The end of the tax year is coming down the track fast and that means there are only weeks remaining to make full use of your £20,000 annual ISA allowance.
Even if you are some way off this maximum limit or haven’t invested through an ISA at all in 2023/24, the rapidly approaching deadline is a good spur to look at the possibility of making money from the financial markets.
Two weeks ago we ran an article looking at funds and investment trusts to suit different types of investors. This time we’ve conducted a similar exercise but focused instead on individual stocks.
To help generate ideas we ran three different screens of UK shares on Stockopedia, targeting a trio of investment styles: growth, value and quality. This provided a starting point and the Shares team then applied its knowledge to come up with a list of six names which would make great picks for your ISA portfolio whether you’re looking for bargains, exciting expansion potential or just really great, well-established businesses. Read on to discover more.
Auto Trader (AUTO) 746p
Market cap: £6.75 billion
Auto Trader is the UK’s leading online automotive marketplace, with a 75% share of all minutes logged on car classified sites in the six months to September 2023 according to consultants Comscore.
The company operates a platform model, and as such it benefits from network effects which support high margins and its market-leading position.
Network effects mean as more people use a platform, more advertisers are attracted to it, which in turn drives more users to it and so on, constantly adding to its market share and value.
Traditionally a site for people looking to buy and sell used cars, the business had evolved massively since the early days and is increasingly used by dealers selling new cars.
As of September 2023 there were around 440,000 vehicles listed on the site, with average revenue per retailer rising 12% over six months as the company pushed through price increases and saw strong uptake of its new products and services.
Its ‘Deal Builder’ product, which allows buyers to value their part-exchange vehicle, apply for finance and reserve their purchase online, has been expanded from 50 to 500 dealers and is receiving positive customer feedback.
Changes in the way the new car market works are also creating opportunities for the firm to take market share, with manufacturers able to operate an agency model and advertise their products direct to consumers on the Auto Trader website.
This means that instead of going into your local dealership and haggling with the salesperson, you can compare cars and read reviews on the site and get a fixed price on a car anywhere in the UK.
The shares trade on a PE (price to earnings) multiple of around 24 times for the year to March 2025, which sounds expensive but the company has grown its earnings by 30% per year on average over the last decade according to Stockopedia which is no mean feat. [IC]
Keywords Studios (KWS:AIM) £14.59
Market cap: £1.1 billion
Leading service provider to the video game industry Keywords Studios (KWS:AIM) is a quality growth business trading at an unwarranted PE (price to earnings) discount to its historical average.
Rising interest rates have impacted many growth shares over the last two years and Keywords has not been spared with the PE halving from over 20 times to the current 13.8 times based on 2024 consensus earnings forecasts.
Keywords has delivered consistent sales and profit growth since listing on AIM in 2013 with sales growing 50-fold and profit 27-fold which has catapulted the shares 10-fold, making them one of the most successful shares on AIM.
The video gaming industry has seen a big increase in outsourcing to specialists like Keywords which provides localisation of content to help game makers launch into multiple markets and languages simultaneously.
The outsourcing market is relatively immature and despite rapid growth Keywords has only just scratched the surface of the global opportunity.
The company has built a market share of around 6%, which does not sound impressive until you realise it is more than three times the size of its next largest competitor.
The company’s strategy is focused on consolidating a very fragmented market through acquisitions and growing organically.
Since floating Keywords has spent around €600 million on acquisitions to gain access to a wide range of niche skills as well as broaden its geographical spread. This has brought the company significant cross-selling opportunities and insight into client needs.
Over the medium term management believes it can grow annual sales by 10% organically augmented by acquisitions while achieving an adjusted pre-tax margin of around 15%.
Based on the company’s strong track record, leading market position and long-term growth prospects Shares believes Keywords Studios should be a core holding. [MG]
Kier (KIE) 138.6p
Market cap: £607.1 million
Areas like infrastructure and construction have been heavily out of favour with investors and that’s done nothing for the share price of Kier (KIE).
However, we the stock has gained some recent momentum and still looks excellent value. With a significant turnaround of the business near to completion, we believe signs of improved operational and financial performance and an expected return to the dividend list can act as a catalyst to unlock that value.
Based on consensus forecasts for the 12 months to 30 June 2025, Kier trades on a price to earnings ratio of 6.3 times and offers a 4.8% yield.
In June 2019 a new management team, headed up by current chief executive Andrew Davies, concluded a strategic review of a business which was frankly in a bit of a mess. Like much of its peer group it had become too unwieldy, too focused on winning contracts regardless of their profitability and with a stretched balance sheet.
Davies and co set out to fix these problems and while the Covid pandemic delayed progress, this repair job now looks largely complete. Cash generation has already begun to improve materially and further evidence of this should be rewarded by the market.
Non-core assets have been sold off, the company is now managing contract risk better and the focus is on areas where the company has the scale and expertise to enjoy a clear competitive advantage. This includes infrastructure, construction, highways, property and utilities projects across the UK. As is often the case when shares look cheap, there are risks for investors to consider.
After all, while Kier’s exposure to state-funded investment in critical infrastructure should provide some insulation from the macro-economic backdrop, the parlous state of UK public finances means there is some risk of a slowdown in work. [TS]
Moneysupermarket.com (MONY) 249p
Market cap: £1.33 billion
At a time when the cost of living seems to be going up every month, especially for things we have to pay for but might never actually have to use like car, home and travel insurance, price comparison websites are an essential way of helping people save money.
