'Brexit is done but UK equities are not,' says Jefferies
Analysts at Jefferies sounded a 'bullish' note on UK equities, telling clients that "Brexit is done but UK equities are not".
In particular, they said that the best five plays on the UK were: Barclays, BT Group, Persimmon, SSE Group and Tesco, and singled out 17 buy-rated shares that were trading at "substantial" discounts to their historical averages and European peers.
To back up their case, they pointed to the prospect for more accomodative monetary and fiscal policies, buoyant corporate and consumer sentiment, fund flows and valuations, adding that "downside risks from policy missteps remain priced in".
Business optimism according to both the Confederation of British Industry and as per Deloitte's survey of chief financial officers was high, they pointed out, adding that UK non-financial companies so-called 'liquidity ratio', or the sum of cash and deposits versus loans, was at 54.0%, its strongest reading since 2008.
Furthermore, the FTSE 100 remained at a 14.0% discount to the pan-European Stoxx 600.
If the FTSE 100 and FTSE 250's equity risk premiums and free cash flow yields moved back towards the average for developed markets, that would equate to about a 20.0% return for both indices.
The 17 stocks identified by Jefferies were: Aviva, BT Group, Barclays, Imperial Brands, Lloyds, Royal Bank of Scotland, Centrica, Anglo American, Rio Tinto, British American Tobacco, Royal Dutch Shell, Kingfisher, BP, GVC Holdings, RSA Insurance, Mondi and Ashtead.
In the case of Barclays, they said investors were not appreciative enough of the prospect for higher capital returns and capital repatriation.
"With PPI, litigation charges, a vast restructuring, and a more level playing field on CET1 capital all addressed, return improvement and capital repatriation are the most visible they have been in 10 years," the analysts said.
For BT Group on the other hand, they argued that with a growing Openreach infrastructure asset, together with supportive regulation and a pension scheme that was now well-hedged against volatility in real bond yields, the company's shares should trade on a dividend yield of 5.0% and not 10.0%.