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    BAB   GB0009697037

BABCOCK INTERNATIONAL GROUP PLC

(BAB)
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UK shares near record cheap levels after Brexit, says J.P.Morgan

11/08/2021 | 03:13am EST
FILE PHOTO: Workers are reflected in the windows of the Canary Wharf offices of JP Morgan in London

(Reuters) - Britain's shares are near "record cheap" levels as they have lagged their global peers since the Brexit vote, J.P. Morgan said on Monday, boosting its rating of UK stocks.

The brokerage upgraded UK stocks to "overweight" from "neutral", meaning it believes these stocks should perform better in the future.

UK stocks have lagged U.S. and Eurozone counterparts by a cumulative 50% and 24%, respectively, since the Brexit referendum in 2016, J.P. Morgan said, noting a "record discount" in their valuations relative to other regions on a price-to-earnings and price-to-book value basis.

The UK, the world's fifth largest economy, has been grappling with an acute shortage of critical workers as well as massive supply chain troubles, although projections for economic growth have been improving.

"Some argue that the higher representation of value sectors, including financials and commodities, explains this significant valuation gap," analyst Mislav Matejka wrote in a note. However, even fully excluding these sectors the UK market looks near record cheap."

While the S&P 500 has climbed 25% so far this year and the MSCI's gauge of stocks across the globe has risen 17%, London's FTSE 100 has advanced 13%.

UK stock trading in relation to certain macroeconomic variables appears to be evolving, Matejka added. "UK has historically exhibited a clear inverse correlation to bond yields direction, but that is not the case anymore."

The UK also offers high dividend yields, Matejka said, adding that a potential Bank of England interest rate hike "should not be a problem" for the FTSE 100.

Credit Suisse downgraded UK small cap companies to underweight last week, saying their higher valuations compared to large caps were unwarranted due to lower expectations of manufacturing and economic growth.

(Reporting by Siddarth S in Bengaluru, additional reporting by Muvija M; Editing by Sachin Ravikumar and Shailesh Kuber)


ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
BABCOCK INTERNATIONAL GROUP PLC -3.56% 327.8 Delayed Quote.6.69%
BT GROUP PLC -0.40% 188.75 Delayed Quote.11.77%
LLOYDS BANKING GROUP PLC -2.43% 51.69 Delayed Quote.10.84%
RECKITT BENCKISER GROUP PLC 0.06% 6429 Delayed Quote.1.31%
ROYAL MAIL PLC -2.53% 461.7 Delayed Quote.-6.38%
TRAVIS PERKINS PLC -1.02% 1545.5 Delayed Quote.0.45%
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Financials
Sales 2022 4 271 M 5 788 M 5 788 M
Net income 2022 95,0 M 129 M 129 M
Net Debt 2022 1 213 M 1 644 M 1 644 M
P/E ratio 2022 17,4x
Yield 2022 -
Capitalization 1 655 M 2 244 M 2 243 M
EV / Sales 2022 0,67x
EV / Sales 2023 0,67x
Nbr of Employees 29 137
Free-Float -
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Mean consensus OUTPERFORM
Number of Analysts 12
Last Close Price 3,28 GBX
Average target price 372,09 GBX
Spread / Average Target 11 251%
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Managers and Directors
David C. Lockwood Chief Executive Officer & Director
David Anthony Mellors Chief Financial Officer & Director
Ruth L. Cairnie Chairman
Jon Hall Chief Innovation & Technology Officer
Myles Peter Lee Independent Non-Executive Director