Report by Willis Welby

Willis Welby screens UK large-cap growth stocks using their proprietary expectations-analysis approach, assessing share-price-implied margins and returns against consensus forecasts. Their latest screen covers companies above US$4bn m/cap, with consensus Y3 revenue growth above 6%, positive Y3 EBIT margins, attractive Y3 IROCE and implied-to-Y3 EBITM ratios below 110. Twelve stocks make the screen. Among aerospace names, BAE has the clearer defence-spending story, but Melrose looks more forgotten, with an implied-to-Y3 EBITM ratio of just 27, leaving scope for the shares to more than double. Compass remains a strong all-round compounder, while investment in new products has driven good underlying results at ConvaTec, which still offers 60%+ upside. Willis Welby also revisits AI-jeopardy stocks RELX and Experian: despite barrier-to-entry concerns, both are currently benefiting from AI through stronger revenue growth and higher margins and may now be very cheap.

Report by Willis Welby

One easy response for equity investors faced with such a radical change in the backdrop for equity pricing this year is to assume that growth stocks can get further derated. Willis Welby, who use expectations analysis to help decode share prices, differentiates between duration stocks which require a transformation in business models and growth stocks which do not. They draw particular attention to IHG, Burberry, Compass, Sage, Auto Trader and Experian. Notable absentees from their analysis are the industrial fan club stocks of Croda, Halma and Spirax which did not make their consensus Y3 revenue growth criteria.

Report by Willis Welby

Despite Croda, Halma and Spirax having seen 40%+ share price falls YTD, Willis Welby, who specialise in expectations analysis, still struggle to make sense of the share prices. Their caution is compounded when they consider what is available elsewhere. The UK market is not renowned for its growth names, but that does not mean there are none. They see Rightmove, Auto Trader, Softcat and Experian as looking particularly attractive.