close relationship with the United Kingdom, while Brexit negotiator Michel Barnier said that the EU was determined to sign a “unique” trade deal with the U.K. as soon as it could.
The sentiment is clearly good if for no other reason than it has to be… to prevent other EU members from leaving in the future.
What does Brexit mean for the British Pound?
The British Pound has fallen roughly 20% since the June 2016 vote and hit an all-time low in October.
But the complete collapse once widely predicted last June doesn’t appear to be in the cards. Not only is the U.K. far more resilient than Brexit opponents thought, but both GDP growth and unemployment have actually topped expectations since the vote as I suggested they would.
I see the Pound Sterling treading water as a result but generally falling against the U.S. dollar until negotiations actually get underway and we have a better sense with regard to what kinds of “unique” arrangements EU ministers actually want.
What does Brexit mean for the stock market?
Not much. Global markets are far more concerned with President Trump’s policies than they are with the Federal Reserve and the Bank of England at the moment.
The Brexit is no longer the “black swan” many investors perceived it to be in June.
What does Brexit mean for British companies?
We regularly speak about the importance of global markets when it comes to S&P 500 stocks for the simple reason that 45% of their earnings come from overseas, according to Kiplinger. Not only does this make companies with international exposure more resilient, but potentially more profitable, too.
Those same factors are even more pronounced “across the pond” where foreign earnings may account for 70%-77% or more of revenues, according to various studies from the Capital Group, the Telegraph, and other sources.
And that, in turn, means the weaker pound sterling I’ve just mentioned actually improves business, boosts revenues, and increases profits. Which brings me to the opportunity I want to share with you today.
Which company do I recommend to play Brexit?
I get that question a lot lately as you might imagine and there are no shortage of candidates to choose from. But I think you stick to what we know works when it comes to making the best play you can.
Enter Worldpay Group plc (LSE:WPG).
It’s one of the world’s leading global payment providers and the United Kingdom’s largest payment processing company.
It’s largely unknown in the United States despite the fact that roughly half the company’s revenues originated here. Overseas, it’s a different story where the company offers more than 300 payment methods to a network of more than 400,000 customers in 126 transaction currencies and 15 settlement currencies in 146 countries.
[ad#Google Adsense 336×280-IA]Its former owner, the Royal Bank of Scotland, was forced by the European Commission to sell to private equity giants Bain Capital and Advent International in 2010 as part of a state-backed bailout.
Management has never looked back.
The company topped $1 billion in net revenue for the first time in 2016 and has shown increased growth for the past four years while, notably, also swinging from losses of $30 million to more than $132 million in profits in 2015.
Admittedly, I’ve got an affinity for underdogs so I love that part of the story. But what really gets me excited is the “must-have” nature of its business.
You can buy Worldpay on the London Exchange directly using ticker WPG, or on the pink sheets where it trades under the ticker WDDYF.
As always, thanks for being a part of the Total Wealth Family,
Source: Money Morning