5 Undervalued UK Stocks To Consider As Monarchy Transitions

Summary

• Queen Elizabeth II died on Thursday at the age of 96.
• Market indexes rose in anticipation of a new sovereign.
• These FTSE 100 stocks are undervalued and have good business predictability.

Following the death of Great Britain’s longest reigning monarch, Queen Elizabeth II, on Thursday, U.K. market indexes were up on Friday in anticipation of the transition to King Charles III as sovereign.

The FTSE 100, the benchmark index for the London Stock Exchange, gained 1.45% on Friday to close at 7,367.21.

Further, most individual sectors posted gains for the day.

As the U.K. is ushered into a new era of leadership, investors may find value opportunities among British companies with 10-year revenue per share growth rates of at least 6% and are undervalued according to the GF Value LineVALU
, which is based off historical ratios, past financial performance and analysts’ future earnings projections. Further, these companies have price-earnings ratios below 20 and predictability ranks of at least two out of five stars.

The All-in-One Screener, a Premium GuruFocus feature, found FTSE 100 companies that met these criteria as of Sept. 9 included Ashtead Group PLC (LSE:AHT, Financial), Schroders PLC (LSE:SDR, Financial), Mondi PLC (LSE:MNDI, Financial), JD Sports Fashion PLC (LSE:JD., Financial) and DCC PLC (LSE:DCC, Financial).

Ashtead Group

Ashtead Group (LSE:AHT, Financial) has a market cap of 18.52 billion pounds ($21.45 billion); its shares closed at 45.05 pounds on Thursday with a price-earnings ratio of 18.07, a price-book ratio of 4.21 and a price-sales ratio of 2.90.

The London-based company runs a construction and industrial equipment rental business. Under the Sunbelt Rentals brand, it has operations in the U.S., the U.K. and Canada.

The GF Value Line suggests the stock is modestly undervalued currently.

GuruFocus rated Ashtead’s financial strength 4 out of 10. Despite the company issuing new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 2.63 indicates the company is under some pressure, but value is being created as it grows since the return on invested capital overshadows the weighted average cost of capital.

The company’s profitability fared better, scoring a 9 out of 10 rating. Although the operating margin is in decline, the returns on equity, assets and capital are outperforming a majority of competitors. Ashtead also has a moderate Piotroski F-Score of 6 out of 9, meaning conditions are typical for a stable company. Consistent earnings and revenue growth also contributed to a four-star predictability rank. According to GuruFocus research, companies with this rank return an average of 9.8% annually over a 10-year period.

Of the gurus invested in Ashtead, Bestinfond (Trades, Portfolio) has the largest position with 0.10% of its outstanding shares. The Invesco EQV European Equity Fund (Trades, Portfolio) and iShares MSCI ACWIACWI
CWI
ex. U.S. ETF also own the stock.

Schroders

Schroders (LSE:SDR, Financial) has a market cap of 7.24 billion pounds; its shares closed at 26.42 pounds on Thursday with a price-earnings ratio of 13.08, a price-book ratio of 1.77 and a price-sales ratio of 2.50.

Founded in 1804, the British asset management company has $939.20 billion in assets under management.

According to the GF Value Line, the stock is modestly undervalued currently.

Schroders’ financial strength was rated 4 out of 10 by GuruFocus. Despite have a comfortable level of interest coverage, the low Altman Z-Score of 0.96 warns the company could be at risk of bankruptcy. Further, the WACC eclipses the ROIC, suggesting it is struggling to create value.

The company’s profitability fared better with a 7 out of 10 rating. Although the operating margin is in decline, its returns are outperforming half of its industry peers. Schroders also has a moderate Piotroski F-Score of 6, while steady earnings and revenue growth contributed to a three-star predictability rank. GuruFocus data shows companies with this rank return an average of 8.2% annually.

With a 3.66% stake, David Herro (Trades, Portfolio) is the company’s largest guru shareholder. The iShares MSCI ACWI ex. U.S. ETF also has a position in Schroders.

