The U.K. stock market trades at a record 40% discount to the U.S., a cheap rating that is hastening flight from the City of London, according to Citi.
Based on forward price earnings multiples the materials, food and beverage, and energy sectors trade at the biggest discount to their U.S. peers, said the banks’ European equity strategy team, led by Beata M Manthey.
“As a result of this wide value gap, newsflow indicates that CEOs of U.K. companies are facing renewed calls to realize value for their shareholders, with re-listing across the Atlantic emerging as a potential option.”
Source: Citi
Last week, building materials giant CRH
CRH,
said it would switch its primary listing from London to New York, while Softbank
9984,
said it will also shun the U.K. market and float its chip-designer ARM on Wall Street.
“[T]he U.K.-U.S. value gap is not a new phenomenon. Years of relative cheapness have led to a shrinking U.K. equity market, accelerating to a record pace in 2022 with the U.K. equity market shrinking by 6%,” said Citi in a note to clients.
“M&A has been one of the key drivers of this de-equitization, fueled by easy monetary policy and low costs of borrowing throughout the past decade. But even as rates rose last year, attractive valuations still helped to maintain some pace of dealmaking,” the bank added.
Closing the value gap is a driver for restructuring, said Citi. Companies with large discounts to the U.S. market and high exposure to the world’s biggest economy may increasingly consider a re-listing, such as BP
BP,
and Shell
SHEL,
Seventy-five percent of CRH profits come from the U.S.
Source: Citi
