Are Sterling And The UK Stocks Looking Cheap?

  • Feb 02, 2019 GMT
  • Team Kalkine
Are Sterling And The UK Stocks Looking Cheap?

The UK equity benchmark, FTSE 100 was up on Thursday, after heavyweight corporates like Royal Dutch Shell Plc, BT Group Plc, and Diageo Plc updated the market about their earnings. Despite corporate updates, a dovish move from the US Federal Reserve boosted the investors’ sentiment.

Which LSE listed stocks have been active -

On Thursday, beverage producer, Diageo approved another 660 million pounds of shares buy-back as it reported an 11 % growth in operating profit for the first half year ended December 31. Operating profit for the half year ended December 31 amounted to about 2.4 billion pounds compared with 2.2 billion pounds a year earlier and the analysts’ forecast of 2.31 billion pounds.

Also, Royal Dutch Shell, Anglo-Dutch oil major reported fourth-quarter net earnings that rose by 32% on year on year basis.

Consumer-goods manufacturer, Unilever lately reported its full-year result for FY18, and its full-year pre-tax profit stood at 12.38 billion euros compared to 8.15 billion euros a year before. Pre-tax profit of the group surged by 52%, beating analysts’ expectations. Although, Alan Jope, group CEO at Unilever said, we expect 2019 market conditions to be challenging in the first half and sales growth will be below the multi-year 3-5% range.

How are the UK assets looking at this moment -

As per the recent survey conducted by Bank of America Merrill Lynch, Sterling and the UK stocks have been highlighted as the most underweight assets in some portfolios maintained by fund managers across the globe. Value investors are tracking the UK stocks closely, which look to trade at a discounted price compared to their European and US peers. The sterling is down about 1% percent since June 2016 against USD and around 4% against EURO since Brexit referendum 2016.

Investors are worried over lack of clarity on the EU divorce bill, with many decisions on withdrawal deal still on the table. Uncertainties over Brexit are making it difficult for investors to put a price on the UK investment assets. As per financial times, World’s biggest equity hedge fund manager, Lansdowne partners has increased its exposure to the UK equity asset class in the last three months to December. Then as per Larry McDonald, Head of US macro strategies at ACG Analytics, UK equities are cheapest among the developed economies.

At present, UK equity market is trading at low double digit times in terms of earnings, as compared to the US equities. Despite uncertainties around Brexit, some institutional investors have been eying the UK equities. The UK’s broader index FTSE 100 is up near about by 3.7% on YTD basis, whereas US equities benchmark DJI is up around 7% and European market benchmark CAC 40 is up approximately 5% on YTD basis.

Looking at some specific LSE listed stocks, construction company Melrose Industries PLC (MRO) witnessed a stock price plunge of 22.3% in the last one year while it rose about 4% on February 01, 2019. Even banking sector stock, Barclays PLC (BARC) has been down about 20% in last one year while it was marginally up as at February 01, 2019. It may appear that many stocks are trading below their fair value; however, investors still need to have a cautious view.

While the British Prime Minister, Theresa May won the vote of members of the house on 29 Jan for her Withdrawal “Plan B” but fear around untidy Brexit looks to be back in the play, since Jean-Claude Junker had warned that May’s attempt to reopen EU withdrawal talk with Brussel had increased the chances of dramatic Brexit. Amidst the scenario, it is important to wait and watch the equity space.

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