One guide to what a stock is actually worth is the company’s book value – the difference between its assets and its liabilities. And a lot of UK shares look cheap on this basis.

Young & Co’s Brewery

Young & Co’s Brewery (LSE:YNGA) doesn’t actually operate any breweries – it runs a chain of pubs and hotels. And the stock trades at a price-to-book (P/B) multiple of 0.6. 

That means investing is a bit like buying £1 coins for 60p. But for investors to get that £1 in cash, the firm would need to liquidate its assets, which it’s currently showing no signs of doing. 

It’s therefore probably more accurate to say investing in Young’s shares is like buying £1 coins in a locked money box for 60p. But I think there are other reasons to like the business and the stock.

The firm owns its pubs outright instead of leasing them, which protects it from rising rents. And its focus on the premium end of the market means it has much higher margins than JD Wetherspoon.

While high margins are a good thing, premium pricing is risky. Young’s plans to pass on the effects of higher staffing costs from the Budget by increasing prices, but these are already relatively high.

I think there’s a real danger this could put customers off. So while I like the business and I’m considering buying the stock, I’m certainly not dismissing this risk.

Dowlais

Right now, shares in Dowlais (LSE:DWL) are trading at a P/B multiple of 0.4. And unlike Young’s, the company is trying to realise this discount by selling off its assets. 

Specifically, the firm is trying to divest its Powder Metallurgy business. This is valued on its balance sheet at £884m, which is a lot in the context of an organisation with a £911m market cap. 

That makes it seem like investors could get all of their money back by selling part of the company, but it’s not quite as straightforward as this. Dowlais has a lot of debt that also needs factoring in.

Even accounting for this, though, I think the stock is clearly undervalued. And the remaining business – which manufactures parts for cars – looks like it’s in a strong position. 

It has agreements with 90% of the leading car companies and is especially well-positioned to benefit from the shift to electric vehicles. I think this is inevitably, which is very positive for Dowlais.

Investors shouldn’t ignore the debt on the firm’s balance sheet as an ongoing source of risk. But I think the potential sale of the Powder Metallurgy business makes this a stock to consider buying.

Bargain prices?

A lot of UK shares trade below the book value of the underlying businesses, but not all of them are bargains. Stocks that look cheap can turn out to be value traps.

I think Young’s is a quality business and Dowlais has a clear plan to generate value for shareholders. That’s why the discount to book value is something investors should take seriously in both cases.

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So without further ado, here are two UK shares I would buy in August. 

Reopening stocks

The first company is the pub operator Young & Co’s (LSE: YNGA). I would buy this firm over its competitors because it offers a premium offering with a London focus.

Initial figures seem to suggest that consumers are spending their lockdown savings on more premium products. Young’s could benefit from this trend. 

According to its latest trading update, consumers are not waiting around to get back into the pub. In an update issued ahead of the company’s annual general meeting, management noted that sales for the 13 weeks to 12 July were 95% of pre-Covid-19 levels.

“Significant pent-up demand,” helped drive sales growth across the group, according to the update. 

With sales already running at 95% of pre-Covid-19 levels, I think there is a good chance the recovery will continue into August.

However, it is unlikely to be plain sailing for the pub operator as we advance. The hospitality industry is currently experiencing disruption as many staff are being asked to self-isolate. Operators like Young’s are also struggling to find enough staff in the first place. 

Still, despite these challenges, I would buy the stock for my portfolio of UK shares in August. 

Hospitality UK shares

The other company I would buy for my portfolio in August is Loungers (LSE: LGRS). 

This group, which operates 173 cafes and bars across England, is also reporting strong growth from pent-up demand. Like-for-like sales for the four weeks to the 13 June were up 26.6% compared to the same period in 2019. 

The company has also used downtime over the past 16 months to increase its portfolio. It has opened a total of eight new sites since the beginning of the pandemic, which should help support the group’s overall recovery in the months and years ahead. 

All of the above suggests to me that barring another lockdown, the firm could be on track to report a robust trading performance in the second half. 

