In general, UK shares have outperformed global stocks of late. Over the past year, the FTSE 100 has risen nearly 6%, whereas the S&P 500 has dropped 9% and the Hang Seng has sunk over 20%. But this success has mainly been due to the performance of a few individual companies, such as AstraZeneca and some of the big oil giants. Therefore, many UK shares are still trading at multi-year lows and look very cheap for the long term. Here are two I’d pick up today.
A recent crash
Hotel Chocolat (LSE: HOTC) is a British high-end chocolatier, recognised for its excellent quality. However, on Tuesday, the company announced that it expected a statutory loss for FY22, which led to this UK share plunging nearly 50% in a day.
Although the company has been performing well, Hotel Chocolat was affected by its subsidiaries in both Japan and the US. In fact, after an internal business review, the company has decided to close its retail stores in the US. This will lead to costs of £3m, including future lease liabilities and landlord deposits. At the same time, the board also acknowledged the potential to have to pay a full impairment charge of £23m, due to a revised assessment of the likelihood of recovering loans made to its ailing Japanese joint venture.
These factors meant that as well as the company expecting a statutory loss for the year, it predicts lower sales growth and profit margins for FY23 too.
However, there are many positive signs. For example, revenue growth in the latest year totalled £226m, up 37% year-on-year and ahead of market consensus expectations. This was primarily due to growth in the UK market. Further, for the long term, the group also expects “less risk and an even stronger balance sheet with a higher profit percentage growth in FY24 and FY25”.
Therefore, I’m not too worried about the recent crash and believe that the recent dip makes it an excellent time to buy. I may add some Hotel Chocolat shares to my portfolio.
An internationally focused UK share
Burberry (LSE: BRBY) is a historic British luxury fashion house that gained a new lease of life in recent decades. It has managed to expand internationally, with over a third of its business exposed to the Chinese market. However, recent lockdowns in China have strained Burberry’s business there.
For example, Q1 sales in Mainland China fell by 35% year-on-year, and in the Asia Pacific region, sales fell by 16% in the period. This meant that, at a constant exchange rate, comparable store sales only increased by 1% year-on-year, far slower growth than the group wished for.
However, there are still many positive signs. First, the company has just commenced its £400m share buyback, which is expected to be completed by the end of the year. Second, the European part of the business saw sales increase by 47% year-on-year, driven by the rebound in tourism and higher sales to locals. This is a great sign moving forwards. Finally, according to the company, there are signs that Mainland China performance has been improving since stores reopened in June.
Therefore, I think that this UK share should be able to overcome the current struggles and would be an excellent addition to my portfolio.