Amid the market turbulence, investors in the UK equity market can find many attractive opportunities by looking beyond the current concerns. Our UK equity team continues to identify many resilient UK companies that we believe can ride out today’s volatility and generate strong returns for long-term investors.
Investing in long-term UK equity success stories
For investors, uncertainty is a constant companion. The recent imposition by the US administration of tariffs on its trading partners, and the subsequent escalation into a global trade conflict, has generated significant investor apprehension. With US tariffs potentially marking a fundamental shift in the global economic system, we have perhaps not witnessed this level of market uncertainty since the onset of the global pandemic five years ago.
We believe, however, that within the current market uncertainty lies significant opportunity for UK equity investors. We remain focused on identifying UK companies that have the characteristics to weather the storm and go on to deliver strong investment returns over the long term.
Here, we look at just two examples of home-grown success stories that exemplify the qualities we look for: Rolls-Royce and Games Workshop.
Rolls-Royce: Positioned for future growth
Rolls-Royce, a stalwart of British engineering, has undergone a remarkable transformation under its current management. Three years ago, at the point of maximum uncertainty, Rolls-Royce had a precariously positioned balance sheet and was haemorrhaging cash. The subsequent turnaround in the company’s fortunes has been driven by rigorous performance management, engineering excellence and a recovering civil aerospace market. Today, Rolls-Royce’s finances are in a sustainable position.
From this platform, we believe Rolls-Royce is well placed to capitalise on its strong competitive position in the wide-body aircraft engine market, which generates the bulk of the company’s profits. Moreover, Rolls-Royce’s sizeable exposure to defence spending through its submarine business provides a helpful ballast in the current environment, while its development of ‘small modular reactor’ technology presents an exciting opportunity for longer-term growth in the nuclear energy space.
Games Workshop: Building on a winning formula
Operating in a very different market, Games Workshop is a name that resonates with enthusiasts of tabletop gaming. The company, which has carved a niche for itself in the entertainment industry through its Warhammer fantasy universe, has a unique business model, with all creative work and production based in Nottingham. The immersive gaming experiences that the company creates, combined with a dedicated community of hobbyists, has proven to be a winning formula, with profits growing by c.150% over the last five years.
The economics of this business are among the strongest we see in the market, with consistently excellent profit margins and cash generation. More recently, Games Workshop has opened new avenues for growth by expanding in the digital realm, with content licensed into video games and, most excitingly, an agreement with Amazon to produce Warhammer-themed films and television series. As a result, we believe Games Workshop remains a compelling investment opportunity.
Uncertainty means opportunity for UK equity investors
While the spectre of a global trade war looms large, we believe strong UK companies will continue to build on their success and thrive. The UK equity market remains a fertile ground for discerning investors, and companies such as Rolls-Royce and Games Workshop exemplify the potential for growth and resilience in the face of adversity.
By focusing on those UK stocks with attractive fundamentals, innovative strategies and a clear vision for the future, investors can uncover opportunity within the uncertainty.