Some shares are still down since the sell-off following the result of the referendum on Britain’s membership of the European Union.
The run-up to the referendum caused shares to weaken at the beginning of 2016 too, so there’s a decent chance we can find good value among shares that still languish now.
Nothing much has changed
In recent days, we’ve seen a rebounding stock market in general, perhaps due to falling sterling making those firms with earnings in other currencies, such as the euro and the US dollar, more attractive. The resurgent stock market could also be down to investors realising that the Brexit process will likely be a drawn-out affair. As such, the level of uncertainty has diminished because nothing much seems set to change economically for some time — Britain will still trade with Europe on its existing terms for a good while yet.
Shares representing firms with UK-focused earnings are down the most, such as hospitality company Whitbread (LSE: WTB) and construction and landscaping materials supplier Marshalls (LSE: MSLH), perhaps on fears that the Brexit process may cause a UK economic slowdown. Yet a Brexit-induced slowdown, if it arrives, may not be as severe as feared by some because it’s in the interests of all the countries of Europe to make Britain’s transition to a non-European Union country as smooth as possible.
Meanwhile, drugs firm Shire (LSE: SHP) looks interesting because its shares remain below previous highs despite the company’s large overseas earnings. The firm reports in US dollars, which are worth more when converted to sterling when the pound is weak against the dollar. Theoretically, the firm’s share price should go up on the London market to reflect that currency advantage.
Better value?
The big share price markdowns suffered by Whitbread and Marshalls could mean that value has increased for shareholders buying now. City analysts following the firms still predict robust growth in earnings. They see Whitbread’s earnings rising 3% for the year to February 2017 and 10% to February 2018, and Marshall’s scoring an uplift of 23% this year and 18% during 2018.
There’s a lot of cyclicality in the operations of both but they continue to trade well. Whitbread’s Costa Coffee brand, which is growing fast,  has defensive characteristics that could help mitigate some of the effects of any slowdown that arrives — people will be reluctant to give up their daily caffeine fix whatever the economic weather.
Right now seems like a good time to run a slide rule over these three quality outfits. At a share price of  3,458p, Whitbread trades with a forward price-to-earnings (P/E) ratio of just under 13 for year to February 2018, Shire’s P/E ratio is just over 13 for 2017, and Marshall’s sits at just under 12 for 2017. All these valuations have been higher in the recent past.
The general economic outlook is uncertain due to the unknowns surrounding the Brexit process, but uncertainty is what drives share prices lower. If good trading continues, today’s share prices could represent good vale for Whitbread, Shire and Marshalls.