Once again, while Loungers looks to be firing on all cylinders, the group may face some challenges as we advance. Like Young’s, the company may be experiencing staffing pressures, and it may have to deal with higher costs. The cafe and bar industry is also highly competitive, which suggests Loungers needs to keep investing in its product, or risk being left behind. 

Even after taking this risk into account, I would buy the company for my portfolio of UK shares in August, considering its recovery potential. 

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I’ve written recently about two FTSE 350 firms I’d be happy to buy ahead of 19 August’s ‘Freedom Day’. Here are three smaller companies I believe are similarly set to come out of the pandemic even stronger than when they went in.

Pre-pandemic momentum

Cinema chain Everyman Media Group (LSE: EMAN), fitness chain The Gym Group (LSE: GYM) and pubs and hotels chain Young & Co (LSE: YNGA) all had good business momentum before the pandemic. This is clear from their pre-pandemic trading updates.

EMAN reported record sales and a big uplift in its market share of the UK box-office. GYM announced another year of strong growth in members and revenue. YNGA delivered good growth against tough prior-period comparatives and increased its dividend for the 23rd consecutive year.

All three businesses were knocked for six when the UK went into lockdown. However, I was impressed by how their managements handled this period of unprecedented turmoil (“the most challenging in our 189-year history,” in YNGA’s case). Furthermore, I believe they’re now very well-positioned to regain the strong business momentum they had before the pandemic struck.

Pandemic management

EMAN, GYM and YNGA moved quickly to strengthen their balance sheets in the first months of the pandemic. All three were backed by shareholders willing to inject fresh capital into the businesses. Lenders were also very supportive.

The financial backing enabled EMAN, GYM and YNGA to continue a limited amount of expansionary capital spend. Since the first lockdown, the companies have opened a smattering of new sites, as well as invested in targeted refurbishments and staff retainment and training.

I suspect this has put them in a stronger position for coming out of the pandemic than some of their less financially-robust competitors.

Post-pandemic plans

EMAN is “looking forward to unveiling an enhanced venue experience in the coming months.” It’s going cautious on expansion of its 35 sites this year but has a pipeline of seven new venues for 2022/23.

GYM has recently done another equity fundraising to accelerate site rollout. It believes “the Covid-impacted commercial property market provides a unique opportunity to increase the company’s pipeline of attractive sites on favourable commercial terms.”

Meanwhile, YNGA has just announced it’s selling its tenanted estate. This will provide it with “additional firepower” to upgrade its managed freehold pubs and hotels. And also “capitalise on attractive acquisition opportunities that may come to the market.”

My UK stocks to buy come with risks too

There’s an obvious risk for me investing in EMAN, GYM and YNGA right now. Namely, a new virus variant that produces a return of restrictions or lockdowns. Or, in the absence of government diktats, a reluctance of consumers to visit leisure and hospitality venues. In either of these scenarios, my investment would surely suffer — certainly in the short term.

However, I’m prepared to accept this risk. I think the momentum in these businesses before the pandemic, the continuing support of their shareholders and lenders through it, and their current levels of liquidity mean they’ll ultimately emerge stronger than more financially-constrained competitors.

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Its a pub, just not as we know it

For one thing, a new spike in coronavirus infections could push back the reopening dates, or force pubs to shut again. For another, the planned reopenings will be very restrictive. Two-metre social distancing will limit customer numbers to under 40% of normal. There will be queues to get in and for toilets, and propping up the bar will not be allowed.

Some pub chains have already opened for takeaway during the spell of sunny weather. Passing pints over the walls to customers to consume elsewhere was not widespread, and you have to wonder why. It might be because supermarkets and corner shops already sell alcohol for consumption off the premises. Or it could be because most pubs didn’t want to risk people getting drunk in public on their beer.

It could also be that a takeaway service did not make financial sense. Pubs are burning through cash as premises sit idle, but they could continue to do so with limited openings. I think the number of staff will need to be something like a world cup semi-final would call for, but with a fraction of the customers. And those customers might not be knocking their drinks back like they used to.

Pacing themselves

Young’s boss has said none of its pubs will open before early August. Given that Young’s has already warned of a substantial loss for 2020 and has cut its dividend, it might sound mad to pass on the option to open early. But I see Young’s not in a hurry to rush an opening as a reason why its the best pub stock to buy today.

