The UK market currently offers an unprecedented buying opportunity given valuations are unjustifiably low. This view is well supported by the recent flurry of UK targeted M&A at extremely attractive premiums.
Alongside compelling valuations, there are also signs that the Bank of England will ease its monetary policy as inflation comes under control. We think this backdrop, which gradually moves us on from the more turbulent macro conditions of recent years, should bolster the UK’s appeal to investors.
Investors should therefore not overlook the market standing at these historically low levels, or the many successful British listed companies available at bargain prices that can be tapped into.
Aerospace and defence demand
Whilst most people might associate Rolls Royce with luxury vehicles, the stock is actually a powerful player in the aerospace market. It has become the world’s leading engine supplier in business aviation, powering some of the largest, fastest, and longest-range business jets available.
Today more than 3,300 of these aircraft are in service worldwide, helping companies to improve business efficiency, productivity and enabling economic growth.
Rolls Royce’s new management team has been instrumental in turning the business around, improving both cashflow and profit margins. The firm has also benefitted from increased demand for flight travel in a post-Covid era, with ageing fleets that need ongoing service and maintenance.
Within the sphere of defence spending, which has become a heightened priority in most Western countries, BAE Systems, which provides some of the world’s most advanced, technology-led defence, aerospace and security solutions, is currently experiencing a significant order book as companies seek to address potentially decades' worth of defence underspend.
Consumer manufacturers – hobby miniatures
Games Workshop is the global leader in tabletop miniature gaming with a long-standing reputation for producing 30 million high quality miniatures per year for its iconic Warhammer worlds.
The company is differentiated by its scale, expertise, and control of every aspect of its brands and products from concept and design to manufacture and distribution. As one might expect, the figurines command a very loyal fanbase who tend to purchase new releases as soon as they appear.
Another boost for Games Workshop is set to come from its exclusive deal with Amazon, signed last year, to transform its Warhammer 40k game into a film and television series.
In its half-yearly report, released in January, the gaming firm said revenue reached £247m in the 26 weeks to 26 November 2023, up from £226m in the previous year. We believe the business has good pricing and volume growth which, coupled with unending revenue streams, presents a compelling investment opportunity.
IT solutions in the value-added reseller sphere
Bytes, a recent addition to the portfolio, is a value-added reseller of IT services and Microsoft’s top partner in the UK. As Microsoft has gone from strength to strength, so too has Bytes.
The company goes beyond simply reselling products to small- and medium-sized businesses, by seeking to educate on various tech trends and help clients find suitable technology solutions for their businesses.
It has had huge success selling into the public sector, winning big name contracts with the likes of the NHS. Recent artificial intelligence (AI) developments, such as Co Pilot, present a significant growth opportunity as the tool represents a serious productivity opportunity but requires instruction to use it. Bytes will therefore be able to sell it into their customer base at scale.
Callum Abbot is portfolio manager of JPMorgan Claverhouse. The views expressed above should not be taken as investment advice.