What are the best UK shares to buy or trade?
We have a look at which of the top UK stocks could be worth buying in 2020 and outline ten shares that could rally this year.
UK stocks to buy in 2020
Below is a list of ten UK stocks that are rated as a Strong Buy or a Buy by brokers for investors to consider in 2020:
|Strong Buy||Buy||Hold||Sell||Strong Sell||Target price as of 07/01/2020|
|PPHE Hotel Group||2||1||0||0||0||£21.67|
|TI Fluid Systems||3||4||0||0||0||261.57p|
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Ascential is starting to reap the rewards from an ongoing restructuring that started in 2018, when it sold the bulk of its events business to ITE Group for almost £300 million, which it used to reduce debt and acquire new businesses centred around its new primary focus: supplying a range of information services for businesses to aide everything from product development to marketing to sales. This included Flywheel Digital, which provides managed services to Amazon, and Edge, which supplies companies with data on the ecommerce market such as market share and pricing and promotion.
Revenue in the first six months of 2019 soared 25% and grew nearly 9% on an organic basis, feeding a 32% leap in pre-tax profits. The rise in sales comfortably offset a dip in margins and cash conversion remained at over 100%. The interim dividend was down to 1.8p from 1.9p the year before, when its adjusted earnings (which its 30% dividend payout ratio is based on) benefited from the old Exhibitions business.
The company is still integrating new businesses like Edge and overhauling its operating model, but its strategy seems to be paying off, setting expectations high for its 2019 annual results that should be released sometime in February, although a firm date is yet to be confirmed. Brokers currently have a Buy rating on Ascential and the average target price suggests there is 15% upside for investors that buy now.
BAE Systems (BA)
BAE Systems is a global defence giant that makes combat vehicles, ships, jets and provides security services to governments and businesses. The UK and US are its two biggest markets, but it also has significant contracts in the likes of Saudi Arabia, Qatar, Oman, Canada, Australia and across Europe.
The UK general election caused some uncertainty for BAE because it opened up the possibility that defence spending would be reviewed. Plus, the Labour party had threatened to ban arms exports to countries like Saudi Arabia, which could have significantly impacted the business. This threat has now been removed and the Conservative government has pledged to keep growing defence spending, while spending also remains favourable in the US. The tension between the US and Iran, which has injected fresh volatility in the Middle East, could also play into BAE’s hands if they continue to escalate.
The company will release its annual 2019 results on 20 February and underlying earnings per share (EPS) is expected to grow by 'mid-single digit percent' from the 42.9p reported in 2018. It has said it remains on track to deliver £3 billion of free cash flow between 2019-2021 while keeping net debt flat – and the dividend should improve too. BAE shares currently have a Buy rating with brokers believing there is potential upside of 5.1%.
AstraZeneca is a pharmaceutical giant that sells treatments for a wide variety of diseases, including cardiovascular, oncology, respiratory, autoimmunity and neurological. This means it provides therapies for everything from cancer to asthma.
The company reported stellar rates of growth in 2019, which are expected to feed through to its annual results when they are released on 14 February, and set a strong foundation for this year. Revenue jumped 13% in the first nine months of 2019, and pre-tax profit increased 4%. The fast pace of growth has prompted it to raise its guidance twice. It is expecting to report a rise in product sales ‘by a low to mid-teens percentage’ in 2019. AstraZeneca is a reliable payer of dividends and the strong performance should aide that – although the interim dividend was kept flat.
Brokers have a Buy rating on AstraZeneca shares, but the current average target price suggests shares are adequately valued – so expect some broker reviews in the near future.
International Consolidated Airlines Group (IAG)
International Consolidated Airlines Group, or IAG, owns and operates several well known airline brands including British Airways, Aer Lingus and Iberia.
IAG will release annual results for 2019 on 28 February and has said it expects profit before exceptional items to be €215 million lower year-on-year (YoY) thanks to higher fuel costs and lower revenue per passenger, as well as strike action at British Airways. The airline industry has faced challenges with many players collapsing in recent years and IAG lowered its medium-term guidance in November. Still, it is aiming to deliver EPS growth of over 10% per annum between 2020-2022 while cash flow should remain strong, underpinning its dividend (which is paid in euros). It is worth noting that IAG, like other major US and European airlines, will no longer report traffic statistics on a monthly basis this year and only release them on a quarterly basis alongside results. This will mean there is less visibility over its performance.
With brokers believing there is 12.6% potential upside to IAG’s current share price, they are extremely bullish on the stock.
JD Sports Fashion (JD)
There seems to be no relief on the horizon for the UK’s retailers, but out of the few that have bucked the downturn, JD Sports has proven its ability to deliver long-term sustainable growth. The company sells sports and athleisure clothing as well as trainers, mainly online and in its own stores. The UK is a core market, accounting for 45% of revenue, but the US and Europe gives the company geographical diversification, and its increasing presence in Asia gives it plenty of room to grow.
JD’s revenue jumped by 47% in the six months to 3 August 2019, and earnings hit yet another record high whilst pre-tax profit increased 6.6%. In the UK, where most peers are reporting declining sales, JD delivered double-digit like-for-like (LfL) growth. A slew of new store openings and a boost from the acquisition of Finish Line in the US helped contribute to the improvement in overall results. Cash flow remains strong, dividends are increasing, and it has recently moved into a net cash position.
Brokers have a Buy rating on JD and an average target price that implies shares are priced correctly – so expect some broker reviews soon.
