Despite the recession, I’d buy these UK shares today

Despite the UK recession, there are still UK shares that offer very good opportunities for investors. Stuart Blair looks at two of his best picks.

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At the moment, the stock market does not look the most appetising place to invest your hard-earned cash. The second quarter saw GDP contracting by over 20%, officially placing the UK in a recession. By comparison, during the financial crisis, GDP only declined by 2.1%. This demonstrates the extent of the economic crisis within the UK at the moment. Nevertheless, the FTSE 100 has still risen over 20% since the middle of March. But while I believe some stocks are now overpriced, these two UK shares still seem to be very good buys.

A boring yet strong business

The first UK share that piques my interest is M&G (LSE:MNG). The savings and investment firm recently demerged from Prudential and has since entered the FTSE 100 in its own right. Despite the demerger, it still has more than five million retail customers and 800 institutional clients in 28 markets. There are also plans to launch its Prufund retail savings product in mainland Europe by the end of the year.

Of course, the pandemic has had a significant effect on the firm. In fact, underlying operating profits fell 57% to £309m. This reflected lower profits in the annuities and asset management businesses, as well as the higher costs following the demerger. Nevertheless, chief executive John Foley described the results as “resilient” and maintained the firm’s three-year capital generation target of £2.2bn.  

The group also announced an interim dividend of 6p per share. This gives the firm a dividend yield of around 10%, and there has been no indication of this being cut in the near future. As a result, such a high yield indicates that the UK share is still too cheap, and I’d buy at its currently discounted price.

A fairly unknown UK share

Airtel Africa (LSE: AAF) is a leading provider of telecoms and mobile money services in 14 countries in Africa. This is deemed an unpenetrated market, with a young population and rising smartphone ownership. As a result, there are significant growth opportunities for this UK share. This is highlighted by the fact that the current customer base stands at 111.5m, and this grew by 12% in the first half of 2020.

First-half profits were down 33% to £111m. This was mainly due to higher operating costs and a drop in revenue from the voice division. Nevertheless, the mobile operator was able to increase revenues by 6.9% from last year, and net debt-to-underlying EBITDA fell from 3x to 2.2x. As a result, I believe that the fallen profits were simply a slight blip, and further growth is on the horizon for this share.

The mobile operator also pays a mighty dividend of 10%. With the founding Bharti company owning 56% of the shares, shareholder returns should be very important for the company, and this means that the dividend seems safe. Consequently, I’d buy Airtel Africa shares for both income and growth opportunities.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stuart Blair owns shares in M&G and Airtel Africa. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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