24 UK stocks to benefit from buoyant economy

Optimism over the UK economy has prompted a City bank to highlight a 24-strong list of potential stock market beneficiaries, including NatWest Group (LSE:NWG), Whitbread (LSE:WTB) and Jet2 Ordinary Shares (LSE:JET2).

Among the smaller UK-focused companies in the report, Peel Hunt likes the prospects for consumer-focused DFS Furniture (LSE:DFS), Topps Tiles (LSE:TPT) and Victorian Plumbing Group (LSE:VIC), as well as the North of England land regeneration firm Harworth Group (LSE:HWG) and structural steelwork business Severfield (LSE:SFR).

• Invest with ii: Top UK Shares | Share Tips & Ideas | Open a Trading Account

The bank’s stance is underpinned by its confidence that the UK is set for a protracted period of above-average growth, driven by increasing business investment, improving consumer demand, stabilising inflation and lower interest rates.

It said the new government not only brought political stability and clarity but also a firm growth agenda. Peel Hunt added: “The mood change in the UK is palpable, which should bring stronger earnings growth and increased investor appetite.”

UK bank valuations have already benefited from this year’s economic upturn, although Peel Hunt sees further upside for NatWest based on a price target of 410p.

A stronger economy should be positive for credit quality and also benefit the lender in the small and medium enterprise (SME) space, where its market share is above 20%. Peel Hunt points out that SME loans typically have high net interest margin and return characteristics relative to larger corporates and some retail lending.

• Tesco shares are top pick as major milestone looms
• Sign up to our free newsletter for share, fund and trust ideas, and the latest news and analysis
• eyeQ: a story that requires close monitoring

On Whitbread, the bank said the Premier Inn owner should be the bellwether of an outperforming UK economy as it backed an upside for the leisure group’s shares to 4,000p.

It expects some pricing power to have been restored in a period of strong summer demand, with new room opening activity likely to support future revenue and profit growth as well as put further pressure on competitors.

The other FTSE 100 stock on the list is Rightmove (LSE:RMV), which prior to yesterday’s takeover interest was the cheapest listed classified stock among the property portal’s European listed peers.

In the FTSE 250, improving macroeconomic indicators should benefit paving and construction materials supplier Marshalls (LSE:MSLH) after two years in which profits have dropped sharply.

Peel Hunt, which has a price target of 380p, expects lower interest rates to boost home renovation budgets and for the water industry’s investment cycle to underpin activity in a core part of the group’s product portfolio.

It’s a similar story at building materials supplier Ibstock (LSE:IBST), which also benefits from tailwinds including lower gas prices and strong cost management over the last 18 months.

The other FTSE 250 stocks include transport firm FirstGroup (LSE:FGP), whose bus operations serve 10 of the UK’s 15 largest conurbations.

• Insider: blue-chip directors eye more progress
• Shares for the future: a high-quality firm like no other
• The 20 most-popular dividend shares among UK fund managers

Peel Hunt notes that bus services are highly operationally geared, with almost zero incremental cost for an additional passenger meaning that a small rise in load factors has a material impact on margins.

Shares in life science portfolio business Syncona Ord (LSE:SYNC) currently trade at a 36% discount to net asset value amid punishment for all but the most defensive healthcare subsectors since January 2022.

Prior to this rotation, Syncona traded at a 30-40% premium. Peel Hunt sees a 84% upside to 225p, adding: “With brighter times ahead for life sciences, we believe Syncona is in a strong position to start gaining exposure to this high-growth segment here in the UK.”

The other FTSE 250 stocks on the list are Spire Healthcare Group (LSE:SPI), Aberforth Smaller Companies Trust (LSE:ASL), financial services business Alpha Group International (LSE:ALPH) and storage business Big Yellow Group (LSE:BYG).

Outside the FTSE 350, the bank has backed Jet2 shares to rise more than 50% to 2,200p as stronger economic growth should support demand for flights and package holidays from customers in younger demographics.

Victorian Plumbing is the only bigger ticket retailer in Peel Hunt’s coverage still delivering volume growth in a market expected to be down by at least high single-digits.

• Shares for the future: a speculative stock expecting steady growth
• The Week Ahead: Barratt Developments, Berkeley Group, Currys

The bank, which has a price target of 120p, regards the current period as a “gateway year” for the company as it works on the opening of a new warehouse and the operational and strategic benefits this should bring over the next two to three years.

The other companies on Peel Hunt’s list are PVC windows and doors firm Eurocell (LSE:ECEL), floor coverings distributor Headlam Group (LSE:HEAD), digital entertainment business LBG Media Ordinary Shares (LSE:LBG), fastenings firm Trifast (LSE:TRI), the equipment rental business Speedy Hire (LSE:SDY), cafe chain Loungers (LSE:LGRS) and FTSE All-Share stock Warehouse REIT Ord (LSE:WHR).