The Best UK Companies to Invest in

With
that
in
mind,
here’s
what
to
know
about
finding
these
“best”
companies.

How
Did
we
Select
the
Best
UK
Companies
to
Invest
in?

A
pillar
to
a
company’s
success
lies
in
its
competitive
advantage,
or
“economic
moat,”
as
famously
coined
by
Warren
Buffett.
Morningstar
analysts
built
on
this
idea,
rating
a
company
as
having
a
Narrow,
Wide,
or
no
Economic
Moat.
This
list
of
best
UK
companies
to
own
is
comprised
of
only
companies
with
a
wide
economic
moat,
meaning
their
competitive
advantage
is
strong
enough
to
last
at
least
20
years.

Predictable
cash
flows
are
key
to
our
analysts’
ability
to
estimate
how
much
each
business
is
worth
and
feed
into
the
Morningstar
Uncertainty
Rating.
The
Morningstar
Uncertainty
Rating
ranges
from
low
to
extreme,
capturing
analysts’
confidence
levels
when
assigning
Fair
Value
Estimates.
Lower
uncertainty
implies
greater
resilience
to
risks,
such
as
sales
sensitivity
to
economic
fluctuations
and
product
concentration.
The
UK
stocks
listed
below
have
been
screened
to
only
include
those
with
low
or
medium
uncertainty
levels.

Last
but
certainly
not
least,
a
company’s
capital
allocation
is
evaluated
considering
investment
strategies,
balance
sheets,
and
shareholder
distributions.
The
Morningstar
stock
capital
allocation
rating
looks
at
these
factors
from
a
shareholder
perspective
and
a
forward-looking
basis.
The
list
below
only
includes
UK
companies
with
standard
or
exemplary
capital
allocation.

British
American
Tobacco
(BATS)

• Analyst: Kristoffer
Inton
• Sector:
Consumer
Defensive
• Industry:
Tobacco
• Morningstar
Rating: ★★★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Standard

One
of
two
tobacco
companies
on
our
list,
British
American
Tobacco
is
neck-and-neck
with
Phillip
Morris
International
(PMI)
to
be
the
largest
listed
global
tobacco
company.
This
Wide-Moat
Stock
is
undervalued,
trading
well
below
its
fair
value
with
a
price
to
fair
value
estimate
of
0.63.

“British
American
Tobacco
is
the
world’s
second
largest
tobacco
company
by
volume,
with
cigarette
sales
to
over
180
countries,”
says
analyst
Kristoffer
Inton.

“But
with
global
cigarette
consumption
declining
about
5%
per
year,
BAT
has
invested
in
several
next-generation
products
that
can
deliver
nicotine
with
reduced
risk.”

Diageo
(DGE)

• Analyst: Jelena
Sokolova,
CFA
• Sector:
Consumer
Defensive
• Industry:
Beverages
–
Wineries
&
Distilleries
• Morningstar
Rating: ★★★★
• Morningstar
Uncertainty
Rating:
Low
• Capital
Allocation
Rating:
Standard

This
undervalued
winery
and
distillery
stock
trades
at
£25.91
per
share,
below
its
Morningstar
Fair
Value
Estimate
of
£31.00.
Diageo
owns
globally
known
brands
like
Captain
Morgan,
Smirnoff
Vodka,
and
Casamigos.

“Diageo
was
created
in
1997
following
the
merger
of
Grand
Metropolitan
and
Guinness.
Mergers
and
acquisitions
remain
part
of
the
firm’s
DNA,
and
subsequent
transactions –
some
transformative,
others
bolt-on –
have
established
Diageo
as
a
global
industry
leader,”
says
analyst
Jelena
Sokolova.

“Although
the
industry
is
fairly
concentrated
(we
estimate
a
fourfirm
concentration
ratio
of
0.6,
above
many
other
fast-moving
consumer
goods
categories,
including
the
global
brewing
industry
at
0.5),
we
believe
there
is
more
consolidation
to
come.
Outside
the
top
five
firms,
the
industry
is
highly
fragmented,
and
regional
players
often
dominate
in
niche
product
categories
or
local
markets.
These
firms
present
a
new
wave
of
merger
opportunities
for
the
industry
consolidators,
including
Diageo,
to
grow
their
developing
markets
footprint.”

