There’s plenty of value to be found across the market, believes this City expert, which includes some FTSE 100 companies in its annual selection of value tips.
A selection of 30 top picks for value investors to consider in 2023 has included British Land Co (LSE:BLND) and InterContinental Hotels Group (LSE:IHG) alongside the smaller stocks Kier Group (LSE:KIE) and Capita (LSE:CPI).
Peel Hunt’s choice of companies with value characteristics spans 15 sectors, with builders, financials, real estate, retailers, support services and transport all providing three.
The City bank believes that 2023 may finally be the year for value stocks, having failed to benefit from the expected rotation away from growth-focused investments in 2022.
The best performing stock of the 2022 selection was Bank of Georgia Group (LSE:BGEO) after a 69% total return, followed by outsourcing and facilities management business MITIE Group (LSE:MTO) at 20% and maritime services company Ocean Wilsons Holdings Ltd (LSE:OCN) with a 6% improvement.
Eleven stocks retain their place in this year’s list, including Mitie after Peel Hunt highlighted a target price of 92p. It said shares should re-rate on the back of further margin improvement and the FTSE 250-listed company’s continued strong cash generation.
The bank’s analysts have been impressed with Mitie’s contract momentum and management of inflationary pressures, adding that returns to shareholders are set to be enhanced through increased dividend payouts and further share buybacks.
The biggest stock on the list is InterContinental Hotels (IHG), whose share price Peel Hunt believes has been left behind because the fee-based business model is underappreciated in the UK market, where there are no comparable global franchising businesses.
The bank, which has a 5,750p target price, likes that the majority of IHG’s rooms are mid-market and focused on the US heartlands, where demand for blue collar travel has historically seen low volatility.
IHG offers solid dividend growth and the bank is hopeful of an annual repeat of the $500 million (£412 million) buyback the company announced with half-year results.
Another inclusion from the FTSE 100 is British Land, with shares in the London campuses and retail parks owner sitting at a 27% discount to Peel Hunt’s low point estimate for asset valuation.
The bank regards this as very attractive for such a quality portfolio, adding that a 5.5% dividend yield means investors are being paid to wait for the trough in capital values and accompanying share price re-rating.
- 33 growth stocks to own in 2023
- 2023 Investment Outlook: stock tips, forecasts, predictions and tax changes
Howden Joinery Group (LSE:HWDN), which was in the FTSE 100 index last year, is included on the list as Peel Hunt regards a forward price/earnings multiple of 12.2 times an attractive entry point given the medium-term potential.
It added: “We expect a tougher market in 2023 but this should help the group take further market share, while France could start to make a meaningful contribution to growth.”
Alongside Mitie, Capita has been chosen in support services as the bank expects a clearer trajectory for revenues growth and margin progression in the wake of a lengthy restructuring.
Low levels of debt and improving free cash flow generation should create options in the medium term to enhance returns for shareholders through dividends and buybacks.
The third stock from the sector is Kier, whose depressed rating Peel Hunt believes is in sharp contrast to increasingly attractive company and market fundamentals.
The bank notes Kier’s “conservatively bid” order book has increased to £9.8 billion and has been accompanied by revenue visibility through 90% public and regulated contracts exposure. It has a 150p target price and believes that a better understanding of the earnings quality should support a sustained re-rating.
Other selections include AIM-listed ITM Power (LSE:ITM), with Peel Hunt hopeful new leadership can revive the energy storage and clean fuel company after a pummelling for shares in 2022.
New boss Dennis Schulz is due to highlight his priorities later this month, with manufacturing execution and the company’s Leune and Yara electrolyser contracts likely to be the focus.
Peel Hunt said: “Getting these right and then building the order book could be the beginning of an exciting recovery journey.”
- Stockwatch: what now after 40% profit in under three weeks?
- 11 ways to invest your ISA like Warren Buffett
Kenmare Resources (LSE:KMR) is backed as the bank believes shares in the operator of the Moma mine in Mozambique undervalues the current spot price for its titanium-iron oxide mineral.
The company, which sells ilmenite under six and 12-month fixed contracts, is strongly cash positive and is backed to return up to $80 million (£66 million) for a 15% yield.
The other stocks on Peel Hunt’s value list are: Africa Oil Corp (TSE:AOI), Boohoo Group (LSE:BOO), Brooks Macdonald Group (LSE:BRK), CMC Markets (LSE:CMCX), DFS Furniture (LSE:DFS), Grafton Group Units (LSE:GFTU), Gran Tierra Energy Inc (TSE:GTE), Harworth Group (LSE:HWG), Helical (LSE:HLCL), Hilton Food Group (LSE:HFG), Jet2 Ordinary Shares (LSE:JET2), Just Group (LSE:JUST), Lookers (LSE:LOOK), Morgan Advanced Materials (LSE:MGAM), NCC Group (LSE:NCC), Ocean Wilsons Holdings Ltd (LSE:OCN), ONESAVINGS BANK PLC (LSE:1SBB), PureTech Health (LSE:PRTC), Redrow (LSE:RDW), RHI Magnesita NV Ordinary Shares (LSE:RHIM), Syncona Ord (LSE:SYNC) and Wincanton (LSE:WIN).
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.