Boohoo Group PLC (AIM:BOO), British Land PLC, CMC Markets PLC (LSE:CMCX) and Wincanton PLC (LSE:WIN) have all been highlighted as top ‘value stocks’ for 2023 by Peel Hunt analysts.
The mid-market investment bank's analysts presented a total of 30 shares, from FTSE 100-listed Intercontinental Hotels Group PLC (LSE:IHG) the largest at £8.7bn to sub-£300mln Kier Group PLC (LSE:KIE).
“2023 may be the year for value stocks,” said head of research Charles Hall and deputy Clyde Lewis, after the firm’s value picks for last year delivered an average decline of 15%, compared to a gain of just over 1% for the FTSE 100, a flat return for the FTSE All Share and a 17% plunge for the FTSE 250.
Hall and Lewis acknowledged that “the perception of value varies by sector and analyst, and can be based on shorter-term metrics or those a little further out”, but all the stock picks have “attractive value characteristics”, they said.
For Boohoo, for example, “deep value” was cited by analyst John Stevenson, pointing to shares trading at 7.9 times earnings on an EV/EBITDA basis, or just 0.3 times on EV/sales, and the potential to new brands acquired in the past two years adding more than £500mln of sales by 2024.
British Land is seen as a “quality stock at a discount”, namely a 27% discount to the forecast trough level of net tangible assets, with an “implied topped-up net initial yield” on the portfolio of 7.2%, over three percentage points above the current five-year swap rate.
Wincanton is seen as “significantly undervalued” on a forecast p/e of 8.2 times, EV/EBITDA of 5.4 and dividend yield, with the company described as having “a robust balance sheet, rapidly diminishing actual pension deficit, rising return-on-capital-invested model and attractive new business pipeline”.
The highest forecast dividend yields of the 30 chosen companies is 9.2% for Kenmare Resources plc (LSE:KMR), followed by Ocean Wilsons at 6.5%, Redrow PLC (LSE:RDW) at 6.6%, OSB Group PLC (LSE:OSB) at 5.7%, RHI Magnetisa PLC at 5.5%, Hilton Food PLC at 5.3% and British Land at 5.1%.
Kenmare, which along with Ocean Wilsons and Redrow are corporate broking clients of Peel Hunt, has a forecast free cash flow (FCF) yield of 33% for the coming year, rising to 47%.
The highest FCF yield is for Africa Oil PLC at 49%, where analysts said the shares trade at a 40% discount to core net asset value.
In a list of value stocks it was perhaps more surprising to see one with a forward p/e ratio of over 300 times, but for Brooks Macdonald PLC - another house stock - analyst Stuart Duncan feels that the EV/EBIT multiple of 10 “does not, in our view, reflect the longer-term opportunities” seen in the wealth management sector, including via acquisitions.
Elsewhere in financial services, Duncan picked CMC Markets as it “should be rewarded with a higher earnings multiple”, with an EV/EBITDA ratio of circa 7 times, as it evolves from “being just a CFD business to generating revenue from a more diverse range of clients and activities”.