Mondi

Mondi (LSE:MNDI, Financial) has a market cap of 7.02 billion pounds; its shares closed at 14.46 pounds on Thursday with a price-earnings ratio of 6.43, a price-book ratio of 1.42 and a price-sales ratio of 0.91.

Headquartered in Weybridge, England, the company manufactures packaging and paper products.

Based on the GF Value Line, the stock appears to be modestly undervalued.

GuruFocus rated Mondi’s financial strength 6 out of 10. Although the company has issued new long-term debt over the past several years, it is at a manageable level due to sufficient interest coverage. In addition, the Altman Z-Score of 3.24 indicates it is in good standing. The ROIC also exceeds the WACC, so value creation is occurring.

The company’s profitability scored an 8 out of 10 rating. While the operating margin is in decline, the returns are outperforming versus competitors. Mondi also has a high Piotroski F-Score of 7, indicating conditions are healthy, and consistent earnings and revenue growth resulted in a 2.5-star predictability rank. GuruFocus found companies with this rank return, on average, 7.3% annually.

Bernard Horn (Trades, Portfolio) is Mondi’s largest guru shareholder with 0.05% of outstanding shares. It is also being held by the iShares MSCI ACWI ex. U.S. ETF.

JD Sports Fashion

JD Sports Fashion (LSE:JD., Financial) has a market cap of 6.52 billion pounds; its shares closed at 1.26 pounds on Thursday with a price-earnings ratio of 17.78, a price-book ratio of 3.39 and a price-sales ratio of 0.75.

More commonly known as JD Sports or JD, the British company is a sports fashion retailer that sells international brands like NikeNKE
(NKE, Financial) and Adidas (XTER:ADS, Financial) as well as its own brands, which include McKenzie, Carbrini, Supply & Demand and The Duffer of St. George.

The GF Value Line suggests the stock is significantly undervalued currently.

JD Sports’ financial strength was rated 6 out of 10 by GuruFocus on the back of adequate interest coverage. The Altman Z-Score of 2.78, however, indicates the company is under some pressure since assets are building up at a faster rate than revenue is growing. The ROIC also surpasses the WACC, so value is being created.

The company’s profitability received a perfect 10 out of 10 rating, driven by an expanding operating margin, returns that top a majority of industry peers and a high Piotroski F-Score of 8. Steady earnings and revenue growth resulted in JD’s 4.5-star predictability rank. GuruFocus says companies with this rank return an annual average of 10.6%.

The iShares MSCI ACWI ex. U.S. ETF is currently the only guru with a position in the stock.

DCC

DCC (LSE:DCC, Financial) has a market cap of 4.73 billion pounds; its shares closed at 47.90 pounds on Thursday with a price-earnings ratio of 15.13, a price-book ratio of 1.62 and a price-sales ratio of 0.27.

The Irish company offers international sales, marketing and support services. It operates through three divisions: energy, health care and technology.

According to the GF Value Line, the stock is significantly undervalued currently.

GuruFocus rated DCC’s financial strength 6 out of 10. While the company has issued new long-term debt in recent years, sufficient interest coverage means it is manageable. The Altman Z-Score of 2.91, however, indicates the company is under some pressure since assets are building up faster than revenue is growing. Value is being created, though, since the ROIC outshines the WACC.

The company’s profitability also fared well with an 8 out of 10 rating. In addition to operating margin expansion, DCC’s returns outperform over half of its competitors. It also has a moderate Piotroski F-Score of 5, while consistent earnings and revenue growth contributed to a 4.5-star predictability rank.

Invesco has the largest holding of DCC with 0.46% of its outstanding shares. It is also being held by the iShares MSCI ACWI ex. U.S. ETF.

Other potential picks

Additional stocks that qualified for the screener were Hargreaves Lansdown PLC (LSE:HL., Financial) and Howden Joinery Group PLC (LSE:HWDN, Financial).