The firm estimates it saved consumers a record £2.7 billion in 2023, while at the same time it generated record turnover of £432 million, an 11% increase on 2022. This was thanks to ‘exceptional’ trading in its insurance specialism as customers sought out cheaper policies.
Revenue from the insurance business alone jumped 28% to £220 million, accounting for more than half of the group total, as ‘exceptionally high premium inflation continued, driving high search traffic in the quarter and fueling high levels of switching in car and in home,’ said the company.
What is doubly impressive about last year’s performance is it was achieved with virtually no energy switching due to an almost complete lack of competition among the power providers.
In 2019, its previous record year, the company saw ‘exceptional’ levels of energy switching, driving a 40% jump in home services revenue.
Analyst Roddy Davidson at Shore Capital expects Moneysupermarket to deliver double-digit earnings growth this year and next year along with strong cash generation and an increasing dividend.
Ciaran Donnelly and the team at Berenberg recently expressed confidence in the group’s ability to grow even without a contribution from energy switching again this year, based on the firm’s plan to expand its offering with membership-based propositions such as SuperSaveClub, the MoneySavingExpert app and the Quidco cash-back service.
Leveraging its brands, in particular the highly trusted MoneySavingExpert, should reduce the company’s dependence on paid marketing and allow it to consistently drive both revenue and margin growth.
The shares trade on a multiple of 14 times this year’s earnings, which we don’t think is expensive given the quality of the business and the growth potential. [IC]
SSP (SSPG) 219.6p
Market cap: £1.75 billion
Food travel expert SSP’s (SSPG) shares have yet to get even closer to recovering from the Covid pandemic and we think that’s unjustified. SSP has an excellent long-term track record and the cash generation to service its sizeable but manageable net debt. As such, Shares believes the present valuation discount to pre-pandemic levels presents a compelling entry point for ISA investors. Particularly those seeking a quality compounder with pricing power arising from a captive customer base, and an exciting global growth opportunity with leisure travel demand continuing to recover.
Led by CEO Patrick Coveney, SSP operates restaurants, bars, cafes and other food and drink outlets at airports and railway stations across 36 countries under owned brands such as Upper Crust, Ritazza and Le Grand Comptoir and franchises it runs. These include Burger King, Starbucks (SBUX:NASDAQ) and M&S Food-To-Go.
Despite headwinds including geopolitical uncertainty and industrial action across Europe, the £1.75 billion cap’s first quarter update (30 January 2024) confirmed SSP has positive momentum driven by like-for-like sales growth, new business wins and contract renewals and acquisitions. The FTSE 250 firm continued to see strong performances across its key growth markets of North America and Asia Pacific, while 14.3% like-for-like sales growth of 14.3% reflected the further recovery of passenger numbers and the strength of SSP’s customer proposition.
The acquisition of concessions operator Airport Retail Enterprises will significantly strengthen SSP’s position in the attractive Australian market and increase the proportion of revenues focused on the fast-growing Asia Pacific region.
For the year to September 2024, Shore Capital forecasts a jump in adjusted pre-tax profits to £185.2 million ahead of £222.1 million by 2025, with earnings expected to rise from 11p this year to 13.5p next. Based on those 2025 estimates, SSP trades on a price to earnings ratio of 16.3 and a price to earnings growth (PEG) ratio of 0.7, which seems undemanding given the opportunities ahead in a structurally growing global travel market. [JC]
YouGov (YOU:AIM) £11.40
Market cap: £6.75 billion
Market research and data analytics group YouGov is probably best known in the UK for its political polling but this is just a small part of what is a much larger and growing business.
It may be headquartered in the UK but this is a truly global operation with operations in Europe, North America, the Middle East and Asia Pacific.
Based on analysis by industry body ESOMAR (European Society for Opinion and Marketing Research) the ‘established research’ market YouGov operates in is worth some $48 billion globally, around 50% of which is centred around the UK and US. ESOMAR estimates this is growing at some 5% a year.
It remains a highly fragmented market, giving YouGov scope to take share both organically and through acquisitions. The recent €315 million takeover of GfK’s consumer panel business, for example, brought in 1,100 clients. Of which 70% were not YouGov customers prior to the deal.
In a world where data is becoming both more voluminous and important, the company provides key insights to companies, governments and other institutions so they can make informed decisions.
The business is underpinned by a strong central platform which has more than two decades worth of data within it. Crucially YouGov has some 26 million registered panel members which allow it to deliver robust consumer insights.
The company is targeting growth in three main ways. The biggest opportunity is in enterprise sales which deliver strategic insights on an ongoing basis to large national and multinational organisations.
For clients with more straightforward requirements YouGov offers a digital path to purchase data through its new self-service research platform. Finally, the company is looking to innovate and develop new projects by building on its existing research engine.
Chief executive Steve Hatch, who took over last summer having previously worked at Meta Platforms (META:NASDAQ), is beginning to put his stamp on the business. Recently bringing in a new chief commercial officer in the form of Tom Fisher to sharpen the company’s money-making instincts. A price to earnings ratio of 22 times is not cheap but reflects the company’s robust growth with consensus forecasting EPS growth of 31.7% and 27.8% in financial years running to 31 July 2024 and 31 July 2025 respectively. [SG]
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