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Up 4.37% year-to-date, the FTSE 100 appears to be outpacing most major global stock markets. Earlier this week, it cracked a new record high above 10,480 points.
The Dow Jones is close behind with a 3.62% gain, while the S&P 500 is lagging, up only 1.55% this year. Meanwhile, China’s SSE 50 is down 0.37%.
This may be great news for British growth hunters but what does it mean for those seeking value?
Still value to be found
If you’re a value investor, don’t give up hope yet. There’s still a wealth of undervalued bargains to be found on the FTSE 100 and FTSE 250.
One to consider, for example, is Sabre Insurance Group (LSE: SBRE). The moderately small £320m insurance firm is down 51.5% in the past five years. But with strong earnings growth, it now looks attractively priced. It has a price-to-earnings (P/E) growth ratio of just 0.23, suggesting the market’s yet to realise its full potential.
Even if the price doesn’t recover, the stock’s income potential makes it well worth considering. At 9%, its yield is far above average, having grown 44% in the past year. The risk being that coverage is a bit thin, with 91% of earnings going to shareholders. For now, this is sustainable but if earnings don’t improve, a cut’s likely.
Companies with smaller market-caps can be volatile, so analysts appear split on where the price may head. While some envision growth of 52.9% in the coming 12 months, others expect a 15.9% drop.
Encouragingly, earnings per share (EPS) doubled between 2023 and 2024, from 7p to 14p. Earnings are expected to continue growing at a rate of around 7% for the next three years.
Too risky?
For those looking for a safer bet, BP Marsh and Partners is a £231m small-cap outfit to think about that invests in insurance firms. With a return on equity (ROE) of 35.8% and a current ratio around 40, it appears both highly profitable and extremely liquid.
But the best part is the P/E ratio of just 2.36. This implies deep value versus peers and is supported by 165% revenue and 97% earnings growth, year on year.
Yes, its small market-cap and exposure to insurance cycles add risk, not to mention volatility from low momentum. But overall, it seems the market’s yet to price in this growth machine, so it could deliver a big payday for patient investors.
The bottom line
For value hunters, these two shares could be hidden gems on the UK stock market. Still, they should only be considered as part of a diversified portfolio, with neither allocated more than 5% of a portfolio.
BP Marsh and Partners seems to be printing money, with sky-high profitability. But whether that profit will convert to share price gains remains to be seen. Only time will tell.
Meanwhile, Sabre’s a high risk/high reward value play with lots of promise, but further growth could be impacted by rate changes or economic instability. However, a high yield and seven-year track record makes it an option to look at for both value and income.