The company has already informed investors that it could remain closed without going bust until March 2021. It has made use of the government’s job retention and business rate relief schemes, and will not want to jeopardise them until it makes sense to do so. Young’s management expects social distancing rules of one-metre in August, which should allow pubs to operate at around 70% of capacity.

At over two-thirds capacity, it seems Young’s management is confident of at least not adding to the losses it is already making. It could also learn from the experiences of other pubs that may open this month, and avoid a potentially tricky emergency shut down should the outbreak spike again in the coming weeks.

Last orders, please

Getting a slice of Young’s pre-crisis revenue, earnings, and dividend growth would be a steal at the current share price. Emerging from the crisis in an orderly fashion and avoiding doing more damage will help Young’s get back on track. Having management brave enough to keep doors shut until it makes sense to open – and having the financial strength to allow this – bodes well for Young’s. I think its the best pub stock to buy today.

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Surprisingly, given the wide universe of megacaps available, Train’s concentrated portfolio includes two little AIM-listed companies. Even more surprising, one of them is a football club.

A flaky investment?

Train has been a long-term investor in Celtic (LSE: CCP), which released its annual results just after the market closed yesterday. The company reported a 74% rise in revenue to £91m and a jump in profit from £0.5m to £6.9m. With the shares currently trading at 131p, the business is valued at £123m and the P/E is 17.8 (or 24 on a fully diluted basis).

On the face of it, this looks expensive given Celtic’s bumper haul of domestic trophies last season and the fact that the results also reflect, as management admits, “the paramount importance to the company of participation in the group stages of the UEFA Champions League.” What about bad years? Isn’t a football club a flaky investment that’s sure to go wrong sooner or later?

Rare and valuable brands

Train has a fascinating take on the intrinsic value of Celtic, Juventus (held by his global fund), as well as New York-listed Manchester United, where he’s recently been “delighted” to pick up a block of shares from the owning Glazer family. He was previously a shareholder during its spell on the London Stock Exchange in the 1990s, making a return of 30 times his initial investment – the single best investment of his career, he’s said.

His take on these football clubs is that they’re among an elite with “deeply entrenched and storied franchises” that make them brands every bit as rare and valuable as, say, Diageo’s Johnnie Walker whisky. Train reckons that the exponential rise in the value of TV sporting rights is set to continue. He said recently: “It will not be long now before an internet giant bids against an incumbent football rights holder. The ramifications for traditional media companies will be massive, but through the turmoil we expect the value of strongly-franchised football clubs to rise.”

It’s an interesting view and I’m certainly reconsidering my aversion to the idea of investing in football clubs.

A rewarding pint

The other AIM-listed stock Train owns is pubs group Young & Co (LSE: YNGA). London-focused and the owner of many well-known hostelries, Train has every hope that the next quarter of a century will prove every bit as rewarding for shareholders as the last, telling the Telegraph a few years ago: “Its real estate is likely to offer protection against inflation while its focus on the capital means that shareholders get a ‘proxy’ participation in the growth and vitality of London.”

Again, this is not an obviously cheap stock on a P/E of 20.4 (at a share price of 1,357p), but the P/E comes down to a more reasonable 15.6 on Young’s non-voting shares (ticker YNGN) at 1,033p, which Train also holds.

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In its AGM statement Young’s advised that in the 13 weeks from the start of April, managed house revenues rose 10.8%, or 8.6% on a like-for-like basis.

The firm’s “very good start” to the fiscal year has been underpinned by Britain’s recent heatwave, chairman Stephen Goodyear commented. He noted that “dry and warm weather in April and the longest continuous hot spell in June for over 40 years has particularly benefitted our beautiful gardens and river-based pubs.”

In sound shape

Still, Young’s took the time to address the dangers created by an increasingly-challenging economic environment and the uncertainty created by Brexit and the outcome of June’s general election. It also alluded to the increased cost pressures brought about by rising business rates and the introduction of the National Living Wage.

“We operate very much at the premium end of the sector and the resilience of this segment’s customer base has, so far, been encouraging,” Goodyear said.

