UK Stocks: Plenty of Quality, Rarely at the Right Price

2026-10-12 · By Lubin Danilo, founder of Lubin Investment

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Of eleven large London-listed stocks I analysed, four are excellent businesses and three of those are already too expensive. Only Rolls-Royce still trades about 5% below the price I allow myself to pay. London is not cheap: the quality is there, but the market already knows it.

London, the market people assume is cheap

When people talk about UK stocks, I often hear the same line: London is Europe's discounted market, where good companies have sold at a bargain since Brexit. I wanted to test that idea with numbers instead of a hunch.

My method judges two things separately. First, business quality, scored out of 10 on concrete criteria: margins, sales and cash growth, buybacks, debt, return on capital. Then price: I compute a reasonable purchase price from free cash flow (the money that is really left after bills and investments are paid) and compare it with today's share price. An excellent company bought too dear is still a bad purchase.

Eleven stocks under the microscope

I tested eleven large London-listed names, among the best known. It is not an exhaustive ranking of the London market: a twelfth, RELX, is simply not in my database. But the sample is enough to see a clear pattern, summed up in this table.

Two readings stand out. One: quality exists in London, four companies meet 9 of my 10 criteria. Two: out of eleven names, ten trade above my reasonable purchase price, often by a wide margin. The London discount, if it ever existed, is no longer visible in these prices.

Rolls-Royce: the only one below its purchase price

Rolls-Royce is the only name on the list that gets under the bar. The share price is 1,392.8 pence and my reasonable purchase price is 1,467.9 pence: a discount of 5.4%, thin but real. That is all the more surprising because the stock has been one of the best recoveries on the market.

To see why its cash is rising, you need to know the model. Rolls-Royce sells aircraft engines at low margins, sometimes at a loss, then earns money for decades: airlines pay it for every hour their engines fly. When air traffic recovers, the cash arrives, with a delay. The first-half 2026 release of 30 July shows it: free cash flow of 2.0 bn pounds over six months (+24%), underlying operating profit up 46% to 2.5 bn, and a full-year free cash flow target raised to 3.8 to 4.0 bn.

The trajectory is what strikes me. Over five years sales grow about 17% a year and free cash flow per share almost 57% a year, while the share count has barely moved. The group also plans 2.5 bn pounds of buybacks in 2026. My caution stays the same: a 5% discount leaves little room for error for an industrial whose valuation rests on cash that is still growing fast. You will find the detail on the Rolls-Royce page.

Halma, Compass, Sage: three machines, three prices already high

Halma is a British-style conglomerate: about fifty small niche businesses (fire detection, safety, optics, health) that the group leaves autonomous and tops up with acquisitions. In its annual release of 11 June 2026, it reports a 23rd consecutive year of profit growth, sales of 2.58 bn pounds and a dividend raised 7%. According to my series, its free cash flow has doubled in four years, from about 212 million to 426 million pounds. Yet the stock trades 32% above my purchase price: the market already pays for that consistency, and a forecast slowdown in photonics sales to data centres triggered its biggest one-day fall in years.

Compass Group, the contract catering giant (company canteens, hospitals, stadiums), illustrates a paradox I like. Its net margin is only 4%, which looks miserable. But it needs almost nothing locked up to grow: its cash return on capital exceeds 29%. Clients pay quickly, suppliers later. The third-quarter update, published on 21 July 2026, shows 7.1% organic growth and 96% client retention. The premium is still 12%.

Sage sells accounting and payroll software to small businesses by subscription, which makes its revenue very predictable. For the half-year to 31 March 2026, according to its 21 May release, underlying sales reach 1,363 million pounds (+11%) and annual recurring revenue 2.73 bn (+11%), with a renewal rate of 102%. The group buys back its shares: the count fell from 1.10 to 0.96 billion in five years. But the premium is 17.7%: I rate the quality without buying at today's price.

Why the household names fall behind

The bottom of the table holds the brands everyone knows. Unilever scores 6 out of 10 with a premium of nearly 74%. Its first-half 2026 results are decent (underlying sales +4.8%, of which 4.2 points from volume), but sales growth is close to nil over five years after the ice cream demerger, and the group is preparing to combine its foods business with McCormick. When a stock trades near 18 times its free cash flow for 5% growth, the market is paying for stability, not acceleration.

Diageo (4 out of 10) and Tesco (5 out of 10) tell a different story: solid companies by the standards of their sector, but whose net margin (9% for spirits, 2% for retail) and debt do not pass my grid. London Stock Exchange Group, finally, is a fine piece of market infrastructure, but it already costs 56% more than my purchase price. They are good companies, not bargains.

How I would read this ranking

The lesson is not "avoid London". It is simpler: here as elsewhere, quality gets paid for, and the more visible it is, the more the price reflects it. For an investor who wants both a good company and a good price, the useful list is not the best scores but the best companies waiting for a pullback. Halma, Sage and Compass are on it, with gaps to close of 12% to 32%.

I stay careful about one thing: my score and purchase price rest on assumptions, and a stock can stay expensive for a long time. That is exactly why I built my tool, to redo this round table in seconds on any market. You can reread my full method, or compare with Swiss stocks and German stocks, where the finding is similar.

What I keep from this London tour

• Four UK companies out of eleven meet 9 of 10 quality criteria: Rolls-Royce, Compass, Sage and Halma.
• Ten out of eleven trade above my reasonable purchase price. Only Rolls-Royce is under the bar, by 5.4%.
• The London discount is not in the prices: quality is known there, so it is paid for.
• The most familiar names (Unilever, Diageo, Tesco) are also the most expensive for what they deliver.

FAQ

Are UK stocks undervalued?

Not in my sample: out of eleven large London-listed stocks, ten trade above my reasonable purchase price. Only Rolls-Royce shows a discount, of 5.4%. These are figures at the time of writing and move with share prices.

What is the best UK stock by your method?

Four meet 9 of 10 criteria: Rolls-Royce, Compass Group, Sage Group and Halma. Rolls-Royce is the only one trading below my purchase price. A good score says nothing about price, which is why I look at both separately.

Why does Unilever rank so poorly?

It meets 6 of 10 criteria, with little sales growth over five years, and trades about 74% above my purchase price. The market pays for the stability of its brands, not for accelerating results.

Why are the share prices in pence?

London shares are quoted in pence (one hundredth of a pound). A price of 1,392.8 pence is therefore 13.93 pounds. The percentages in this comparison are not affected by the unit.

Related reading

• European quality stocks: which ones are actually cheap?
• Italian stocks: beyond Ferrari, two real gems
• Dutch stocks: ASML isn't alone at the top

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About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).