Keep calm and carry on

Despite what some pundits reckon, British stocks are too low-growth to be cheap

The price of stocks in London just hit their highest level ever. On Monday, the FTSE 100 index of big British companies rose above 8,000 for the first time. That is quite the reversal from their lacklustre performance in years past. You’d think this would give global value investors pause. But it hasn’t quietened the chorus of value seekers who reckon the island is still a treasure trove of undervalued securities. So, are British stocks still cheap? Some might be. But, in aggregate, no, they’re not. Value hunters should update their expectations.

British stocks are not cheap on a discounted cash flow basis. They’re almost bang-on fair value. According to 𝑉𝑎𝑙𝑢𝑎𝑏𝑙’s model, the 500 largest British stocks are worth about £2.5trn ($3.1trn) when lumped together. This valuation used analysts’ consensus estimates for each company’s top and bottom lines. That valuation figure is almost identical to those stocks’ current £2.5trn combined market capitalisations, suggesting there’s little v…