The UK economy is in a much stronger position than it was a few years ago. As such, companies that are UK-focused and which stand to benefit from a sustained recovery seem to be worth considering for purchase.
For example, construction company Galliford Try (LSE: GFRD) today released a very upbeat set of full-year results, in which the business delivered a record financial performance. In fact, revenue increased by 31% versus the previous year, buoyed by improving margins at its Linden house building division where the average selling price of a house was £327,000 versus £305,000 last year.
Furthermore, the acquisition of Miller Construction enabled Galliford Try to expand its operations within an improving sector and also provided increased revenue visibility for the current financial year. And, with profit before tax increasing by 24%, Galliford Try appears to be very much moving in the right direction.
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Looking ahead, the company is forecast to post an increase in its bottom line of 11% in the current year. This puts it on a price to earnings growth (PEG) ratio of just 1.3, which indicates excellent value for money. And, with dividends rising by 28% in the previous financial year, Galliford Try is expected to yield a very enticing 4.5% in the current year.
Similarly, Lloyds (LSE: LLOY) is also benefitting from an improving UK economy. The low interest rate has been a major help for the bank as it has gradually turned its troubled performance around, with it being forecast to post a pretax profit of over £8bn in each of the next two years. And, with profits on the rise, Lloyds is due to increase dividends by 53% next year, which puts it on a forward yield of 5.2%.
Furthermore, Lloyds is set to benefit from the end of government part-ownership. Not only will this provide it with greater flexibility regarding its strategy and remuneration decisions, it will also mean the bank’s shares come with less political risk. Certainly, it may still be unpopular among certain parts of the electorate (due to it being a bank), but it is unlikely that it will be a political ‘hot potato’ as it has been in the past, which is likely to be positive for its future share price performance. Additionally, with Lloyds trading on a price to earnings (P/E) ratio of just 8.8, a major upward rerating seems likely in the coming years.
Meanwhile, non-UK focused stocks also have strong appeal. Prudential (LSE: PRU), for example, is expected to post a rise in its bottom line of 14% in the current year, followed by additional growth of 11% next year. This, when combined with a P/E ratio of just 13.1, equates to a PEG ratio of 1.1, which indicates that Prudential offers growth at a very reasonable price.
In addition, Prudential has an excellent track record of growth. It has increased earnings in each of the last five years, with them rising at an annualised rate of 15% and means that, since 2009, the company’s net profit has doubled. Certainly, concerns regarding the Asian economy could cause investor sentiment to decline in the short run but, for long term investors, Prudential remains a strong buy.
