I am always on the lookout for UK shares I think could grow. While a lot of shares have had a strong performance over recent months, I still see some shares that I think could have further growth left in them at this point.
Here are three UK shares I think could put on 25% by the end of the year.
Recovery prospects discounted
I have written before about the fact I thought Babcock (LSE: BAB) was underpriced.
A potential restatement of accounts and associated writedowns has been hanging over the shares for months. Today, after the company announced that it is not planning a rights issue that could dilute shareholders, the company’s stock surged over 30%.
Despite that, I still think there is the potential for more growth in the Babcock share price. It is still below where it was in November – and 18% below where it sat a year ago.
The company’s core businesses in marine and defence have qualities I like. For example, they can benefit from long-term contracts, deep-pocketed government spending, and proprietary technologies. The share price has been pushed down on financial concerns. But if the enduring strength of the underlying business can reassert itself, I expect further price recovery in these UK shares.
Even after today’s announcement, risks remain. These could involve any future loss of large contracts, for example, and cuts to UK defence hardware spending.
Future earnings growth
The Natwest share price has put on 72% in the past 12 months. It is just shy of 200p, but I think it might go to 250p this year. That would be a 25% increase on the current price.
Drivers include the prospect of dividend growth once regulatory constraints are lifted and the resilience of the UK housing market. But another factor is the UK government selling down its majority shareholding. The bank has indicated that it will buy some of these shares and cancel them. In itself that will have the effect of driving up earnings per share, simply due to a reduced number of shares in circulation.
The exact timing of the government sales remains unclear. The UK economic recovery could splutter and hurt profits. Another risk is that the bank decides not to increase its dividend even if the regulator allows it to do so.
UK shares for reopening
Despite putting on over 50% in the past 12 months, I see further possible upside for Card Factory. With a historic price-to-earnings ratio still in the mid single digits, I think a 25% share price increase could be on the cards.
The high street retailer’s challenges have been exacerbated by lockdown. As the country reopens, I expect customers to return. Longer-term, there are challenges with the potential fall in demand for cards. But revenue growth of 3.5% in the year prior to lockdown suggests that the company is able to counter a turndown in cards by selling ancillary items.
Significant risks remain, though. The company has relied on its lenders waiving covenants, which they could choose not to do. Further lockdowns could be damaging to demand, while a consumer migration online could bode poorly for physical store sales.
christopherruane owns shares of Babcock International Group. The Motley Fool UK has recommended Card Factory. 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.