These shares might be the actual Budget winners: MIDAS SHARE TIPS picks 5 firms for courageous buyers

All eyes were on changes to capital gains tax last week, but investors mustn’t ignore the impact that the Budget’s £40 billion tax raid will have on UK businesses.

The repercussions could have a far larger impact on the value of our portfolios in the long run.

Wednesday’s Budget briefly spooked markets and the London stock exchange took a hit as Reeves’s tax rise on National Insurance (NI) for employers, together with a minimum wage increase, made it a tough budget for businesses.

However, despite the initial shock – it’s not all bad news. There are several businesses and sectors that will do well from Labour’s funding plans.

Reeves unlocked extra cash for infrastructure, reiterated support for house building and green measures and gave certainty on corporation tax and research and development incentives.

Savvy investors can cash in on these growth plans. Here are some of the companies that are tipped to do well and could see their share prices rise.

Kier Group – £4bn revenue shows bad times are over

Companies that build new roads, railway lines and public buildings have had mixed news from the new Labour Government.

But Kier – name resemblance to our Prime Minister purely coincidental – sits at the heart of new Government priorities.

It is part of the consortium building four new prisons including HMP Millsike.

Kier is also involved in building education facilities, HS2, a number of highway projects, and earned more money from the Government than any other contractor last year. On top of that, the Chancellor announced more funding for prisons, schools, rail and roads last week.

Although there are some ‘unfunded’ projects that have been cancelled. These include the A303 tunnel that was meant to take traffic away from Stonehenge in Wiltshire.

Also axed is the A27 Arundel bypass project in West Sussex and a scheme called Restoring Your Railways that was due to reopen closed rail lines and stations that serve isolated communities.

Kier has been through tough times since a profit warning in 2019 which sent shares tumbling.

However, its most recent figures in September showed it back on the front foot, with revenue including from joint ventures totalling £4 billion. Average net debt halved to £116 million from £232 million in the previous year.

Andrew Davies, the group’s chief executive, said that the years of penny-pinching that came after the profit warning were now over.

‘The past three years have seen the group achieve significant operational and financial progress,’ he said.

The hard work of the past few years puts Kier in a good place to benefit from the coming infrastructure spending boost and the business is looking relatively cheap too, as the shares still have not recovered from their profit warning, which badly shook confidence in the stock.

There are headwinds for Kier from the Budget, partly in the form of increased labour costs from the rise in employer NI and a higher national minimum wage. However, the company tends to be good at passing on its costs to those buying its services, making inflation and increased wage costs less of a worry.

There’s also an order book of £11 billion, with non-Government clients including local councils. At 142p this week, the shares are up nearly 21 per cent over the past few years but have not recovered to the nearly £20 they sat at before their profit warning.

The company’s dividend, which was cut at the height of its problems, was reinstated in March, and Davies says he’s ‘confident’ of increased payouts.

Vistry – affordable homes at a reasonable price

The Treasury committed £5 billion to housebuilding in the Budget, which included reforms of Right to Buy, a top-up for the Affordable Homes programme and £3 billion to support small house builders and developers building homes to rent.

That won’t affect many of the house builders you can invest in, though, as they are too big to get much of a benefit. But it might be time to snap up Vistry, which focuses on the affordable housing side of things – a major focus for the Government.

You might remember Vistry as Bovis Homes – it renamed itself in 2020 after acquiring the housing arm of infrastructure group Galliford Try and is a constituent of the FTSE 100.

Vistry was motoring nicely until October, outperforming the rest of the housebuilding sector.

Investors liked its model of partnership with private and public clients, which effectively bulk sold them homes.

Then came a shocker of a profit warning. The company had underestimated costs, denting full-year profits for the year by 20 per cent. The shares plummeted and have not recovered.

They were already down 30 per cent in the past month before the Chancellor spoke on Wednesday, and post-Budget volatility has brought them down further, so that the shares now stand at £9.08.

For investors considering whether this is a good time to get into Vistry, the key is to understand why the warning occurred and whether it is a blip or a chronic problem with the company’s model.

Finding unforeseen costs like this may indicate an issue with accounting, which is enough to worry any investor, and although this problem only affects the South of England division, you would be forgiven for wondering what else might be found.

Another point to note is that Vistry’s partnership model means they take on some cost risk – they sell to their end clients at one price but then if their own costs rise (for example if the Government introduces an expensive tax on employment) they can’t claw back all of that increase.

But the company’s shares are currently looking cheap. Vistry’s shares were more highly valued than those of its peers before the profit warning. Now they are cheaper.