“Consumers, when they do go out, are looking for an experience and going to a Young’s pub is seen as an affordable lifestyle choice — a treat but not an extravagance.”

The City does not believe Young’s is immune to the tough trading environment, and expects the company’s recent run of double-digit earnings increases to grind to a halt in the year to March 2018 — a 1% decline is currently anticipated.

However, this year’s projected reverse is anticipated to be nothing more than a temporary setback and the Wandsworth business is expected to rebound with a 9% advance in fiscal 2019.

And I agree with this viewpoint. I reckon Young’s should remain a solid long-term earnings generator thanks to its focus on the more affluent end of the market, while its thirst for acquisitions and drive to bring its tenanted pubs into its managed house estate should also boost profits.

Although a slightly-elevated forward P/E ratio of 19.9 times may deter many investors, I reckon the pub giant’s recent fall to 10-month troughs represents a decent buying opportunity.

Flying favourite

Budget flyer easyJet (LSE: EZJ) is another stock expected to endure some earnings trouble in the near-term.

In the year to September 2017, the Luton business is anticipated to report a 27% earnings reverse, worsening from the 22% decline in the previous year.

While sterling weakness and intense competition may be troubling easyJet right now, I believe the airline’s long-term outlook remains robust. Not only does the low-cost sector continue to expand at a stunning pace, but the company’s ongoing route expansion drive should deliver ample revenues growth in the years ahead.

On top of this, the likelihood of crude prices remaining depressed should give the bottom line an extra shot in the arm.

Like Young’s, easyJet also deals on a prospective P/E multiple which sails above the widely-respected value benchmark of 15 times or below. Still, I reckon a ratio of 17.7 times is still decent value given the carrier’s exceptional growth opportunities.

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And results to April 2017 have shown more of the same, with adjusted EPS up a further 13.7% to 66.43p. That came from a 9.4% rise in revenue leading to a 13.5% jump in adjusted pre-tax profit, and enabled the company to lift its dividend by 6% to 18.5p per share. On a share price of 1,344p, that’s a yield of only 1.4%, but it’s nicely progressive and is outstripping inflation.

Chief executive Patrick Dardis spoke of “our consistent strategy of running high quality, differentiated, individual and well invested pubs” and told us that the company’s plan is to “grow our estate through carefully selected acquisitions and developments.“

Modest outlook

Analysts are forecasting a couple more modest periods this year and next, most likely due to the UK’s toughening economic outlook, but I’m seeing a good value company here and I wouldn’t be at all surprised if those predictions are upgraded over the course of the year.

We’re looking at a forward P/E of around 20, which might seem a bit on the high side. But the company, which runs the Young’s, Geronimo and Ram Pub Company chains, reported net assets per share of 1,010p. Stripping that out from the share price, it values the business itself at only around 334p per share.

There might be other pub companies out there with more attractive-looking headline P/E valuations, but with Young & Co’s asset situation and its relatively low debt of £63.5m, I’m liking the look of what I see.

Future star?

Unlike Young & Co, waste management firm Renewi (LSE: RWI) has suffered a few years of falling earnings, but this year is expected to mark a turnaround with more than 40% EPS growth pencilled-in for each of the years to March 2018 and 2019.

The period to March 2017 was described by chief executive Peter Dilnot as “a transformational year with the successful completion of the merger with Van Gansewinkel Groep and the rebranding of the new combined group as Renewi” — the firm having previously been known as Shanks Group.

With such large-scale restructuring and with a rights issue, this year’s fundamentals perhaps don’t really tell us a lot. A 27% rise in revenue is pleasing, but underlying EPS dropped by 12% (including the effect of the rights issue). The dividend dropped a little to 3.05p per share, for a yield of 3.2%, which is middling.

Year-end debt stood at £424m, which was a bit better than expected, but with a net debt-to-EBITDA ratio of 2.8 times, I’d want to see that coming down significantly in the next few years.

Return to growth

It’s all about what the future will bring, and the company reckons that’s going to be “sustainable growth, enhanced margins and attractive returns.”

If forecasts turn out accurate, we’ll be seeing a P/E multiple dropping to 14 by 2019, after two years of very attractive PEG ratings of 0.5 and 0.4 respectively. At the same time, the dividend is expected to grow to a yield of 3.6% in two years time.

