Noteworthy UK Carnage

The UK remains one of my favourite hunting grounds and I’ve written about its challenges ad nauseam over the last few years.

But today, it’s particularly worth pointing out that an unusually large number of UK stocks are down significantly over the last month. Many are for business specific reasons, but it’s almost uncanny the way UK stocks find a way to tank, even when much of the world is rallying. Here’s a list purely compiled from my watchlist and portfolio- so mostly things that already looked cheapish.

Please feel free to add to the list if you are seeing great bargains in the UK.

Churchill China (-44% from 12-month high)- this ceramics manufacturer has been suffering due to the general economic malaise. It sells to both hospitality and retail, so is exposed to the rising cost of living on both fronts. The company is 230 years old, has a net cash balance sheet and sells for <12x fairly depressed earnings.

John Wood Group (-70% from 12-month high)- less than four short months ago, engineering firm John Wood had a buyout offer all but locked in when their Middle Eastern buyer (Sidara) got cold feet and the shares fell 50%. The pain was compounded last week, when the company announced it had appointed Deloitte to review its books and assess potential write-offs on major projects and whether appropriate taxes had been paid in all jurisdictions. Tough one to analyse, but the market has now applied a very large discount to the shares.

Vistry Group (-50% from 12-month high)- the home builder has fallen steeply after two profit warnings in the last month which will hit profits by £165m over the next two years. The company has pointed to cost over runs and singled out its south division in particular for poor management and culture. In a positive sign, the CEO bought a significant number of shares in the market last week and the company has just announced share buybacks at these low prices as I write.

Burberry (-48% from 12-month high)- the British retailer has actually recovered a little over the last fortnight on rumours of a buyout offer from Italian rival Moncler, but remains deeply in the red over the last two years. Profits have been squeezed by tightening consumer spending, including a 19% Yoy fall in China sales earlier this year. The dividend has been cut to ease pressure on the balance sheet, but it’s tough to know how long the industry will remain subdued. Dr Martens (-55% from 12 month highs) is in a similar boat.

Close Brothers (-76% from 12-month high)- despite an 146 year history, this mid-sized bank now finds its solvency at risk due to an adverse industry finding against commissions paid between auto dealers and lenders, a market it has heavy exposure to. The fear is palpable that a recent judgement against Close and others, as well as an investigation by the Financial Conduct Authority, could impose huge costs on the company for failing to disclose these commissions to the clients who unwittingly signed on, which could possibly come in the form of a redress scheme, similar to that imposed on UK banks over the PPI scandal that dragged on for a decade and cost billions. The company has cut its dividend and sold its asset management business to raise cash, but the liability (if any) won’t be clear for some time. The shares sell at a huge discount to book in anticipation.

Lloyds (-16% from 12-month high)- Lloyds has caught a very mild case of Close Brothers affliction. Earlier this year, the company provisioned £450m to cover any potential payouts or fines although this may not be enough under worst case scenarios now being considered. Luckily, motor lending was a relatively small part of the loan book and is annoying, but far from life-threatening. Lloyds shares still look like excellent value in my opinion, selling at 70% of book and achieving 11% returns on equity, that are projected to improve further in the medium term.

S4 Capital (-53% from 12-month highs)- it takes skill to be down 20% on a stock within a week of buying, but I’ve managed it (and not for the first time lol). After writing up S4 last week and saying I was hopeful heading into earnings with something like maximum pessimism in the price already, the earnings were indeed very bad. I continue to like the set up and will wait it out for an uptick in digital advertising. Hopefully the balance sheet can get through ok until then.

Guy

As always, this isn't investment advice. Please do your own due diligence and seek professional advice if you're unsure about your finances.

I own shares in Lloyds Bank and S4 Capital.