Imperial
Brands
(IMB)

• Analyst: Kristoffer
Inton
• Sector:
Consumer
Defensive
• Industry:
Tobacco
• Morningstar
Rating: ★★★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Standard

The
second
tobacco
company
on
our
list,
Imperial
Brands
is
currently
30%
undervalued,
trading
at
£20.43,
while
we
think
it’s
worth
£29,
making
it
a
5-Star
rated
stock
to
invest
in.

“Imperial
Brands
is
in
the
middle
of
a
five-year
strategic
plan
launched
in
2021
that
looked
to
position
the
firm
as
a
fast
follower
in
next-generation
products
while
strengthening
its
share
in
its
most
important
markets,”
says
analyst
Kristoffer
Inton.

“This
makes
sense,
given
its
relatively
smaller
size
to
peers
like
PMI
and
BAT,
which
leaves
it
less
financial
capacity
to
lead
innovation.
Although
this
means
Imperial
will
be
more
exposed
to
cigarettes,
it
also
implies
that
it
can
maximise
its
free
cash
flow
generation
and
returns
to
shareholders.”

Reckitt
Benckiser
Group
(RKT)

• Analyst: Diana
Radu,
CFA
• Sector:
Consumer
Defensive
• Industry:
Household
&
Personal
Products
• Morningstar
Rating: ★★★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Standard

Reckitt’s
wide-moat
stock
in
the
large
blend
space
offers
a
bargain
at
£44.42
per
share.
The
household
and
personal
products
company
owns
well-known
brands
like
Lysol
and
Mucinex.

“The
majority
of
Reckitt’s
portfolio
is
well
positioned
in
categories
that
benefit
from
secular
growth
drivers
across
consumer
health
and
hygiene,”
says
analyst
Diana
Radu.

“The
acquisition
of
Mead
Johnson
has
added
to
its
portfolio
a
leadership
position
in
infant
nutrition –
a
segment
with
substantial
pricing
power.
However,
the
timing
of
the
transaction,
ahead
of
a
period
of
declining
birthrates
and
intensified
competition
in
China,
posed
significant
challenges
and
has
dampened
revenue
growth
in
the
last
few
years.
Management
sold
the
infant
nutrition
business
in
China
in
2021,
and
the
future
of
the
remaining
core
infant
nutrition
business
remains
uncertain,
especially
given
the
ongoing
premature
infant
fomula
litigation
in
North
America.

“At
the
same
time,
we
expect
that
further
secular
declines
in
birthrates
in
the
US
will
continue
to
be
a
drag
to
the
company’s
mid-single-digit
growth
ambitions.”

Unilever
(ULVR)

• Analyst: Ioannis
Pontikis,
CFA
• Sector:
Consumer
Defensive
• Industry:
Household
&
Personal
Products
• Morningstar
Rating: ★★★
• Morningstar
Uncertainty
Rating:
Low
• Capital
Allocation
Rating:
Standard

Unilever
is
another
household
and
personal
product
company,
trading
close
to
the
Morningstar
fair
value
estimate
of
£44.
Its
brands
include
Knorr
soups
and
sauces,
Hellmann’s
mayonnaise,
Axe
and
Dove
skin
products,
and
the
TRESemmé
haircare
brand.

“Although
Unilever
exhibited
strong
top-line
performance
during
the
coronavirus,
the
primary
factor
behind
this
was
pricing
in
response
to
inflationary
pressures
and
low
demand
elasticity
in
key
categories,”
says
analyst
Ioannis
Pontikis,
CFA.

“While
we
anticipate
pricing
to
remain
a
driver
of
top-line
growth
in
2024
and
beyond,
its
impact
should
diminish
in
subsequent
years.
As
the
company
shifts
focus
toward
volume
growth
and
mix,
we
expect
organic
growth
to
decelerate
below
4%
by
the
end
of
our
explicit
forecast
period.”

London
Stock
Exchange
Group
(LSEG)

• Analyst: Niklas
Kammer,
CFA
• Sector:
Financial
Services
• Industry:
Financial
Data
&
Stock
Exchanges
• Morningstar
Rating: ★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Exemplary

The
London
Stock
Exchange
group
is
rated
as
exemplary
for
their
capital
allocation.
This
stock
operates
in
the
financial
data
and
stock
exchanges
industry,
and
is
currently
being
traded
at
its
fair
value
of
£96
per
share.

