2 dirt-cheap UK shares that look ready for liftoff

Looking at the all-time FTSE 100 graph, the incredible bull run we are in right now is evident. The Footsie is up over 40% since the March 2020 crash. And I am looking at minor crashes along the way as opportunities to cash in on cut-price UK shares.

I hear investors lament missed market opportunities. Right now, some top-quality UK shares are down over 30%! Here are two companies I am watching closely to make an investment in the coming months. 

Reduce your bills

B&M European Value Retail (LSE:BME) is one UK share that has been on my watchlist for a few years. With inflation projected to hit 22% next year, I expect discount retail stores to see a spike in revenue. And B&M has quickly become a big player in this sector. 

While many grocers felt the brunt of rising raw material costs, B&M managed to maintain stable revenue and sales in the financial year (FY) 2022. The group recorded a pre-tax profit of £525m, exactly the same as in FY21. Two-year sales growth (compared to FY20) was at 13%, showing that the business managed to retain a large chunk of its customers gained during the pandemic. 

By focusing on in-demand products and avoiding overstuffing store stock, the company has managed to keep costs low and generate a profit. In fact, overall gross margins went up to 37.4% from 36.9% in FY21. 

Supply chain issues are a big concern for supermarkets right now and B&M is no different. Disruptions in Asia could affect operations in the coming months. Also, rising energy costs mean higher transportation costs that the company will have to deal with.

However, I am impressed by B&M’s frugal business model and its commitment to its dividend policy. Its yield stands at 4.3% and the board is confident about maintaining current levels.

Its shares are down 39.7% in 2022 and are trading at a price-to-earnings ratio of 8.9 times. Given the market share and business model, I think B&M is the best bargain option for my portfolio right now. 

Cheap UK defence share

The world is reeling from the war in Ukraine and defence budgets across the globe are shooting up. I think investing in the sector could be a good growth option moving forward. One UK share that has caught my eye is Babcock International Group (LSE:BAB). 

The firm specialises in electric systems for combat vehicles across land, air, and water. Along with engineering, the company also provides training, assistance, and data management services for militaries. 

In FY22, group revenue jumped 3% to £4.1bn with an underlying operating profit of £238m. The company recently signed defence contracts with Australia, France, Indonesia, and the UK. This has boosted its order book significantly.

There is always an underlying threat of trade restrictions when it comes to defence shares. A ban on sales could vastly impact Babcock’s revenue. The company is also dealing with rising metal prices, which is crucial to an engineering firm’s margins.

But I am still bullish on Babcock shares for my growth portfolio. It has fallen nearly 4% in the last month after a 50% rise since January 2021. I think this presents an attractive entry point at 328p. Currently, this UK share looks like a bargain to me given the high interest in defence, the company’s quality, and momentum.