Optimism is breaking out all over. Economists are confidently predicting that official figures due on Friday will show the UK growing at its fastest pace in three years.
Accountancy firm Deloitte’s quarterly Consumer Tracker reports that UK consumers feel more positive about their incomes than at any times in the past two years, with a majority of respondents expecting the value of their property to rise and the level of their debt to fall in 2014. Lloyds Bank‘s (LSE: LLOY) (NYSE: LYG.US) monthly Spending Power Report rates consumer confidence at its highest since 2010, with optimism about the housing market at a new peak.
Spending
Which stocks will benefit if this surge in consumer confidence is translated into a surge in consumer spending? We’re looking for shares with a high beta that have big upside exposure to discretionary spending.
Lloyds Bank itself is one likely beneficiary. It has the joint-highest beta in the FTSE 100, and its focus on UK retail and commercial banking makes it especially well placed to benefit from resurgent consumer spending.
It’s in pole position to reap the rewards of a booming housing market. It’s the leading provider of mortgages in the UK, with a 20% share of the market in new mortgages. With the government’s ‘help to buy’ scheme sure to power demand for a couple of years at least, there’s positive momentum behind Lloyds’ business and, probably, its shares too.
Holidays
Sharing joint honours of highest beta in the FTSE 100 is TUI Travel (LSE: TT). It’s the largest tour operator in the world, selling differentiated package holidays under a variety of well-known brands. It put out a bullish pre-close statement last month, reporting encouraging levels of advance winter bookings which should be further boosted by increased consumer confidence. Though the shares are up by a third so far this year, a prospective PE of 13 leaves plenty of upside potential.
Also up amongst the FTSE 100 hig0 beta shares is ITV (LSE: ITV), the UK’s largest commercial broadcaster. It has been implementing a transformation plan since 2010. The plan also includes substantial cost-cutting, but a big element is to build revenues by selling content, reducing dependence on advertising revenue as audiences shift from terrestrial television to multiple viewing platforms including the internet.
Advertising
Nevertheless, advertising still contributes over half of ITV’s total revenues, and increased consumer spending will push up advertising budgets. ITV’s shares have more than doubled in twelve months and a projected PE of 18 isn’t cheap, but they should still have some upside.
