After a huge contraction in 2020, the UK economy is set for powerful growth this year. Last week, the Bank of England said that it expects the British economy to expand by 7.25% this year – its fastest growth in more than 70 years.
For investors, this economic growth could create a lot of lucrative opportunities. With that in mind, here’s a look at two UK shares I’d buy to benefit from a booming UK economy.
A disruptive company
One stock that could perform well as the UK economy recovers from Covid-19 is Keystone Law (LSE: KEYS). It’s an innovative platform-based law firm that’s disrupting the legal industry. Last year, it won ‘Law Firm of the Year’ at The Lawyer awards.
Demand for legal services is likely to rise as the UK economy picks up speed in the months ahead. In some areas of law, such as construction, employment and real estate, demand could rise significantly. This should benefit Keystone, pushing its revenues and profits higher.
In Keystone’s recent 2020 results, the company said that 2021 had “started well” with “good levels of activity.” It also announced a big increase in its dividend. This suggests to me the company is confident about the future. For the current financial year (ending 31 January 2022), City analysts expect revenue growth of around 14%.
It’s worth pointing out that Keystone is a small company. Currently, its market-cap is just £210m. Stocks of this size can be volatile. Another risk to consider is the valuation. Keystone’s forward-looking price-to-earnings (P/E) ratio of 40 doesn’t leave a huge margin of safety.
Overall however, I think the growth story here is attractive. I expect this company to do well as UK economic activity picks up.
This stock is flying
Another UK stock I think could do well as the UK economy rebounds is K3 Capital (LSE: K3). It’s an under-the-radar business that provides advisory services to small- and medium-sized enterprises (SMEs). I expect demand for its services (which include company sales, off-market acquisitions, restructuring, tax planning etc) to be strong in the year ahead.
K3 appears to have a lot of momentum at present. In early March, the group said that following a strong start to the second half of its financial year, the group was trading ahead of expectations. In April, the group also advised this trend had continued, and said it expects results for the year ending 31 May to be “significantly ahead” of revised consensus market expectations. It now expects revenue for the year to be around £45m – much higher than the figure of £15m posted last year.
A key risk here is that the stock can be volatile at times. Early last year, for example, its share price halved. Sales can also be lumpy which isn’t ideal from an investment point of view.
Overall however, I think this stock has a lot of potential in the current environment. At the current valuation (forward-looking P/E ratio of 23) I think it’s priced to buy.
Edward Sheldon owns shares in Keystone Law. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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