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UK shares have risen sharply in 2024 after years of underperformance. The FTSE 100 and FTSE 250 are up by mid-to-high single digit percentages so far as investors have piled into bargain shares.
Some analysts believe this could mark the beginning of a bull run for British stocks. Indeed, those at Edison believe that UK equities now provide a “once-in-a-generation” opportunity.
Here’s why.
40% discount
Years of economic and political stress in Britain have sapped interest in domestic shares. This has led to stunning discounts that are catching the eye of savvy investors and US funds seeking diversification.
Analyst Neil Shah notes that British stocks “are trading at their steepest discount to global peers in over three decades“. He puts this discount at a remarkable 40%, and notes that UK shares are now trading on a forward price-to-earnings (P/E) ratio of 10.5 times.
This is a long distance below, say, the forward multiple of 26 times for US stocks.
Buying heats up
Yet it’s not just the cheapness of UK shares that leads Shah to predict a bright new era. Other factors include:
- Improving economic conditions
- Growing interest from overseas investors
- Pensions reforms that impact fund allocations
- Rising acquisition activity supporting valuations
Trade activity last month suggests that a seismic shift in investor sentiment is already under way.
Why, you ask? Well according to Shah, UK equities enjoyed their first net inflows in November for the first time in a whopping 41 months.
A stunning small cap
As the report suggests, the London Stock Exchange is awash with brilliant bargains as we approach the New Year. So I’m building a list of the best UK value shares to buy next time I have spare cash to invest.
Topps Tiles (LSE:TPT) is a penny stock that’s on my radar for 2025. It’s one that the analysts at Edison themselves have placed on their ‘showcase’ of attractive British shares.
The phrase ‘penny stock’ conjures images of high-risk (and often volatile) companies. But this retailer is no small fish. It’s Britain’s market leader in floor and wall tiles, and has an exceptional chance to grow profits if — as Edison expects — the British economy starts to pick up traction.
In addition, Topps has a substantial structural opportunity on government plans to supercharge housebuilding levels. As many as 1.5m new homes could be built between now and 2025.
The retailer’s record of consistently outperforming the market is also highly attractive to me. While revenues dropped 5.4% in the 12 months to September, this was significantly better than the 10% to 15% it estimated for the broader market.
Today Topps’ share price offers excellent all-round value. It trades on a forward P/E ratio of 10.3 times, while its corresponding price-to-earnings growth (PEG) multiple is just 0.2.
Any reading below one indicates that a share is undervalued.
Finally, the dividend yield on Topps shares is a chunky 7.4%. Profits may disappoint in the event of a prolonged economic downturn. But on balance, I still think it’s one of the UK’s attractive value shares.
