Consumer Discretionary

Report by Willis Welby

Willis Welby remains of the view that the UK has plenty of interesting and growing businesses. IHG features in their latest large cap growth screen - it has great financial productivity and is clearly winning market share. Dollar weakness does not help but the implied to Y3 EBITM ratio is just 84. It is too low. Hilton and Marriott are on 135 and 114, respectively. IHG would make sense GBP20 higher than it is now. Other stocks highlighted include QinetiQ (there is a good fundamental story here alongside some very cautious expectations. Despite a Q2 rerating, the implied to Y3 EBITM ratio is still only 65) and GlobalData (the disposal of part of the Health franchise may prove seminal. Management is talking organic growth >10%, margins drifting higher and accretive roll-ups).

Report by Willis Welby

The median implied to Y3 EBITM ratio for Willis Welby’s UK coverage is now 68 for which you get median consensus Y3 revenue growth of 5.4%. And over the last three months the median move in Y2 EBIT is still an UPGRADE of 0.8%. The Q2 reporting season could be a rude wake up call, but so far, they cannot see the huge economic downturn that is priced into this part of their coverage. And if it does not materialise, then UK mid cap shares are seriously cheap. Industrials (Manufacturing & Support Services) look particularly interesting - highlights Coats, Morgan Advanced, Qinetiq, Hays and Serco. They also see decent revisions and a compelling balance of growth and expectations across Technology names such as Team17, Moneysupermarket, Auction Technology and Kainos.