Gains for investors have been much lower, and dispersion of returns much higher. However, there are some UK-based companies that are producing world-leading goods which are worth considering as long-term holdings, according to the Share Centre’s Helal Miah (pictured).
On the Queen’s official birthday, he picks five UK companies to make the country proud.
Burberry
Miah says that Burberry is showing signs of recovery from a rough period after slowing sales of luxury goods in China trimmed the sails of a number of companies in the sector.
“The luxury goods market has been going through tougher times lately, impacted by China, and investors will be looking to see how new chief executive, Christopher Bailey, is taking the company forward,” he said.
“Investors should note that Burberry has changed its strategy, becoming less reliant on discounts at department stores in favour of fully priced merchandise; the idea being to improve the exclusivity of the Burberry brand.”
“Alongside this, the group’s online offering and social media presence is improving brand awareness amongst younger tech savvy consumers.”
“Investors will acknowledge that recent trading updates have shown that so far this seems to be step in the right direction.”
Data from FE Analytics shows that the stock is up over 7 per cent since the end of March, and the company reported strong growth in its May results.
However, the stock is at more or less the same price it was in July 2011 after a period in which luxury brands received a great deal of investor attention on the back of growth in Asia.
Performance of stock vs market over 5yrs
Source: FE Analytics
Shares are currently trading at £14.86 on a price to earnings [P/E] ratio of 18.6 times.
Mulberry
Another fashion label with strong overseas appeal is Mulberry, although this company had a rough start to the year.
Shares fell 29.26 per cent after a profit warning in January, although they have been recovering since then.
Performance of stock vs index in 2014
Source: FE Analytics
“A core selling point of the brand is its heritage of “English craftsmanship” and that the products are made at the firm’s factory in Somerset,” Miah said.
“With a host of new store openings in key locations, the retail operations have experienced good growth rates in the last year.”
“However, as the company experiences tougher times, the new management are looking to take a more measured approach to new store openings, in the hope of allowing existing stores to gain more traction and control costs.”
“The shares in recent months have shown some stability following a tough couple of years for the business.”
“Investors should be reassured that the company is still pursuing international expansion and has reassessed its strategy by also introducing slightly more affordable ranges.”
Shares cost £7.25 and are on a P/E of 33 times.
BP
BP is one of the six oil and gas ‘supermajors’ in the world, and along with compatriot Royal Dutch Shell has been one of the UK’s winners from this year’s rotation out of cyclicals and into defensives. The stock is up 4.55 per cent in 2014, ahead of the FTSE All Share.
Performance of stock vs market in 2014
Source: FE Analytics
The company was hit by the Gulf of Mexico disaster in 2010 which forced it to suspend its dividend and gave both share price and reputation a battering. Litigation on the consequences of the disaster is ongoing.
“The group has made good progress in transforming itself from the company it was prior to the Gulf of Mexico oil spill,” Miah said.
“It is still in the process of restructuring its portfolio, selling off low returning assets and investing more in those which have higher growth opportunities.”
“2013 was a fairly disappointing year for the sector with most of the oil majors suffering from weak refining conditions and a small decline in average energy prices.”
“However, investors should note that BP still remains on the recovery path as production is set to increase and its Russian venture brings good potential for the future.”
Shares are trading at £5.05 and on 10.6 times earnings.
Rolls Royce
Rolls-Royce shares are down 19 per cent since their peak in January, according to data from FE Analytics.
The stock was bid up during the market of last year which favoured growth stocks industrials, and those stocks were the ones to suffer this spring as the trend reversed.
Performance of stock vs index over 5yrs
Source: FE Analytics
“Rolls Royce, renowned for its luxury British cars, is now a global leader in manufacturing aero-engines for both the civil and defence markets,” Miah said.
“The group has been doing extremely well in recent times. Not only with initial sales of engines and drive systems, but also with after sales contracts for repairs and maintenance.”
“The shares have reflected the strong earnings momentum of recent years. With the recent re-structure, cash inflow, long term service contracts, prospects for its marine division and joint ventures, investors will be pleased to see that growth looks set to improve.”
Each share currently costs £10.73 and is trading on a P/E of 16.4.
Marks and Spencer
Marks & Spencer’s share price has been volatile in recent years, with the results of each new fashion collection eagerly awaited. However, shares are actually ahead of the FTSE over three years, although behind over the past 12 months.
Performance of stock vs market over 1yr
Source: FE Analytics
Miah says that results published earlier this month show cause for optimism.
“Although it has had a tough few years, the group reported Q4 clothing total sales rising by 1.3 per cent and general merchandise total sales up by 0.2 per cent,” he said.
“Investors will hope the launch of its affluent ‘Best of British’ collection, which celebrates the UK’s ‘beautiful rich heritage and modern luxury’, will boost their clothing sales further.”
“The food division also performed well, considering Easter this year falls outside of its Q4 results. With online and international operations continuing to show good gains, M&S is starting to get results from tackling its problems in womenswear and general merchandise.”
Shares are trading at £4.54 and on a P/E multiple of 13.4.
