These stocks likely to gain from announcement, analysts say
The U.K.’s new Labour government unveiled a debut budget plan that includes £40 billion ($51.8 billion) worth of tax rises and even bigger spending plans. Wall Street and City analysts have identified several stocks that could benefit from the measures announced Wednesday. Investment banks also suggested that stocks that had dipped ahead of the budget are likely to now gain on better-than-expected outcomes. Online gambling Shares of U.K.-listed gambling firms had traded significantly lower in recent weeks on media reports that the U.K. government planned to increase taxes on such firms to raise about £3 billion. No such taxes were announced, and gambling stocks have since soared. “We would expect stocks such as Evoke and Entain , which had been hit hard by negative press speculation, to bounce back significantly after today’s statement,” said Investec analyst Roberta Ciaccia in a note to clients immediately after the budget was unveiled. Others, such as U.S.-listed Flutter and London-listed Rank Group , also rose after no new tax measures were detailed. Infrastructure Civil engineering and infrastructure group Balfour Beatty is expected to benefit from the “mood” set by the U.K. Finance Minister Rachel Reeves, according to investment bank Jefferies. “The U.K. budget was a clear signal that the new govt. is committed to investing in infrastructure to support broader growth. This is good for Balfour Beatty, who derive ~60% of earnings from the U.K., and have leading positions in Transport and Power,” said Jefferies analysts led by Graham Hunt in a note to clients. The analysts expect Balfour Beatty’s shares to rise by 18% over the next 12 months but cautioned that while the budget improved the outlook for the company, nothing specific impacts Balfour Beatty in the near future. “For now, nothing has materially changed in the pipeline, however the mood music is good, and we point to further funding for HS2, Sizewell C, Carbon Capture, Hydrogen, Road & Rail and Defence, as future opportunities,” they said. Banks Investors in U.K. bank stocks will also be relieved as no new tax measures were applied to lenders specifically. “The main takeaway from the budget is the lack of additional bank specific taxes. Indeed, the sector was barely mentioned. Ordinarily, we would have considered lowering our 14% [cost of equity] on the banks for this,” Jefferies analysts said. Asset managers Pension contributions in Britain will now fall within the purview of the inheritance tax regime, which is set at 40%. The change will likely mean that wealthy retirees are likely to run down their pension pots first before dipping into other savings to minimize taxes paid, according to Jefferies. “Without detailed knowledge of clients’ asset composition and size, it is impossible to say, but, broadly, smaller investors will be less affected ( PBEE , AJB’s D2C platform, HL ). Larger ones may be more affected (parts of Quilter , AJB’s advised customers, IHP , STJ ).” RBC Capital Markets analysts echoed the view, saying the budget “included no major surprises relevant to the wealth sector.” Any changes to the rules were a “relatively benign outcome for the sector” and removed an “event risk” for stocks, the investment bank said. AIM-listed stocks The Alternative Investment Market, the London Stock Exchange’s junior market, was threatened by the abolition of a tax break, according to media reports before Wednesday. Ultimately, the U.K. government reduced the tax break by 50%, much lower than feared. Investment bank Canaccord Genuity had previously identified a number of stocks that had sold off on expectations of a full tax hike. Ashtead Tech , the specialist rental business listed on the AIM market in 2023, has doubled its revenues over two years, although the stock has fallen by a third over the past three months. Canaccord Genuity said the company’s share price could rise by more than 45% over the next 12 months. “We believe weakness over the past few weeks presents an opportunity to access the story: Ashtead Tech is a specialist rental business supplying the marine energy industry, primarily today’s oil & gas, but with a large and fast-growing position in offshore wind,” said the bank’s analyst Alex Brooks in a note to clients on Oct. 29. Aquis Exchange is another AIM-listed stock that is likely to benefit from the better-than-expected outcome. Canaccord analysts note the company is in its “strongest position it ever has been.” However, the stock has fallen by 10% this year, with the selling intensifying over the past three months, leading to a decline of about 35%, according to FactSet. RBC also pointed out that shares of wealth manager Brooks Macdonald and Tatton Asset Management , which trade on the AIM, will likely see a “relief to recent technical pressure.”
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