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How Brexit Can Affect Italian Companies

|About: DATALOGIC SPA BOLOGNA ORD (DLGCF), Includes: BRBOF, DELHF, IPGLF, LUX, RCDTF, RPYYF

Summary

Italian imports are 3.97% of total UK’ imports.

Industries more affected are Machinery, Vehicles, Pharmaceutical products, Electrical and Beverages.

Some Italian companies have more than 30% of revenue coming from the UK economy.

Conclusion

In case of Brexit, while agreements will affect long-term business, some Italian sectors will be affected in the short term due to the depreciation of GDP/EUR. No matter what the type of agreement, fiscal policy or tariffs, in any case , some Italian companies will face negative impact on their revenue in the short-term.

Macro Situation

In one week the referendum will be held that will decide whether Britain will remain part of the European Union or divorced from Brussels. With the vote approaching, everyone is expressing their views on the benefits and repercussions that the decision will bring.

I am not here to comment in the same way but to give some insights on Italian industry and companies that may be affected.

There are different opinions about the impacts of Brexit on Italy.

"According to Leonardo Simonelli, President of the Italian Chamber of Commerce in the UK, the possibility of a Brexit, however remote, would be very damaging - politically, commercially, and financially. And above, all it would inevitably cause Italian investors in the UK to reconsider."

Based on a Standard & Poor's report, Italy is not among the nations that are likely more affected in terms of economic, trade and migration, from a possible exit of Britain from the EU. Indeed, it is among the last in the "shock Classification" post-Brexit. (Brexit Sensitivity Index)

Industry

How is UK important for Italian exports?

The dollar value of United Kingdom's imports from Italy grew 69.4% from 2001. In 2001, the value of imports was $14,744,692.00, while in 2015 it was $24,976,793.00. (Data: International Trade Centre ITC).

Exports increased at a CAGR of 3.58% in line with the total England imports from the world that increased at a CAGR of 3.82%.

In 2001 Italian imports were 4.11% of total imports from the world, Today slightly less at 3.97% but almost unchanged in the last 15 years.

It seems that products from Italy are not replaceable.

Source: Author

Product label

Value in 2015

 
 

All products

$24,976,793.00

 

Machinery, nuclear reactors, boilers, etc

$3,933,091.00

 

Vehicles other than railway, tramway

$2,978,650.00

 

Pharmaceutical products

$1,360,143.00

 

Electrical, electronic equipment

$1,359,323.00

 

Beverages, spirits and vinegar

$1,138,814.00

 

The five products more decisive for Italian Export to UK are:

Industry

 

Machinery, nuclear reactors, boilers, etc

15.75%

Vehicles other than railway, tramway

11.93%

Pharmaceutical products

5.45%

Electrical, electronic equipment

5.44%

Beverages, spirits and vinegar

4.56%

All together is 43.1% of total Italian exportation to the UK. This information can help us to understand which sector could be affected by Brexit decision.

Companies

I cover more than 30 Italian companies and the following are those that have a consistent part of the revenue from UK.

Company

% revenue from UK

Brembo (OTC:BRBOF)

8.10%

Cembre (CMB.MI)

16.24%

Datalogic (OTC:DLGCF)

36.41%

De-Longhi (OTC:DELHF)

8.30%

IMA (IMA.MI)

2.90%

Interpump (OTC:IPGLF)

13.28%

La Doria (LD.MI)

41.24%

Luxottica (NYSE:LUX)

1.68%

Recordati (OTCPK:RCDTF)

1.18%

Reply (OTC:RPYYF)

12.30%

For companies with branch office in London (all those in the table have a subsidiary in the UK), the tax consequences should be assessed individually. But the United Kingdom would continue to benefit from the terms of double taxation and would be constrained: it is probable that an exit of UK from the EU would have no effect on Italy. The Brexit could have some impact on the contracts.

Once out of the EU, London should negotiate with Brussels on a free agreement bilateral cartel's model with Switzerland, the WTO relationship or the relationship with the Turkish Customs Union. At worst, UK will not reach an agreement and the EU could impose punitive tariffs on goods from the UK and vice versa.

We cannot forecast on the future agreements, so it is impossible to provide a forecast for those companies now.

What can be sure is how the currency will affect companies. All those companies that have business in the UK but cost is not recorded there will face negative impact on their revenues if the currency depreciates.

GDP/EUR in the last year already lost -7.22% and a possible exit of UK can depreciate way more the pound.

If Brexit happens, probably there will be a general sell off but it is important to understand which Italian companies are affected by the event and which are not. Brexit can be a perfect catalyst for a good entry point in some Italian companies that have nothing to do with the Britain.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in DLGCF over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.