HL investors’ most popular UK share picks in May
- Investors go on a spring bargain hunting spree, snapping up downbeat UK stocks.
- Burberry, Ocado, Entain, Whitbread, easyJet, SSP, M&G and Phoenix Group among most popular buys
- Only two in the top ten of most-bought UK shares have made gains this year – BP and HSBC.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’As the FTSE powered to fresh highs in May, many investors went in pursuit of bargains, snapping up stocks which have lost significant ground since the start of the year. Among the most popular UK buys during the late spring shopping spree included Burberry, Ocado, Entain, Premier Inn owner Whitbread and catering group SSP, which have suffered steep share price declines. There is clearly hope that fortunes will turn for these companies and some of the headwinds which have been swirling will decline. Only two stocks that have made gains year to date – BP and HSBC – were featured in the top ten most popular UK share picks. Investors seem hopeful that there is room for another surge upwards given valuations still off all-time highs. The UK market is still considered to be undervalued and is increasingly in focus for investors. However, fortunes to look mixed for the companies in the top ten, so it’s super-important that investors make sure they are well diversified across a range of asset classes and geographies, so that they are not overexposed if sentiment takes a knock. Spreading risk by investing in funds as well as individual shares is very sensible first step.
| Top UK shares, May (net buys) |
| easyJet – down 10.5% YTD |
| BP – up 5% YTD |
| Whitbread- down 21% YTD |
| Burberry Group – down 27% YTD |
| Phoenix Group – down 8% YTD |
| M&G – down 10.5% YTD |
| Ocado Group – down 52% YTD |
| HSBC Holdings – up 10% YTD |
| Entain – down 34% YTD |
| SSP Group – down 28% YTD |
Entain
Entain’s first-quarter results provided investors with some relief given they showed organic revenue declines have eased a little since late last year. But regulatory headwinds remain a challenge and there’s still a vacant permanent CEO seat that needs filling. Affordability checks in the UK and a German market that’s seeing new regulations, like stricter deposit limits, are expected to continue to weigh on performance. A recent vote in the Netherlands also paves the way for a potential ban on online gambling advertising. There is still a lot of potential in the huge US market, but there is now tougher competition. Looking longer term, the growth prospects are being overlooked and the opportunities in the US should show up through over time although patience may be needed.
Burberry
Burberry’s full year revenue was flat, and combined with higher costs, this meant underlying operating profit fell 25%. Conditions are expected to remain challenging in the first half of the new financial year. Slowing trends are being seen across the board in the luxury sector and Burberry is seeing a broad-based decline in the US. It is unsurprising that aspirational shoppers are showing caution in an uncertain economic climate. The costs of refreshing the store estate have also been onerous and it will take time for Burberry’s brand elevation to reap rewards.
Whitbread
Whitbread’s Premier Inn is now the UK’s largest hotel chain and continues to enjoy an enviable brand position in the value and mid-range hotel sector. That helped improve the profitability of its rooms and drive record levels of profits and cashflows last year. However, in the first seven weeks of the financial year, UK accommodation sales were 1% lower while food and beverage sales were 2% down so far. A restructuring drive is underway to cut costs and refocus the business on hotels with integrated restaurants, and while the timing of bank holidays impacted on the first half, things are expected to pick up as the year goes on.
easyJet
CEO Johan Lundgren stepping down after seven years in the captain’s seat, combined with signs of a slightly more challenging booking environment, have been weighing on easyJet’s share price. Although travel overall does remain important for consumers and there are signs that budgets are being ringfenced for trips away, travellers are beginning to baulk at some of the higher seat prices. However, easyJet remains in a robust position partly because the company is so adept at selling extras to existing passengers. So-called ancillary revenues are things like extra baggage, legroom and food. This is a highly lucrative area, and the growth has been impressive. easyJet is also targeting a higher share of sunseeker’s budgets through its holidays division.
BP
BP’s first-quarter revenue fell 13% with declines in all divisions, driven by lower oil and gas prices, a power outage at the Whiting refinery in Indiana, and lower margins on the sales of fuel products. In the second quarter, the group expects a slight decrease in oil production. Margins on fuel prices will remain highly sensitive to input costs. Refining margins are expected to stay under pressure from market dynamics but also maintenance activity. Both BP’s traditional oil & gas extraction business and its emerging focus on cleaner forms of energy, are highly capital intensive. But there remains underlying confidence in the group’s plans to invest in both traditional and emerging energy activities. Meanwhile, an extra $2bn in cost savings that BP hopes to deliver by the end of 2026, should help to ensure that more revenue flows through to the bottom line.
HSBC
News that CEO Noel Quinn is set to retire has caused some uncertainty, but recent results have been good overall, coming in were broadly better than expected, with impairment charges staying low. HSBC’s exposure to Asia sets it apart from many of its large UK peers and there is potential for further growth from areas like wealth management. But there are ongoing challenges in the Chinese commercial real estate market which could lead to higher charges taken in preparation for defaults down the line so in the short term there could be more challenges and uncertainty.
Ocado
Ocado looks set to leave the FTSE 100 in the upcoming reshuffle as overall performance continues to disappoint. Although there has been an improvement in the retail side for Ocado, potential legal action looming with M&S over a withheld performance payment has knocked sentiment. Deals are also not being signed as fast as investors were hoping on for its future growth engine, Solutions. It charges third-party retailers to use Ocado’s robotic systems. There’s still big potential here, but timeframes of growth look more questionable and that’s knocked the valuation. It’s led to speculation that the company may pursue a listing in the US instead, which appears to be behind the boost in its share price this week.
Phoenix Group
There is ongoing appetite for Phoenix Group holdings, with investors likely to have been attracted by its annual dividend yield of more than 10%. Sentiment towards the company has been a little volatile more recently, as news came in that the CFO was stepping down, causing some uncertainty. But the outlook appears generally positive, following its announcement in November that it was lifting its full-year cash generation targets. It came after completing the funds merger of its Standard Life and Phoenix Life businesses into a single entity, bringing together 8 million policies.
M&G
M&G is an asset manager at its core, with life insurance and wealth management supporting the main event. M&G beat expectations for both underlying operating profit and capital generation in full year results. There are positive signs for the latest phase of M&G under new stewardship and the yield is certainly attractive. But there needs to be proof of more consistent flow growth, and further progress on cost cuts before sentiment improves.
SSP
SSP, the caterer is highly dependent on the travel network, relying on commuters and tourists to pick up snacks from its Upper Crust kiosks, Ritazza cafes and other franchise outlets in railways and airports. Business was severely hit by lockdowns and restrictions and it’s still in the recovery phase, with progress to back to full health still slow, hampered by high inflation and strikes on railways in key markets. Half year profit fell despite rising revenues and a recovery in passenger numbers across travel networks, so the company remains under pressure to get costs under control. It is though forecasting a summer of strong demand thanks to the Olympics and the Euros which is set to boost footfall in airports and railway stations.’’
