AstraZeneca And 2 Undervalued UK Stocks Backed By Strong Cash Flow

With growth signals mixed across major economies, energy costs swinging around and central banks still weighing inflation risks, many investors are looking for solid cash generators that are not priced for perfection. That is where the Undervalued Stocks Based On Cash Flows screener can help. It focuses on companies that SWS DCF valuation flags as trading below fair value despite attractive cash flow potential. This article explains why that theme can matter for a portfolio today and highlights three stocks from the screener that stand out on cash flow and valuation grounds.

Tristel (AIM:TSTL)

Overview: Tristel is a UK based infection prevention company that makes disinfectant products and cloud based traceability tools used to clean hospital medical devices and surfaces in areas such as ultrasound, endoscopy and women’s health, with sales across the UK, Europe, Australia and other international markets.

Operations: Tristel generates most of its revenue from Hospital Medical Device Decontamination at about £43.36m, with Hospital Environmental Surface Disinfection contributing £4.30m and Other Revenue £1.88m.

Market Cap: £206.3m

Tristel sits at an intersection of infection control and cash flow focused investing. The company operates in a healthcare niche where hospitals routinely need its device and surface disinfection products, and its reported earnings quality and return on equity are described as strong. The stock is also flagged as trading well below an internal DCF estimate of fair value, even though its P/E is still lower than many European medical equipment peers. At the same time, investors need to weigh an unstable dividend record and a relatively new management team, along with recent leadership changes. The fresh 3T Pro paid digital platform launch and ongoing US expansion add another layer that current valuation may not fully reflect.

Tristel’s strong reported cash generation and discounted SWS DCF valuation could be two sides of the same story. Get the full picture with the DCF valuation analysis for Tristel

AstraZeneca (LSE:AZN)

Overview: AstraZeneca is a global biopharmaceutical company that researches, manufactures and sells prescription medicines across cancer, cardiovascular, kidney and metabolic diseases, respiratory and immunology, vaccines and rare diseases, serving primary and specialist doctors in major markets worldwide.

Operations: AstraZeneca generates about US$61.4b of revenue from pharmaceuticals.

Market Cap: £197.3b

AstraZeneca offers a mix of high quality earnings, a broad late stage oncology and rare disease pipeline, and a history of strong earnings growth. At the same time, it is described as trading at a discount to several fair value estimates. Reported earnings grew 25.9% over the past year and ROE is 20.8%, which helps support a P/E above UK peers. However, heavy R&D spending, high debt, patent expiries on blockbusters and recent trial setbacks such as eplontersen in ATTR-CM all contribute to execution risk. Investors may wish to consider whether the combination of pipeline breadth, ADC momentum and the current valuation gap adequately compensates for these risks or whether it is preferable to wait for clearer evidence in reported financial results.

AstraZeneca’s earnings strength and wide pipeline are pulling in one direction, while trial risk and debt pull in another. See how the current pricing stacks up in the DCF valuation analysis for AstraZeneca

Foresight Group Holdings (LSE:FSG)

Overview: Foresight Group Holdings is a London based asset manager that runs infrastructure, private equity, venture capital and listed funds for institutional and retail investors, with a focus on renewable energy, social and digital infrastructure, and sustainable real assets.

Operations: Foresight Group Holdings generates about £114.81m from Real Assets and £50.11m from Private Equity, with most revenue coming from the United Kingdom at £126.38m and a further £25.71m from Australia.

Market Cap: £520.9m

Foresight Group Holdings combines high margin infrastructure and private equity exposure, reported profitability and a sizeable discount to internal cash flow estimates, which is why it appears in this cash flow focused screener. Revenue and earnings have both grown over the past year, net margins are 27.7% and return on equity is described as outstanding at 47.8%, while the P/E multiple is still close to the wider UK capital markets average. At the same time, investors need to consider rising administrative costs, reliance on performance fees and concentration in UK and European infrastructure and renewables. The ongoing share buyback programme and analyst expectations for higher earnings and dividends are additional factors that current pricing may not fully reflect.

Foresight Group Holdings’ high margins and strong reported ROE might be masking something more interesting in its current pricing. See how the DCF valuation analysis for Foresight Group Holdings could reshape the risk reward picture before the next chapter emerges.

The three stocks in this article are only a starting point, since the full Undervalued Stocks Based On Cash Flows screener has identified 38 more companies with equally compelling cash flow and valuation stories through the Undervalued Stocks Based On Cash Flows screener. Use Simply Wall St to identify and analyze the specific catalysts, cash flow trends and valuation narratives that matter to you, so you can focus on the highest conviction opportunities from that list.

Take Control of Your Investment Journey

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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