Unloved British stocks get backing of US analyst
INTERNATIONAL investors have been urged to pile back into Britain amid a deal-making frenzy and undervalued share prices.
Morgan Stanley analysts said that although they expect the economy to slow this year due to uncertainty ahead of Brexit, UK stocks are unnecessarily unpopular and deserve more attention.
They argue that US and European shares have surged ahead of Britain. Now that more deals are happening and pushy activist investors are wading into the London market to shake up sluggish companies, Morgan Stanley believes a rethink is needed.
‘The UK market remains unloved and undervalued and should benefit from higher commodity prices and rising corporate activity,’ analysts said. ‘It is a fertile ground for stock pickers, given a combination of low valuations and increasing corporate activity and activism.’
Among businesses which the firm likes are drugmaker Hikma Pharmaceuticals (although it fell 0.2pc, or 3p, at 1314.5p yesterday) and pub firm Greene King (up 2.6pc, or 13.8p, at 553.6p).
Others include Barclays, which is being targeted by activist investor Edward Bramson and was off 1.2pc, or 2.55p, at 211.9p, and hip replacement maker Smith & Nephew, which is facing a campaign from hedge fund Elliott Advisors and rose 0.6pc, or 8p, to 1306p.
Marks & Spencer is also popular with Morgan Stanley, although shares yesterday dipped 1.3pc, or 3.7p, to 289.6p after a separate ratings cut from HSBC. Overall, the blue-chip FTSE 100 index dropped 0.2pc, or 13.57 points, to 7,710.98, ending a three-day winning streak which had taken it close to the record highs hit in January. The fall came as the pound strengthened, meaning the index’s many international stocks are less valuable because their profits are lower when changed into sterling from foreign currencies.
Among the top risers bucking the trend was caterer Compass Group, which climbed 1.2pc, or 17.5p, to 1525.5p following an upgrade from Bernstein.
Researchers argued that wages will rise across the labour market this year, meaning there will be higher demand for the outsourcing services offered by Compass.
They see shares hitting 1750p, and expect a £1bn special dividend next year.
Funeral firm Dignity was also on the up after announcing revenue of £95.1m for the first quarter of 2018, up 2pc on a year earlier.
This was helped by an 8pc rise in recorded deaths to 181,000, while profit was up £100,000 at £37.5m.
Dignity said in January that it would slash the price of its cheapest funerals dramatically to compete more effectively in an increasingly tough market. Shares climbed 2.4pc, or 29p, to 1245p. At the other end of the market, slipped 2.3pc, or 3.9p, to 168.1p and was one of the Footsie’s biggest fallers following speculation over the weekend that it will be the hardest-hit broadcaster in a crackdown on junkfood advertising.
Another TV firm under the cosh was Entertainment One, which dropped 4.1pc, or 12p, to 282p.
EOne – best known for children’s series Peppa Pig – announced that political drama Designated Survivor has been killed off by US network ABC.
The firm is looking for a partner to continue the programme.
These woes were dwarfed by drama in small cap-land, where vending machine supplier Uvenco was walloped after a disastrous trading update. It said a severe revenue slump had forced it to rely on a £1m loan that has been almost entirely used up.
The AIM-listed firm is in talks to sell its vending arm Uvenco Limited and franchise operation Snack-in-the-Box. Shares plunged 50pc, or 1.25p, to 1.25p.