Are these the best UK shares to watch in November 2023?

We’re into Q4 2023, and the interest-rate hiking campaign that has persisted since December 2021 appears to have finally ceased.

Bank of England governor Andrew Bailey’s announcement that interest rates will remain unchanged at 5.25% for the foreseeable future means that borrowing costs will remain fixed until inflation is suitably low.

While still considerably higher than the 2% target, CPI inflation has fallen to 6.7% from the high of 11.1% seen in October 2022.

UK companies must now contend with the Bank of England’s balancing act of maintaining the highest borrowing costs in 15 years without the economy slipping into recession.

Bailey says that UK growth will remain ‘well below historical averages’ over the medium-run, even as inflation persists. However, revised economic data from the Office for National Statistics shows that the UK has experienced faster growth than both France and Germany since the end of 2019.

This means that GDP is now estimated to be 1.8% above the pre-Covid period — compared to a previous estimate of a 0.2% contraction. In addition, the economy expanded by 0.3% in Q1 2023, up from the previous estimate of 0.1%.

With companies fresh off the back of their Q3 trading updates, it remains to be seen which firms will see out the year-end on a positive note, though past performance is not an indicator of future results. But for now, here are three of the best UK shares to watch — all of which have featured in recent news.

Top UK shares to watch

Sainsbury’s

Sainsbury's shares rose almost 4% last week after its interim results revealed robust half-year trading figures.

Its grocery sales were up 10.1% across both quarters as the supermarket aims to compete with budget retailers ALDI and Lidl. The strategy is paying off – with Sainsbury’s the only supermarket gaining market share on its competitors.

Sainsbury’s also reported retail-free cash flow of £520 million and a net debt reduction of £701 million, falling to a total of £5.6 billion. Its interim dividend remains unchanged at 3.9 pence per share.

And CEO Simon Roberts was bullish on the retailer’s prospects as it approaches Christmas, by far the industry’s busiest period.

‘We’re helping everyone to treat themselves with fantastic value and more delicious new food than ever before. As we head into this key trading period, we are encouraged by our strong momentum and we remain fully focused on delivering for customers and shareholders.’

On this momentum, Sainsbury’s announced it was expecting underlying profit before tax to reach between £670 million and £700 million by year-end, with retail free cash flow of at least £600 million – 20% higher than previous guidance.

Next

Clothes retailer Next issued a brief but optimistic trading update last week – announcing its fourth upgraded full-year profit forecast in the last six months.

Its shares rose 3.6% upon the company’s positive first-half results and are up over 40% this year, while the FTSE has gained just 2% over the period.

Sales from August to October were 4% higher than the same period of last year and 2% above the retailer’s target.

Next offered a somewhat unconventional reason for its uplifted guidance – the sun.

‘We believe the volatility in sales performance is a result of changing weather conditions rather than any underlying changes in the consumer economy,’ it said in the update.

‘In an autumn season cooler weather is good for sales, warmer than average weather depresses sales. Over time, the average performance is a better indicator of underlying consumer demand than any one week.’

Indeed, it seems to be shielding against the wider sectoral downturn amid softening demand for consumer goods.

The firm upgraded its profit forecast by £10 million to £885 million at the year-end and announced an exceptional gain of £110 million, which is excluded from the figures, thanks to increasing its equity stake in Reiss, another fashion retailer.

Not just Reiss, however: last month, Next acquired FatFace for £115 million – though the effects on its earnings will not be seen until next year.

Rentokil

Rentokil shares fell by almost 20% on Thursday 19 October, from 595p to 484p upon the release of its third-quarter trading update.

The pest controller’s results were mostly positive, but weaker consumer demand in the US, where roughly half of its sales originate, dragged on earnings.

However, its results were perhaps not as disastrous as the share price fall suggests.

Revenue in North America may have grown just 2.2% year-on-year, but a 9.5% growth in Europe and Latin America was more robust, coupled with an 8.9% growth in Asia, the Middle East and North Africa.

Total revenue jumped 53% over the year from £901 million to £1.38 billion, suggesting the year was not as bleak as the market’s reaction.

Despite the fall, CEO Andy Ransom said Rentokil was making good progress on its transformation journey after having acquired US rival Terminix in 2021.

‘The Group delivered a good overall performance in the third quarter. We have a proven, effective strategy to deliver organic growth, focused on strong customer relationships and service quality,’ he said in the report.

‘In addition, the portfolio effect of our global business operating in multiple markets enables us to weather regional headwinds.’

The bedbug infestation across France and other nations could lead to a Q4 revenue boost as the firm tackles the influx of creatures across its European market.

Until now, Rentokil shares have enjoyed strong returns – having risen 90% over the past five years before the Q3 release sent prices tumbling.

As of last week, Rentokil shares are trading at their lowest level since the start of the coronavirus pandemic, which could appeal to investors seeking to take advantage of the share price discount caused by its Q3 update.

Trade and invest in over 17,000 UK, US and global shares from zero commission with us, the UK’s No.1 trading provider.* Learn more about trading or investing in shares with us, or open an account to get started today.

*Based on revenue excluding FX (published financial statements, October 2021).