“The
London
Stock
Exchange
Group,
or
LSEG,
has
doubled
down
on
its
market
data
and
analytics
strategy.
After
the
Refinitiv
acquisition,
the
new
group
is
now
vertically
integrated
from
pretrading
data
and
analytics
over
trading
venues
down
to
post-trade
clearing
and
reporting,
albeit
dominated
by
its
data
business,”
says
analyst
Niklas
Kammer,
CFA.

“Importantly,
its
assets
form
a
strong
symbiotic
relationship
wherein
intellectual
property
generated
within
one
strengthens
the
offering
of
the
other,
inducing
demand
for
the
group’s
services.”

AstraZeneca
(AZN)

• Analyst: Damien
Conover,
CFA
• Sector:
Healthcare
• Industry:
Drug
Manufacturers
–
General
• Morningstar
Rating: ★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Exemplary

AstraZeneca
sells
branded
drugs
across
several
major
therapeutic
classes,
including
gastrointestinal,
diabetes,
cardiovascular,
respiratory,
cancer,
immunology
and
rare
diseases.
Its
3-Star
rating
reflects
its
current
value
being
priced
fairly,
at
£124
per
share.

“Following
a
pipeline
review
of
AstraZeneca’s
late-stage
pipeline,
we
are
increasing
the
long-term
projections
for
several
drugs,
including
camizestrant
(breast
cancer),
capivasertib
(breast
cancer),
eplontersen
(rare
disease),
and
danicopan
(rare
disease),”
says
analyst
Damien
Conover,
CFA.

“Based
on
an
evaluation
of
the
drugs’
efficacy
and
side
effect
profiles
relative
to
the
competitive
landscape,
these
drugs
look
increasingly
well
positioned
to
develop
into
significant
new
blockbusters
for
the
company.

“As
a
result
of
the
increased
outlook
for
the
pipeline
drugs,
we
are
increasing
the
firm’s
US
listed
share
class
to
$78
from
$74,
but
slightly
reducing
the
local
share
class
fair
value
to
£124
from
£125
as
the
changes
in
exchange
rates
more
than
offset
the
increased
pipeline
projections.”

• Analyst: Damien
Conover,
CFA
• Sector:
Healthcare
• Industry:
Drug
Manufacturers
–
General
• Morningstar
Rating: ★★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Standard

As
one
of
the
largest
pharmaceutical
and
vaccine
companies,
GSK
has
used
its
vast
resources
to
create
the
next
generation
of
healthcare
treatments.
The
company’s
innovative
new
product
lineup
and
expansive
list
of
patent-protected
drugs
create
a
wide
economic
moat,
in
our
opinion
and
is
currently
undervalued,
trading
at
£16
per
share.

“As
one
of
the
largest
pharmaceutical
and
vaccine
companies,
GSK
has
used
its
vast
resources
to
create
the
next
generation
of
healthcare
treatments,”
says
analyst
Damien
Conover.

“The
company’s
innovative
new
product
lineup
and
expansive
list
of
patentprotected
drugs
create
a
wide
economic
moat,
in
our
opinion.”

Haleon
(HLN)

• Analyst: Keonhee
Kim
• Sector:
Healthcare
• Industry:
Drug
Manufacturers –
Specialty
&
Generic
• Morningstar
Rating: ★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Standard

Haleon
is
one
of
the
biggest
consumer
healthcare
companies
in
the
world,
and
its
wide-moat
stock
is
trading
5%
below
its
fair
value
estimate.

“Haleon
is
one
of
the
largest
consumer
healthcare
companies
in
the
world.
Over
the
last
few
years,
Haleon
has
achieved
a
more
rationalised
operation
by
divesting
multiple
non-strategic
brands,
slimming
down
its
manufacturing
footprint,
and
dialing
back
the
number
of
warehouses
and
distribution
centers,”
says
analyst
Keonhee
Kim.

“We
appreciate
the
company’s
efforts
to
optimise
its
business
and
believe
it
is
well
established
to
enjoy
long-term
industry
trends,
including
an
aging
population,
premiumisation
of
consumer
healthcare
products,
and
growing
emerging
markets,
that
should
fuel
its
top
line.”

BAE
Systems
(BA.)