The coming year is going to be a crucial one, but if the firm pulls off the integration of its legacy business with its acquisition, I see it as the start of a successful growth path.

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However, the company trades on a price-to-earnings (P/E) ratio of 20.9 despite modest growth prospects. For example, over the next two years it’s expected to increase its bottom line by just 4% per annum, which is below the wider market’s anticipated growth rate.

Certainly, Young & Co remains a relatively high quality business, but with other larger pub companies offering better growth and cheaper valuations, there seem to be far better options available elsewhere.

Valuation under pressure

It’s a similar story for flooring company James Halstead (LSE: JHD). Its shares have risen by 20% in the last year, with investors perhaps being attracted to its strong financial performance. This has been aided by weak sterling and as such James Halstead was able to grow its bottom line by 8% last year. However, with growth of 3% forecast for the current year and a further 6% pencilled-in for next year, James Halstead’s valuation could come under a degree of pressure.

That’s especially the case since the company trades on a P/E ratio of 24.5. This gives James Halstead a price-to-earnings growth (PEG) ratio of 5.4, which indicates that while its shares may have risen by a whopping 750% in the last 10 years, the chances of them repeating that feat appear to be rather slim. As such, it seems prudent to await a lower share price before buying-in so as to provide a wider margin of safety for the long term.

Not there yet

Meanwhile, shares in 88 Energy (LSE: 88E) may also be somewhat overvalued at the present time. That’s because they’ve risen by 341% since the turn of the year even though the company has a long way to go before production or even profitability.

Clearly, it has released positive news flow this year and has benefitted from improving investor sentiment towards the wider resources sector. And with both of these factors having the potential to rapidly change as well as there being the potential for profit-taking among investors, 88 Energy’s share price could come under a degree of pressure over the medium term.

Furthermore, 88 Energy is likely to require additional fundraising over the coming months and years. With there being a number of profitable and cheap resources stocks on offer at the moment, there may be better options for investment available elsewhere.

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One stock that could help you to do so is Vodafone (LSE: VOD). It has benefitted considerably from improved investor sentiment in the last year, during which time its shares have risen by an impressive 19%. That’s despite the Eurozone, which is a key market for Vodafone, having endured a very challenging period, with slow-growth still being a reality and fears surrounding a possible Grexit causing share prices for companies operating in the region to come under a degree of pressure.

Clearly, though, Vodafone has held up relatively well and this bodes well for its long term future. That’s because, even while Europe is struggling, Vodafone continues to offer capital gain potential and, looking ahead to next year, it is expected to post a rise in earnings of 18%. That would be hugely impressive given the challenges that Vodafone faces with regard to increasing competition in the UK mobile market and the aforementioned problems in Europe. As such, with the prospects for Europe in the long run being relatively bright, Vodafone could see its financial and share price performance exceed current expectations.

Meanwhile, UK construction continues to be a boom sector, with continued low interest rates set to lead to high demand for services provided by companies such as Kier (LSE: KIE). In fact, Kier is forecast to increase its bottom line by 19% in the current year, followed by 12% next year. This means that in 2016 its profit could be as much as a third higher than it was last year, which could cause investor sentiment in the stock to rise.

And, with Kier having a price to earnings growth (PEG) ratio of just 1.1, there is plenty of scope for an upward rerating. Furthermore, a dividend yield of 4.4% means that Kier appears to offer a potent mix of growth, value and income potential, with today’s contract win for the development of Smart motorways yet another positive piece of news flow for the company.

However, not all stocks may help you to reach retirement more quickly. Certainly, Young & Co (LSE: YNGA) has a very sound business model and a bright future, but its current valuation appears to more than adequately take this into account. In fact, Young & Co trades on a price to earnings (P/E) ratio of 22.6, which is relatively high, and yet is forecast to increase its bottom line at a rather modest pace over the next couple of years.

For example, earnings in 2016 are set to be 6% higher than last year, while in 2017 the rise is forecast to be just 4%. As such, Young & Co has a PEG ratio of 5, which appears to be too high to warrant investment at the present time.

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