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A cheap UK reopening stock I’d buy in May

Image source: Getty Images.

Demand for reopening stocks has ballooned in recent months as investors contemplate a post-coronavirus world. The Vitec Group (LSE: VTC) is one UK share that’s soared in value over the past 12 months.

It’s up 120% in that time on hopes that demand for its broadcasting equipment will pick up again as the Covid-19 threat recedes. Indeed, it just closed at record highs above £14 per share.

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A top reopening stock?

News coming out of Vitec of late has been encouraging rather than spectacular. And I’m not expecting anything jaw-dropping when the reopening stock releases new trading numbers Thursday (6 May). Last month, the company said “order intake and revenue [is] broadly in line with the same period in 2019.” This was despite its markets not fully reopened.

However, there’s a huge danger to Vitec’s ability to keep this solid momentum going. A surge in coronavirus cases among participants of the Indian Premier League has caused organisers to now indefinitely suspend this year’s edition of the cricket tournament.

Other major sporting events like this summer’s Tokyo Olympics are also under threat as the number of global Covid-19 cases keep rising. And this could again hit demand for the company’s cameras and other equipment hard.

On the plus side however, successful vaccine rollouts in the US mean that film and scripted programme production could be set for a sustained recovery. The business saw a vast trading improvement in the second half of 2020 as production output recovered.

Picture perfect

I still think Vitec is an attractive reopening stock to buy today despite the threat of more coronavirus-related turbulence. First of all, I think this UK share offers the sort of value that’s hard to ignore.

For the reasons I’ve outlined, there’s a risk that broker forecasts for 2021 might be blown off course. Current estimates suggest Vitec’s annual earnings will rise 450%. However, this leaves the business trading on a forward price-to-earnings growth (PEG) multiple of 0.1. Any reading below 1 suggests a stock might be undervalued. This leaves a broad margin of safety for value investors, even if estimates are scaled back.

What’s more, Vitec has wriggle room on the balance sheet to help it overcome more temporary trading troubles. Net debt fell by around £5m last year to £90.8m, even as revenues collapsed. In fact, the reopening stock’s strong financial position means it’s remained active on the acquisition stage to improve its long-term market opportunities.

Vitec has a broad and expanding range of products to help it capitalise on a myriad of structural opportunities. The amount of homegrown content from streaming giants such as Netflix and Amazon looks set to keep booming. The growth of ‘on location’ filming is also boosting demand for Vitec’s specialised tech. The rise of vlogging and homeworking means the sales outlook for its smartphone and compact camera accessories remains bright too.

So this is a reopening stock I’d happily buy this May.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Vitec 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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