Cheap UK shares: 5 I’d buy for a Covid-19 recovery

These five cheap UK shares have been battered by the Covid-19 pandemic. But they have qualities to deliver substantial rewards, argues G A Chester.

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Short-term stock traders may be weighing every new development in Covid-19 mutations and vaccines, but I’m focused on the longer term. In particular, on cheap UK shares I think could deliver substantial rewards for investors.

To this end, I’d happily buy shares in Whitbread, National Express, Everyman, SSP, and Saga today. Here, I’ll look at their upside potential, and the attractions of these particular businesses.

Upside potential of these cheap UK shares

The table below shows the five companies’ current valuations (market capitalisations), their previous market-cap highs, and the upside potential for investors today if the companies were to recover those highs.

 

Current market
cap (£bn)

Previous market-cap
high (£bn)

Upside potential
(%)

Whitbread

6.53

8.61

32

National Express

1.61

2.44

52

Everyman

0.10

0.19

90

SSP

1.73

3.45

99

Saga

0.36

2.53

603

As you can see, the five companies have significant upside potential. But I also believe they could go on to exceed it. Mind, it could take some time in Saga’s case.

Fit to survive

One attraction for investors today is that all five of these companies strengthened their balance sheets with equity fundraisings during 2020.

National Express, Everyman, and SSP ended the year with around 20% more shares in issue than at the start, following equity placings. Whitbread’s shares in issue increased 51% after a well-supported rights issue. Saga required a more radical financial restructuring in a rescue headed by former owner and chief executive Roger De Haan. It ended the year with 87% more shares than at the start.

The fundraisings brought investor cash into the companies, and their enhanced equity bases also gave lenders confidence to increase their support for the businesses. This means they’re capable of operating through a prolonged period of Covid-19 disruption.

Cheap UK share #1

I think the shares of FTSE 100 blue-chip Whitbread are cheaply priced. The owner of Premier Inn has gained UK market share during the pandemic. I think this is a testament to how trusted and loved the brand is. Management has also accelerated the group’s expansion into Germany, where it has a long growth runway in the years ahead.

Cheap UK shares #2

Small-cap Everyman is a distinctive UK cinema chain. It stands out from the crowd with a premium offering of atmospheric venues, quality food and drink, and diverse programming content, ranging from mainstream and independent films to theatre and live concert streams. It has considerable scope to expand its current 35-venue estate.

Cheap travel by land, sea, and air

The travel sector has been one of the hardest hit by the pandemic. Businesses have suffered whether on land (National Express), sea (Saga), or air (SSP). In the longer term, though, I reckon these particular businesses have the quality to thrive.

National Express has a reputation for operational excellence across its international markets. Multiple contract wins over the past year suggest the pandemic has only strengthened its relationships with customers and governments.

SSP is a leading worldwide operator of branded food and beverage concessions, mainly in airports and railway stations. Like National Express, it has continued to win new contracts through the pandemic, and still has considerable scope for growth.

Saga has a new management team, with a strategy supported by ‘white knight’ Roger De Haan. This insurance and travel group’s over-50s target audience is the fastest growing and wealthiest consumer segment in the UK.

All five cheap UK shares look very buyable to me for a post-pandemic world.

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.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended SSP Group. 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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