• Analyst: Loredana
Muharremi
• Sector:
Industrials
• Industry:
Aerospace
&
Defense
• Morningstar
Rating: ★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Standard

Another
fairly
valued
stock,
BAE
Systems
operates
in
the
aerospace
and
defense
industry.
Investors
can
buy
a
share
the
largest
defense
contractor
in
Europe
for
£13.47.

“Escalating
global
security
concerns,
intensified
by
the
Ukraine
conflict,
are
driving
structurally
higher
growth
in
the
defense
market,”
says
analyst
Loredana
Muharremi.

“We
anticipate
this
growth
will
be
uninterrupted
for
at
least
several
years,
considering
that
many
countries,
particularly
in
Europe,
have
underspent
since
the
end
of
the
Cold
War.
BAE
Systems
is
strategically
positioned
to
benefit,
given
its
significant
stakes
in
a
broad
array
of
major
international
defense
projects.”

Experian
(EXPN)

• Analyst: Rajiv
Bhatia
• Sector:
Industrials
• Industry:
Consulting
Services
• Morningstar
Rating: ★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Standard

“Experian
is
one
of
the
leading
credit
bureaus
in
North
America
and
the
United
Kingdom,
providing
the
consumer
information
that
is
the
basis
for
granting
credit,”
says
analyst
Rajiv
Bhatia.

“The
company
also
provides
decision
analytics,
marketing
data,
and
direct-to-consumer
credit
products
and
services.
About
one
quarter
of
the
company’s
revenue
is
generated
outside
North
America
and
the
United
Kingdom,
primarily
in
Latin
America
and
Asia.

“Along
with
Equifax
(EFX)
and
TransUnion
(TRU),
Experian
is
one
of
the
big
three
credit
bureaus.
Experian’s
US
core
credit
bureau
business
is
relatively
mature
and,
as
a
result,
the
company
has
been
expanding
through
adjacent
products
and
in
emerging
markets.”

Melrose
Industries
(MRO)

• Analyst: Loredana
Muharremi
• Sector:
Industrials
• Industry:
Specialty
Industrial
Machinery
• Morningstar
Rating: ★★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Standard

This
industrials
stock
is
currently
trading
34%
below
its
fair
value
estimate,
reflected
in
its
4-Star
rating.

“Melrose
Industries
is
a
UK-based
company
that
manufactures
engines
and
structures
products
for
all
major
OEMs
across
civil
and
defense
markets,”
says
Muharremi.

“The
company
derives
around
75%
of
its
revenue
from
civil
and
the
remaining
from
defence.
In
the
civil
market,
the
company
operates
in
90%
of
existing
fleets
in
service
and
is
a
demonstrator
partner
in
the
GTF
and
CFM
RISE
nextgeneration
engines
for
narrow-body
aircraft.”

RELX
(REL)

• Analyst: Rob
Hales,
CFA
• Sector:
Industrials
• Industry:
Specialty
Business
Services
• Morningstar
Rating: ★★★★
• Morningstar
Uncertainty
Rating:
Low
• Capital
Allocation
Rating:
Exemplary

Having
both
an
exemplary
capital
allocation
rating
and
4-Stars,
this
stock
offers
an
attractive
pick
for
investors
looking
to
expand
their
portfolios
in
the
industrials
sector.
RELX
is
a
global
provider
of
information-based
analytics
and
decision
tools
for
professional
and
business
customers
in
various
industries.
A
share
of
this
stock
is
being
traded
at
£36.08.

“RELX,
based
in
the
UK,
is
a
global
provider
of
business
information,
analytics,
and
decision-making
tools
for
professionals
in
various
industries,”
says
analyst
Rob
Hales,
CFA.

“It
generates
revenue
mainly
by
creating
and
selling
access
to
curated
information
databases,
analytics,
and
journals.
In
addition,
RELX
organizes
major
events
such
as
trade
shows
and
conferences.”

Rentokil
Initial
(RTO)

• Analyst: Grant
Slade,
CFA
• Sector:
Industrials
• Industry:
Specialty
Business
Services
• Morningstar
Rating: ★★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Exemplary

Rentokil
Initial
is
the
largest
global
provider
of
route-based
pest-control
and
commercial
hygiene
services,
operating
in
83
countries.
Rentokil’s
Wide-Moat
stock
is
trading
27%
below
its
current
fair
value
based
on
our
Fair
Value
Estimate.

