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Six charts that show just how cheap UK equities are

How undervalued are UK equities? Let me count the ways

UK equities


Duncan Lamont, CFA
Head of Strategic Research, Schroders

Investor neglect of UK equities has pushed valuations to exceptionally cheap levels just about every way you look at them.

They look particularly undervalued relative to the US, which now makes up a dominant 70% of developed markets, as represented by the MSCI World Index. The UK has sunk to less than 4%.

Private equity investors are snapping up bargains. Will public market investors start to recognise the opportunity too?

Close to record cheapness vs the US

UK forward price/earnings multiple discount to the US

UK equities

This isn’t just a US effect; the UK is also trading at a wide discount to European equities. In both cases, the gulf opened up in 2016 and, although the tide appears to have stemmed in the past couple of years, the UK still looks very cheap compared with international peers.

The UK is also cheap vs European equities

UK forward price/earnings multiple discount to Europe ex UK

UK equities

Almost all UK industries trade at a discount to US peers

UK forward price/earnings multiple discount (negative) or premium (positive) to US equivalent

UK equities

Almost every UK industry group trades at a valuation discount to the US.

  • The UK energy sector is valued at 7.1x the next 12-months’ earnings, whereas the US energy sector is on 11.1x, a 36% discount
  • The UK pharmaceutical & biotechnology sector is on 13.7x forward earnings. The US equivalent is on 22.0x.
  • The median industry discount is 36%.

The UK doesn’t look quite as much of a bargain compared with Europe when viewed through this lens. But even here, over half of industry groups trade cheap. The median discount across all industry groups is 7%.

Most UK sectors are also cheap in their own right, not just compared with overseas markets

Valuation vs 15-year median

UK equities

By comparison, the US is a mostly sea of red

Valuation vs 15-year median

UK equities

The cheapest of the cheap: value vs growth

UK value equities forward price/earnings multiple discount to UK growth equities

UK equities

Even in a market which is cheap on many measures, value equities stand out for their cheapness. After allowing for a recent bounce, they remain valued at a near-50% discount to their growth-peers.


Valuations of UK listed companies have taken a beating from investors in recent years. This has sunk valuations to remarkably cheap levels.

This doesn’t mean that they have to outperform or that the valuation gap has any divine right to narrow. The gap has been around for some time as international and domestic investors have shunned the market. Frustration at previous underperformance may have led some to simply stop actively considering UK equities for investment.

It could be time to revisit that stance. Valuations remain weighed heavily in the UK market’s favour. Long term investors should take note.

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Duncan Lamont, CFA
Head of Strategic Research, Schroders


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