The opportunities on offer in the U.K. stock market — long stereotyped as unloved, unexciting and full of “old economy” firms like mining and oil majors — are “becoming hard to ignore,” portfolio managers at Ninety One say. London firms have broadly been undervalued for more than a decade, worsened by the vote to leave the European Union in 2016 and subsequent stretch of political volatility, the investment manager outlined in a recent report. Britain’s economic outlook is mixed. Growth picked up in the first quarter , but pulled back sharply in April amid U.S. tariff turmoil . Westminster has since struck a trade agreement with the White House, but global tensions continue to weigh on activity. Inflation has eased and interest rates are falling . However, many businesses have turned sour on the Labour government following a set of tax hikes , dampening some of the bullishness toward the U.K. after the party’s election a year ago. But when it comes to U.K. stocks, those factors matter less than two key points, according to Ninety One. First, their attractive entry point and discount against their stretched international peers. And second, the strong opportunity for returns across a “trifecta” of re-ratings, earnings growth and among the most generous capital returns in all developed markets. “We do not necessarily see a pivot in attitude towards the U.K., but nor do we require one to make good returns,” Alessandro Dicorrado, portfolio manager and head of value at Ninety One, told CNBC. “The irony is that the longer valuations remain so depressed, the better the compounding potential over time as the companies can buy back their shares so cheaply, reduce their share counts and improve their free cash flow per share over time. We actually do not want to see attitudes pivot more positively,” Dicorrado added. Ninety One’s analysis did nonetheless find a pick-up in sentiment toward U.K. businesses after years of selling pressure from active funds swayed by macro concerns. As evidence, it cited the surge in the average deal size for takeovers of FTSE 100 and FTSE 250 firms to £1.07 billion ($1.45 billion) in 2024 from £390 million in 2023, indicating international buyers finding value in various corners of the market. These are three of their picks for stocks they said remain undervalued with strong fundamentals and growth potential. Wise Wise is a rare example of a buzzy fintech on the U.K. markets, and reported higher revenue and profit in its full financial year ending March 2025, with underlying income rising 16% to £1.4 billion. Since debuting in 2021 at 800 pence in London’s biggest ever tech listing, the stock has rebounded from an initial decline to trade around 1,041 pence. Ninety One’s U.K. quality portfolio manager, Ben Needham, highlighted the £32 trillion potential market size the company sees for its infrastructure stack, which gives users low money transfer fees by canceling out transactions across a global network of money pots — an alternative to costly and slow banking systems. That figure accounts for the £3 trillion moved by people annually, £14 trillion moved by small and medium-sized businesses, and £15 trillion moved by large corporations. WISE-GB YTD line Wise share price. The growth it has achieved is now allowing Wise to reinvest in the business, Needham said at a briefing attended by CNBC, describing the low-cost rails Wise has built that other firms are now using “Amazon-esque.” The recent announcement that Wise will pursue a primary listing in the U.S. with a secondary listing in London — while seen as an overall blow to the latter exchange — is good news for the company, Needham added. In the 2025 financial year, £237.2 million of its revenue came from North America, behind £595.8 million in Europe, and a Wall Street listing will be an effective way to increase its exposure to that market as a platform more generally, he said. Melrose Industries Aerospace firm Melrose , which makes jet engine and structure parts for global manufacturers, is a stalwart of the London Stock Exchange. Around a quarter of its 2024 revenue came from defense clients, with the remainder in civil aviation. Adjusted operating profit for the full year rose to £540 million from £390 million for the full-year period. Ninety One flagged the firm as one with few competitors in a market with high barriers to entry because of upfront costs, and in which other players are trading at a higher price-to-earnings ratio. It also cited its relatively stable long-term growth prospects, because a delivery is generally followed up by several decades of high-margin maintenance. Melrose’s outlook is meanwhile largely divorced from the U.K. growth story given backlogs and strong demand within its sector, portfolio managers said. MRO-GB YTD line Melrose share price. JD Wetherspoon Pub chain JD Wetherspoon is an example of a “misunderstood and underappreciated business,” according to Ninety One, both of whose value and quality teams like the firm. The establishment has spent years reinvesting in pricing to keep costs for clients among the lowest in the market, they said, providing both huge scale as well as resilience in times of wider economic headwinds. Of particular interest is the chain’s recent push to gain more franchise partners to expand its footprint, already at 795 pubs in operation. “These businesses can, with patience, deliver compounding free cash flow per share as their returns on capital typically persist at high levels and defy mean reversion,” Ninety One said in its report. “With valuation discipline, this compounding in free cash flow per share can be reflected in total shareholder return over time as well as enabling downside protection.” JDW-GB YTD line JD Wetherspoon share price.
