Cantor Fitzgerald Europe: Our top UK stock picks for the rest of 2018
London – UK equity markets have been volatile in the first six months of the year, with deadlocked Brexit negotiations, a looming US-led trade war and a fluctuating oil price making investors nervous.
Unsurprisingly, the progress of the UK’s biggest stocks has been patchy as a result, with both the FTSE 100 and the FTSE 250 up only marginally for the year.
However, there remain some standout opportunities for investors when it comes to UK companies, according to Cantor Fitzgerald Europe, particularly further down the market cap spectrum.
Below, analysts at the group identify their highest conviction stock ideas for the second half of 2018.
Mark Photiades, consumer analyst – chosen stock: Victoria
Market cap: £992m
Current share price: 843p
Target price: 960p
“Victoria’s full year 2018 numbers show it has been another successful year for the carpet manufacturer and distributor, driven by a combination of solid organic like-for-like growth and earnings enhancing acquisitions.
“With full year adjusted profit before tax of £40.8m reported this week, it represents growth of 39% year on year. Strong sales growth was seen across both the UK & Europe (+29%) and Australia (+27%), with the Group as a whole seeing sales rise by 29%.
“Given the recent sector news flow, we take comfort that Victoria continues to experience good demand and that the management team remains confident for the year ahead.
“Victoria should be increasingly viewed as an international business, with more than 60% of earnings set to be generated outside the UK after recent European acquisitions.
“Given the forecasted 50% earnings per share growth in the coming year, we feel that Victoria offers considerable value at current levels.”
Kevin Ashton, technology analyst – chosen stock: Albert Technologies
Market cap: £40m
Current share price: 38p
Target price: 80p
“Albert is the first mover in the field of AI-based marketing automation. It has built a game-changing AI/ML based Virtual Campaign Manager that optimises a campaign’s return on investment in a way far beyond the capabilities of a human operative, and at significantly lower cost.
“With ad- spend coming back in house as brands reclaim their data, the market backdrop could not be more propitious. Albert has seen a significant ramp up in MRR over 2017 coupled with further contract and pilot momentum in 2018.”
Renewable and clean energy:
Adam Forsyth, alternative energy research analyst – chosen stock: SIMEC Atlantis Energy
Market cap: £111m
Current share price: 29.8p
Target price: 75p
“The transformation of Atlantis Resources and SIMEC into SIMEC Atlantis Energy creates a major renewable energy development company with a pipeline of strong assets.
“The successful development of MeyGen 1A, a difficult first-of kind project, shows it is a credible player in the sector. It also has the potential to do more in the tidal space given a cost trajectory that could see tidal competing with leading edge technologies after factoring intermittency costs.
“On top of that, its waste-to-energy project in Uksmouth brings a really flexible asset into the mix and the portfolio beyond this is strong, and we think SIMEC Atlantis will offer a diversified opportunity of scale.
“While the company has seen its share prices slip lately, we have a target price of 75p, but if everything aligned for this business it has the potential to go above 300p.”
Oil & gas:
Ashley Kelty, oil & gas research analyst – chosen stock: Serica Energy
Market cap: £183m
Current share price: 69.63p
Target price: 104p
“Serica recently announced the submission of a field development plan for its Colombus project in the North Sea. This is a big step forward for the business, as the Colombus development has been a long time coming, due to the need to get approval for export over a host platform operated by a third party.
“This is a low-cost development plan that will be welcomed by the UK government and we see the proposed development solution as being an indicator of the positive environment in the North Sea, where operators are collaborating to get fields developed.
“With commodity prices remaining high and the OPEC deal providing support at current levels, we see the outlook for investors in the sector as remaining positive.
“Serica is therefore well placed to undertake the Columbus development, being cash generative and unencumbered by debt, and the project should deliver strong cashflow in the coming years to complement the existing portfolio of assets.”
Robin Byde, transport research analyst – chosen stock: Wincanton
Market cap: £341m
Current share price: 274.5p
Target price: 330p
“The group has secured contract wins and renewals, including a new contract with EDF Energy to provide warehouse and transport services for the construction of Hinckley Point C, the UK nuclear power station. The firm has also won an extension of services delivered to a ‘major construction products customer’ and the renewal of e-fulfilment operations with Loaf.com
“Wincanton is already trading at a discount to its peers and is an income-style investment for many funds, with our estimated full-year dividend indicating a yield of 4.1%.
“The group offers defensive earnings and solid cash generation in the UK supply chain sector, and having drifted recently on little news flow, we think this is a buying opportunity.”
Brian White, healthcare research analyst – chosen stock: Diurnal
Market cap: £110m
Current share price: 177.5p
Target price: 208p
“Diurnal is focusing on metabolic disease, primarily on disorders of the adrenal gland where patients suffer from low cortisol (the fight or flight hormone) and where poor control leads to increased mortality (adrenal crisis) and morbidity.
“The lead indication at Diurnal is the inherited disorder congenital adrenal hyperplasia (CAH), with the intention over time to progress into the larger adrenal insufficiency opportunity. Both are Orphan disorders which bring regulatory support as well as additional exclusivity and premium pricing.
“Diurnal is seeking to address this with a smart formulation of hydrocortisone – called Chronocort – which uniquely matches the body’s natural circadian rhythm. We believe this to be a low risk endeavor, particularly in Europe where important Phase III data in CAH is expected in Q3, and where the trial design reflects a larger version (more patients) of the successfully completed Phase II study.
“Europe represents the largest opportunity for Chronocort, with a total CAH addressable market (EU and US) of >$400m. The US Phase III trial is scheduled to start in H2, and in total we believe that the value of Diurnal’s development programmes are targeting a market potential in excess of $10bn.
“Our current target price of 208p is based on a conservative discount rate of 20%, and we believe a positive Phase III result would justify a lower discount rate.”
 According to the London Stock Exchange, from close on Friday 29th December, to 10am on 24th July 2018, the FTSE 100 has risen from 7,688 points to 7,717 points, while the FTSE 250 has risen from 20,726 points to 20,896 points.
 All share prices as at 10am on 24/07/18, according to Google Finance.