2 UK shares that are better value than they look on a stock screener

Stephen Wright thinks Coca-Cola HBC’s balance sheet and Halma’s income statement show why these shares are better value than they appear at first sight.

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Value investors looking for shares to buy have a lot to consider. But the equation is always the same – how much the company is going to make compared to how much they have to pay. 

There are a few ways of assessing this, but investors need to be careful. Sometimes opportunities to find value don’t always come up in a stock screener. 

Diploma

At a price-to-earnings (P/E) multiple of 36, Halma (LSE:HLMA) doesn’t look like the kind of stock that would show up on a value investor’s radar. But appearances can be deceptive.

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Halma is a highly acquisitive business. As a result, its earnings are often distorted by costs that are either one-off in nature or don’t involve cash leaving the business. 

The company provides ‘adjusted’ figures to account for these. And on this basis, the stock is actually trading at a P/E multiple of 31, rather than 36. 

Investors might wonder whether this is still too high given the inherent risks of acquisitions. But it’s important to be clear on what the firm’s actual earning power is in making that judgement.

The difference between 31 times earnings and 36 times earnings might not seem like much. For someone trying to work out what a business is worth, though, it amounts to a 16% difference.

That can be the difference between something being a viable investment or not. So with stocks like Halma, investors need to take a close look at the business in assessing future earnings.

Coca-Cola HBC

The story with Coca-Cola HBC (LSE:CCH) is somewhat different. It manufactures Coca-Cola products and distributes them across a range of countries from Ireland to Nigeria.

This is a capital-intensive operation and the obvious risk is inflation. But that’s not the only thing investors need to pay attention to in trying to value the company.

An important question is what kind of return the firm gets on the cash it invests. One way of answering this is with the return on invested capital (ROIC) metric, which looks uninspiring:

Coca-Cola HBC ROIC 2014-24


Created at TradingView

This, however, doesn’t tell the full story. On Coca-Cola HBC’s balance sheet is an intangible asset covering its right to use the Coca-Cola brands, including products like Costa and Powerade.

The firm lists this as an “infinite-lived intangible asset”, so it is included in the invested capital part of the ROIC calculation. But it’s not something the company has to pay to maintain – that’s what the main Coca-Cola Company does. 

The real return Coca-Cola HBC generates on its investments is therefore higher than its stated ROIC. And this makes it a more valuable business than a first look at the numbers would indicate.

Taking a close look

Working out the true value of a company’s shares is key to knowing when the stock might be a good buying opportunity. But it can sometimes take a bit of careful attention.

This is the case with both Coca-Cola HBC and Halma. The shares are better value than they initially seem and understanding this is important to assessing them as potential investments.

But what does the head of The Motley Fool’s investing team think?

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When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Burberry Group Plc made the list?

See the 6 stocks

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.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma Plc. 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

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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