PPHE Hotel Group (PPH)
PPHE Hotel Group develops hospitality real estate mostly across Europe with a £1.7 billion portfolio mainly comprised of hotels in major gateway cities and regional centres across the Continent, specifically the UK, Netherlands, Germany, and Hungary, as well as campsites in Croatia. The company benefits from a deal with the Radisson Hotel Group that allows it to develop and operate Park Plaza branded hotels and resorts in Europe, the Middle East and Africa.
PPHE has been investing in its UK and Dutch portfolio in recent years, which has not only raised expenditure but also weighed on performance as it had to temporarily close rooms in order to renovate them. However, it is now starting to see the benefit as all its hotels in the two countries are open. Revenue in the nine months to the end of September rose 5% YoY after being boosted by higher room and occupancy rates. That growth accelerated to 6% in the most recent quarter, suggesting further improvement is on the horizon as its new investments mature.
PPHE’s revenue and earnings have steadily grown over the past five years and the dividend has increased at an even faster rate – having been raised 45% in 2018. It boasts a strong cash position and is selectively acquiring new sites, giving it solid long-term growth prospects. PPHE is a Strong Buy, according to average ratings of the three brokers that cover the stock, who believe there is 16% upside to the stock.
Future is home to over 130 media brands in the UK, US and Australia, spanning a wide range of interests including technology, gaming, entertainment, music, television and photography. Its titles include sports-themed ones like Cyclingnews.com and FourFourTwo, and tech-focused platforms such as TechRadar, PC Gamer and Gizmodo. It also runs official magazines for other big companies like Sony's Playstation and Microsoft's computers and Xbox. It makes revenue from advertising, by holding events and through e-commerce.
The company described its most recent financial year to the end of September 2019 as a 'transformative year' after revenue jumped 70% to £221.5 million while pre-tax profit leapt to £12.7 million from just £4.4 million the year before. Having restarted dividend payments in the 2018 financial year, the annual payout was doubled to 1p. Its growth is being driven through the acquisition of new digital platforms, predominantly in the US after buying the consumer division of Purch, which owns a slew of titles. Purch has now been fully integrated and this should help drive a further improvement in results. In late October, Future announced it had bid £140 million to acquire one of its rivals, TI Media, which could ignite another transformation for the business.
Future’s average broker rating is a Buy and its average target price suggests there is 31% potential upside from its current price.
TI Fluid Systems (TIFS)
TI Fluid Systems is a global leader in producing automotive fluid systems that store and transport fluids around vehicles, serving car makers from around the world. It has over 100 factories in 28 different countries. It currently makes over one-third of the world’s brakes and fuel lines and around 15% of its plastic fuel tanks.
The global light vehicle market – the company’s target market – has remained soft and this has hit TI’s results. Revenue was down 2% in the first nine months of 2019 and was 3.9% lower at constant currency – but that still outperformed the wider market. Its annual results will be released on 17 March and are expected to be slightly worse than the year before. Still, the dividend looks safe, although this is paid in euros, so consider EUR/GBP rates. While the car industry is facing multiple challenges – like the shift to electric and autonomous cars – TI Fluid Systems is already making sure it remains a vital partner for the new slew of vehicles set to hit the market over the coming decades. The market is weak right now, but TI Fluid looks like a solid long-term bet for investors.
TI Fluid Systems boasts a Buy rating from brokers, but the average target price implies it is adequately valued, so expect broker reviews shortly.
XP Power (XPP)
XP Power makes the systems that allows the power that comes from electricity grid to be used in homes and businesses. It provides over 5000 different types of power control systems for industrial, technological and healthcare customers, tapping into attractive markets like factory automation, semiconductor production, mobile and wireless communications, data processing, and healthcare. It has its own ‘state-of-the-art’ manufacturing facilities in China and Vietnam, which helps lower the costs of production. As its technology is built into products made by Original Equipment Manufacturers (OEM), XP receives revenue over the life cycle of a product (which is typically 5-7 years), giving it long-term visibility.
XP Power has faced some issues but has responded well. The tariffs that have been imposed on Chinese goods by the US have prompted it to shift manufacturing to Vietnam. It has also said it hopes the weak semiconductor market seen in 2019 will begin to reverse this year. Its results were mixed in the first half (H1) of 2019, but things seem to have improved since then. Its latest trading statement said that order intake had risen by over 20% YoY in October and November – compared to 1% decline in the H1 of 2019. It has also overcome some bumps incurred whilst transitioning to a new ERP software. All-in-all, XP Power does face some headwinds but is in a good position to tackle them.
Brokers believe XP Power is a Strong Buy, but the share price is in line with the average target price.
Watkin Jones (WJG)
Watkin Jones is a property developer that specialises in constructing and managing multi-occupancy residential buildings, like flats and student accommodation. It operates a ‘capital light forward sale model’ and is basing its strategy around student digs and the Build to Rent sectors.
The company believes it has strong market fundamentals to follow, with a 3-4 year rolling pipeline of work in place, and shareholders are expecting revenue and earnings to increase when it releases its annual results for the year to the end of September 2019 on 14 January. Shares took a knock during the UK general election campaign, when there was a greater threat of government intervention on rent controls and land usage, but have picked up since the Conservatives won a large majority.
Watkin Jones has a good track record when it comes to growing revenue, adjusted earnings and its dividend – and it boasts a net cash position. The firm has a progressive dividend policy that tracks the growth in earnings, which should mean payouts will increase over the forthcoming years. The two brokers that rate Watkin Jones believe the stock is a ‘Strong Buy’ and the average target price implies there is 12% potential upside to the current share price.
Want to know more about investing in 2020?
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