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The British stocks stealing a march on European rivals

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·4 min read
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Union Jack socks - Chris Ratcliffe/ Bloomberg Finance
Union Jack socks - Chris Ratcliffe/ Bloomberg Finance

In the past five years, British firms have faced Brexit, a crash in the value of the pound and long coronavirus lockdowns – but that has not hindered returns for some businesses.

In fact, compared with European peers, some UK stocks are thriving and dominating their markets, delivering value for shareholders that shows no signs of slowing down.

Others are showing the potential to overtake European rivals through savvy investments in technology and impressive innovation.

Professional investors have highlighted a selection of London-listed stocks stealing a march on rivals from the Continent.

AstraZeneca

British pharmaceutical giant AstraZeneca, the FTSE 100's largest company, has proved a far better investment than Germany's Bayer and France's Sanofi.

Its shares have returned 106pc over five years compared with a 53pc gain for Sanofi and a 39pc loss for Bayer, once dividends are taken into account.

Boosted by its coronavirus vaccine, while Sanofi's is only just going through trials, AstraZeneca is going from strength to strength.

Karen Anderson, of investment analyst Morningstar, said patents, economies of scale, and a powerful distribution network made AstraZeneca a brilliant business.

Ms Anderson said that while patents on a raft of AstraZeneca's drugs were set to expire, the new batch of products that would replace them showed strong promise.

"Astra's strong lineup of next-generation drugs should significantly offset sales lost to new generic competition," she said. "We project the majority of new drug sales will come from cancer drugs, which carry high profits."

AstraZeneca shares are costlier than is more highly rated than its European rivals. It has a price-to-earnings ratio, a measure of how much shares cost relative to company profits, of 39, versus 17 for Sanofi shares. Bayer made a loss in 2020.

Next

High street retailer Next is quietly transforming into a technology-driven business that runs the logistics and online presence for other clothes brands.

The business is set to be a global leader, according to Seb Jory, of fund group Tellworth Investments. He said investors would be rewarded for owning it over Zalando, a German e-commerce firm whose shares have risen faster than Next's.

"It is one of the best-run companies in the Britain but is still cheap. It is comparable to Germany's Zalando because it is now an online clothes retailer but investors don't rate it as highly yet.

"Next it is turning into an online business that supports other retailers with their shipping and websites. It's also pushing into Europe," he said.

Next shares have only risen 68pc in the past five years compared with Zalando's 173pc return. With a p/e ratio of 35 versus 72 for its German rival, investors are getting a better deal, according to Mr Jory.

"If it secure get the right partners, such as Ted Baker and Superdry, then Next shares can keep going higher," he said.

London Stock Exchange

Trouncing the returns of Frankfurt-based rival exchange Deutsche Boerse, the London Stock Exchange has been a stock market gem over the past five years, returning 205pc compared with 126pc for its German peer.

Niklas Kammer, of Morningstar, said the London Stock Exchange boasted a unique business with few true competitors.

"By buying data firm Refinitiv, it now has a complete data and exchange business, controlling key global assets ranging from stocks, bonds and foreign-exchange trading, to the collection, management and distribution of data," he said.

Nick Train, manager of the £6.5bn Lindsell Train UK Equity fund, added that while the Refinitiv acquisition would be a challenge due to its size, it would establish the company as the world's second-largest financial data and analytics provider.

The London Stock Exchange enjoys profit margins of 66pc, more than double Deutsche Boerse's 28pc. That is reflected in a higher rating for its shares, which trade on a p/e ratio of 73 times, versus its German rival's 25 times.

Legal & General

Returning 97pc over five years, compared with 79pc for French rival Axa, shares in insurance and investment firm Legal & General have easily beaten the 31pc return from the FTSE All-Share, a barometer for the British stock market.

John Moore, of wealth manager Brewin Dolphin, said L&G had done well because it had simplified its business, focusing on low-cost investment funds and managing pensions.

"The company has performed better than others of its ilk in the UK and is in a much stronger position compared to where it could be if it was still trying to be a more traditional life insurance business," said Mr Moore.

By contrast, Axa is an all-encompassing insurance provider, offering everything from health cover to car products, with operations all over the world.

Shares in L&G and Axa are similarly valued by investors, on p/e ratios of around eight times.