“Rentokil
Initial’s
strategy
is
sharply
focused
on
the
attainment
and
maintenance
of
market
share
leadership
in
the
highly
localised
pest-control
and
hygiene
service
markets
it
competes
in,”
says
analyst
Grand
Slade,
CFA.

“The
strategy
aims
to
benefit
from
ever-improving
unit
costs
offered
by
economies
of
density
in
each
localised
geography
in
which
Rentokil
Initial
operates
via
organic
growth
and
a
strong
acquisition
impetus
aimed
at
rolling
up
the
pest-control
and
hygieneservice
markets,
which
remain
substantially
fragmented.

“To
this
end,
Rentokil
Initial
has
completed
over
200
acquisitions
since
2015 –
and
has
spent
an
average
of
£300
million
on
tuck-in
mergers
and
acquisitions
annually
over
2018-23
(excluding
Terminix) –
focusing
on
acquisition
targets
that
build
geographic
density
of
its
customers.
The
late
2022
acquisition
of
Terminix
Global
Holdings
was
a
transformative
and
moat-reinforcing
deal,
creating
a
new
US
market
share
leader.

“Pest-control
targets
remain
Rentokil’s
top
M&A
priority,
but
tuck-in
candidates
for
the
hygiene
segment
are
now
also
set
to
become
a
focus.
The
successful
execution
of
the
strategy
has
delivered
a
durable
cost
advantage
for
the
pest-control
business –
the
source
of
our
Wide
Economic
Moat
Rating
for
Rentokil
Initial.”

Spirax
Group
(SPX)

• Analyst: Matthew
Donen,
CFA
• Sector:
Industrials
• Industry:
Specialty
Industrial
Machinery
• Morningstar
Rating: ★★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Standard

Spirax
Group
PLC
is
a
global
manufacturer
of
a
wide
range
of
applications
for
industrial
and
commercial
steam
systems,
electric
thermal
solutions
and
peristaltic
pumps
used
across
multiple
industries.

“Spirax-Sarco
Engineering
has
managed
to
embed
its
products
and
highly
qualified
engineers,
who
act
as
its
salesforce,
into
customers’
industrial
and
commercial
processes,”
says
analyst
Matthew
Donen,
CFA.

“Approximately
50%
of
the
group’s
sales
are
from
recurring
maintenance,
with
an
average
invoice
value
of
£1,200,
and
a
further
35%
from
small
improvement
projects
with
short
payback
periods.
The
recurring
nature
of
Spirax-Sarco’s
sales
has
allowed
the
group
to
enjoy
greater
resilience
through
the
economic
cycle
compared
with
the
more
cyclical
swings
in
customers’
capitalexpenditure
budgets,
which
are
dependent
on
uncontrollable
macroeconomic
factors.”

InterContinental
Hotels
Group
(IHG)

• Analyst: Dan
Wasiolek
• Sector:
Consumer
Cyclical
• Industry:
Lodging
• Morningstar
Rating: ★★★
• Morningstar
Uncertainty
Rating:
Medium
• Capital
Allocation
Rating:
Standard

InterContinental
is
an
attractive
choice
within
the
lodging
industry,
operating
over
900,000
rooms
globally.
Its
stock
price
is
fairly
valued,
standing
around
£83
per
share.

“We
think
InterContinental
holds
one
of
the
industry’s
strongest
brand
intangible
assets –
a
source
of
its
wide
moat –
and
forecast
it
will
expand
its
room
share
during
the
next
decade,”
says
analyst
Dan
Wasiolek.

“Renovated
and
newer
brands
focused
on
the
attractive
mid-scale
and
extended-stay
segments
as
well
as
a
loyalty
program
of
130
million
members
will
aid
this
growth.
Also,
the
company
holds
a
strong
presence
in
international
markets,
with
non-Americas
regions
constituting
45%
of
total
rooms
in
2023.
This
positions
the
company
well
for
the
more
than
one
billion
middle-income
individuals
expected
to
be
added
to
the
global
population
over
the
next
decade.

“The
company
currently
has
a
mid-single-digit
percentage
share
of
global
hotel
rooms
and
over
10%
share
of
all
industry
rooms
under
construction.
We
see
its
total
room
growth
averaging
over
3%
over
the
next
decade,
above
the
1%-2%
supply
increase
we
estimate
for
the
US
industry.”

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