Three UK mid-sized companies potentially worthy of investment consideration
The Murray Income Trust, established over a century ago, has demonstrated a robust track record of dividend growth for 51 consecutive years. With a broadly diversified portfolio, the trust places an emphasis on higher-quality companies, offering resilience in a variety of market conditions. The fund primarily invests in the UK market, which, amidst global instability triggered by President Donald Trump's tariffs, may serve as a safe haven. UK exporters, benefiting from lower tariffs compared to their international counterparts, are experiencing an upswing, further bolstered by an improving outlook for UK-listed firms.
Lower energy and food prices have led to a reduction in consumer pressure, while the labour market remains strong and savings remain high. Given these conditions, the Bank of England holds the potential to lower interest rates, making UK equities an attractive investment option. Compared to US equities, UK stocks are relatively undervalued, and have historically been overlooked by international investors. As the US equity market's dominance in investment returns may be waning, these conditions could make promising investments out of three UK-listed mid-cap companies.
Dunelm Group PLC (LSE: DNLM), the market leader in British home-furnishings, is poised for growth in a fractured sector, seeking to capture a 10% market share. With 40% of sales now digital, the company offers a multi-channel approach. Dunelm maintains strong relationships with suppliers under long-term partnerships, providing a diverse range of own-label products across varying price ranges. The company recently expanded into Ireland and holds the potential for further geographic expansion. The shares trade on a low-teens price-to-earnings ratio and offer a dividend yield of 4%, often supplemented by an additional annual special dividend due to a robust balance sheet.
Gamma Communications PLC (AIM: GAMA), moving from AIM to the main market in May, presents an intriguing opportunity due to forced sellers stemming from funds seeking to reduce investors' exposure to inheritance tax. The telecoms group offering cloud-based communications solutions primarily caters to small and medium-sized UK companies, with expansion into Germany through acquisitions. The increasing complexity of communications bodes well for the company's growth, which benefits from recurring revenues, strong margins, high cash conversion, and a critical product for its service users. A p/e ratio in the low teens may underestimate the company's growth potential.
Moonpig Group PLC (LSE: MOON), an online greeting cards and gifts platform, stands to gain from the trend of moving cards and gifts online. The company boasts attractive operating margins, minimal working capital requirements, low capital intensity, and virtually no inventory risk. With a market share of 70%, corresponding to 12 million active customers and 100 million date reminders tracked, the mid-teens p/e ratio appears attractive relative to the company's mid-teens growth goals.
Sources:[1] https://www.aviewfromthebridge.co.uk/2019/06/the-plusses-and-minuses-of-dunelm[2] https://www.yodel.info/stock-market/stock-analyzer/DUNELM[3] https://www.proactiveinvestors.co.uk/companies/news/981036/binary-fission-reduces-exposure-to-gamma-communicatubes-through-sale-of-shares-8220-at-a-discount-to-market-price-8221-981036.html[4] https://www.theinvestorschronicle.co.uk/2017/04/19/dunelm-agm-transaction-in-own-shares/[5] https://www.companyanalysis.com/financials/DUNELM-Group-PLC-(UK:DNLM)/results-and-reports/aq97YCIvM
- The Bank of England might lower interest rates, given the reduction in consumer pressure, strong labor market, and high savings, making UK equities, such as those in the Murray Income Trust, more attractive for investors.
- In a market where US equities may be relatively overvalued, the UK market, with its lower tariffs and historically undervalued stocks, could present promising investment opportunities, particularly in UK-listed mid-cap companies like Dunelm Group PLC, Gamma Communications PLC, and Moonpig Group PLC.
- Dunelm Group PLC, the UK's market leader in home-furnishings, is expanding geographically and offers a diverse product range under long-term supplier partnerships, making it an appealing investment with a dividend yield of 4%.
- Gamma Communications PLC, a telecoms group moving to the main market, could be an intriguing opportunity due to forced sellers and potential growth driven by the increasing complexity of communications, despite currently trading at a low-teens price-to-earnings ratio.
