Interactive Investor

Two top UK shares setting the market alight right now

24th March 2021 13:09

Graeme Evans from interactive investor


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Despite a tough 2020 for many companies, these ones keep surprising us with profit upgrades. 

The share prices of Softcat (LSE:SCT) and Bloomsbury Publishing (LSE:BMY) were reignited today as the mid-cap pair made their second significant upgrades to profit forecasts in 2021.

FTSE 250-listed Softcat was up another 18% as demand for its cyber security and cloud-based solutions has remained strong in the pandemic. Bloomsbury noted the popularity of reading during the lockdown for an exceptional finish to its financial year, helping its shares to charge ahead 9% or 24p to 292p after its second upgrade in as many months.

Softcat's half-year results came in 20% ahead of expectations, even though forecasts were also upgraded in January as public sector and mid-market customers have grown more confident and the company benefits from cost savings made at the start of the pandemic.

Shares are now 1,846p compared with 1,119p in mid-December, meaning the stock is trading on a lofty enterprise value of 31 times 2021 earnings. But analysts Numis think the Marlow-based company deserves its premium rating based on its track record of delivery, adding that the company should be a core holding.

Counterparts at Jefferies raised their target price to 1,840p from 1,640p, having increased earnings forecasts for the next three financial years.

Softcat's valuation of more than £3.6 billion compares with £2.5 billion for Computacenter (LSE:CCC), its rival that has also made a series of upgrades as demand for its services has been boosted by the remote working of firms and organisations during the pandemic.

Softcat's chairman is Martin Hellawell, who joined the company in March 2006 after 13 years with Computacenter. It has gone on to deliver 15 consecutive years of operating profit growth and returned more than £200 million to shareholders since joining the stock market in 2015.

The latest dividend of 6.4p a share will be paid on 14 May, representing a jump of 18.5% on the interim payment a year earlier. 

Chief executive Graeme Watt said investment in the company's growth strategy had continued throughout the pandemic, boosting his confidence that full-year results will be significantly ahead of previous expectations.

He said: “Cost savings related to Covid restrictions are expected to dissipate over the next six months but we are optimistic about the growth opportunity in our market.”

Bloomsbury will book bigger than expected profit

The conditions facing Bloomsbury have been much more mixed, with the closure of bookshops offset by growth in online book sales and e-books across its consumer and academic divisions.

Chief executive Nigel Newton said: “The popularity of reading during lockdown is a ray of sunshine in an otherwise very dark last year. February, the final month of our financial year, saw an exceptional sales performance for Bloomsbury as the surge in reading continued.”

Sarah J Maas’ new novel, A Court of Silver Flames, which was published on 16 February, is already a global bestseller, while Harry Potter has underpinned strong backlist sales.

The performance means that profits will be significantly ahead of City expectations, with Numis upping its forecasts by 20% to £18.3 million. With shares trading at less than 14.5 times 2022 earnings, analysts at Investec said the scope for Bloomsbury to deliver resilient growth continues to be under-appreciated by the market.

The broker has a price target of 330p, adding that the company has demonstrated the importance of investing in high quality content.

The strong performance and proceeds of a pre-emptive fundraising at the start of the pandemic have left Bloomsbury with cash on its balance sheet of £54 million, which it has pledged to invest in order to deliver attractive shareholder returns.

Newton added on the trading outlook: “We do not yet know how consumer behaviour will change as academic institutions, shops and leisure activities re-open and whether this popularity will continue as restrictions are lifted.”

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.

Related Categories

    UK shares
    Growth Investor
    Cyber security

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