British stocks: uncovering noteworthy discounted investments in the UK market

In the first half of 2025, UK equities have demonstrated a strong performance, outperforming their US counterparts. The FTSE 100, in particular, reached an all-time high of 9,000, driven by a combination of factors.

FTSE 100's Outperformance

The FTSE 100's outperformance in H1 2025 was powered by strong sector income growth, margin and earnings expansion from major UK companies, robust cash flow supporting buybacks and dividends, and favorable structural trends around data and market digitization driving UK equities' growth and positive earnings outlook.

Notably, the London Stock Exchange Group (LSEG) showed significant growth, with adjusted EBITDA margins improving by about 100 basis points and adjusted EPS rising 20.1%, aided by lower net finance costs and corporate buybacks. LSEG's CEO highlighted structural drivers behind growth such as rising demand for data supporting AI, financial market digitization, and regulatory risk management, which underpin long-term earnings potential and market confidence. High free cash flow enabled significant shareholder returns, including a £500 million buyback in H1 and plans for up to £1 billion more.

While some portfolios focusing on mid-caps lagged the FTSE 100’s rally, the FTSE 100 Total Return index delivered a solid 9.8% return in H1 2025. Equities such as JD Sports also remain attractively positioned due to strong cash generation and potential for increased dividends and buybacks despite recent share price volatility.

In the FTSE All-Share, 4imprint Group (LSE: FOUR) is one of Barclays' favourite mid-caps, with a potential upside of 68% to the 5,500p price target and a Barclays "quality" rating of 99%. Panmure Liberum considers Advanced Medical Solutions to be the "best rerating story" in the medtech sector, and if the outcome of the investigation comes out as expected, the stock could be worth around 1,600p based on historic profit multiples.

NewRiver REIT (LSE: NRR) is an undervalued recovery play in the property sector, with a 9.1% dividend yield and a 36% discount to the value of its net assets. Other mid-caps on Berenberg's radar include Genus, OSB Group, Paragon Banking, Kier Group, ITV, Mitie, Pets at Home, IG Group, and Babcock International.

Economic Factors

The UK has experienced the strongest run of positive economic surprises among developed markets since January. According to Citi's Economic Surprise Index, sentiment around the UK's trade-deal "hat trick" with the US, India, and the EU seemed to reignite investors' sentiment about growth.

However, earnings proved to be a headwind, taking 3% off returns as analysts pushed growth projections lower due to global uncertainty (mainly over tariffs). Over the first half, Schroders calculated that the UK's total return was driven by a 10% increase in valuation and a 2% return from dividends.

Challenges and Opportunities

Despite some challenges, there are still opportunities within the FTSE 100. For instance, Premier Food (LSE: PFD) has been able to draw a line under pension issues and make a dent in debt, and is now looking for acquisition deals.

In the animal genetics sector, Genus (LSE: GNS) received US regulatory approval for a product designed to provide pigs with resistance to porcine reproductive and respiratory syndrome (PRRS), a disease affecting farmers worldwide.

CVS Group (LSE: CVSG), a UK veterinary practices company, experienced a stock drop due to a UK regulator investigation in May 2024. However, with the investigation concluded, the company might present an opportunity for investors.

In summary, the first half of 2025 has seen the UK equity market demonstrate resilience and growth potential. While earnings have been a challenge, structural trends, strong cash flow, and favorable market conditions have driven the market's performance. As always, careful investment decisions should be made based on a comprehensive understanding of each company's unique circumstances.

[1] FTSE Russell [2] FTSE 100 Total Return [3] London Stock Exchange Group (LSEG) [4] JD Sports

Investors might consider investment trusts like the FTSE 100 Total Return, which delivered a 9.8% return in the first half of 2025, providing an opportunity for capital growth.
Despite some mid-cap stocks lagging behind the FTSE 100's rally, equities such as JD Sports remain positioned with potential for increased dividends and buybacks, demonstrating the importance of viewing the market across various sectors.
In terms of finance, the London Stock Exchange Group (LSEG) experienced significant growth during H1 2025, with improved adjusted EBITDA margins, rising adjusted EPS, and substantial shareholder returns in the form of buybacks.
Economic factors, such as the UK's strong run of positive economic surprises and favorable market conditions, have contributed to the growth and performance of property sector plays like NewRiver REIT, which offers a 9.1% dividend yield and is currently undervalued.
Additionally, some companies in the market, like Premier Food and CVS Group, faced challenges but present opportunities for investors who are prepared to conduct thorough research and analysis.
Its worth noting that interest rates play a role in investment decisions, as changes in these rates can impact the return on bonds and the overall market. For instance, a rise in interest rates could decrease the value of existing bonds, making it essential for investors to consider these factors when making investment choices.
Lastly, it is crucial to consider the potential impact of tariffs and other macroeconomic factors on UK equities and the economy as a whole, especially when pension funds and individual investors are heavily invested in this market, seeking dividends and capital appreciation.