The company has cut its dividend but is buying back shares, which should push up prices over time – so if you’re a long-term believer in the Government housing strategy this one is a buy.

Loungers – home from home and open all hours

The AIM market for smaller shares has been crippled by fears that Ms Reeves would take an axe to one of the perks that make investment in the index so attractive, namely inheritance tax relief. That means the stocks listed on the exchange have had their valuations dampened, regardless of the soundness of their fundamentals.

Now that we know what we are dealing with – a partial blow from the Chancellor’s axe, with AIM stocks now eligible for 20 per cent IHT rates, half of the normal 40 per cent, if held for at least two years before an individual dies – AIM stocks can once more be assessed on their merits.

Midas is a fan of AIM-listed Loungers, which puts small all-day drinking and dining spaces on to Britain’s high streets. The company is expanding fast and has a winning ‘home from home’ formula, offering breakfast in the morning, somewhere to take the kids for coffee in the day, and a buzzing but non- threatening bar atmosphere in the evening.

Its strategy means almost half its sales come from Monday to Thursday trading and are spread evenly from lunchtime onwards. Though, with more than 270 sites, the company will suffer from the increase in minimum wage and employer NI, so this must be borne in mind.

However, if you believe in its ethos and plans to open 30 new sites a year, the AIM uncertainty has slightly dampened the upward trajectory of the shares, creating a buying opportunity.

Shares are down nearly 7 per cent in the past month, so if you love to lounge, now might be the time to take a small slice.

Eneraqua – green future plays to its strengths

Despite a surprise freeze in fuel duty, Reeves dutifully delivered on other green ambitions, with the Department for Energy Security and Net Zero the biggest winner in terms of extra cash to be spent.

Outside of the big green projects announced by the Chancellor, such as hydrogen plants and carbon capture, is the requirement for more homes to be greener. These include a vast pool of social housing that will need decarbonising, insulating and upgrading.

One company that could benefit from this is heat pump and water efficiency group Eneraqua. The company helps companies and individuals decarbonise their properties and save water. Clients include local councils such as Camden, Leeds, and Kensington & Chelsea, all of which have responsibilities to green their housing stock, hospital trusts and schools.

Eneraqua says that residents living in buildings where it has installed new heating and hot water solutions cut their bills by an average of 45 per cent, while carbon emissions are reduced by 70 per cent.

The requirement for rented property to be energy efficient under Labour’s new rental bill plays to its strengths, while the company also spends money on R&D to develop new patented technologies to make our heating and water more energy efficient.

Given how squarely Eneraqua sits in the Labour priority zone, one might have expected its shares to soar. However, they are down over 5 per cent this year, and 86 per cent over the past five years at 41p.

One reason for the recent volatility is that Eneraqua is floated on AIM, like Loungers (left), but recent uncertainty over the stock market’s tax perks is not the only reason the shares have been depressed.

The company’s work was delayed by the election, with councils not starting projects and pushing back high-value work into the second half of the year.

With Sir Keir safely installed in Downing Street, we can only hope councils can get cracking on more projects. The company is forecasting a return to profit in the second half of the year, which should buoy investor sentiment.

At this level the shares are worth snapping up.

Babcock – defence and nuclear security experts

Labour ministers aren’t well-known for their defence spending, but Ms Reeves said on Wednesday she would provide the Ministry of Defence with an extra £2.9 billion next year and promised an annual £3 billion for Ukraine would continue for ‘as long as it takes’.

Her clear commitment to defence will be crystallised after the Strategic Defence Review report in 2025, but the tone is encouraging for the sector.

That’s good news for Britain’s Babcock International, the defence engineering group working on the Dreadnought Class nuclear submarine.

Babcock is already benefiting from Labour’s continued commitment to the nuclear deterrent, and further defence spending should filter through to its bottom line.

Under its Cavendish Nuclear brand, Babcock also works on the new Sizewell C power station in Suffolk and other nuclear power plants and should benefit from Labour’s reiteration of support for nuclear power.

Budget documents stated: ‘New nuclear will play an important role in helping the UK achieve energy security and clean power while securing thousands of good, skilled jobs. The settlement provides £2.7billion of funding to continue Sizewell C’s development.’

A final decision on the next stage of Sizewell C will not be taken until the Spending Review next year.

Other defence stocks have performed well this year but Babcock has trailed somewhat.

That’s partly because it isn’t as exposed to the uplift its rivals are experiencing from European countries rearming, because about 70 per cent of its profits are from the UK defence and civil market.

Now that defence spending is on the up in the UK though, it is good news for the company.

Babcock shares are down 12 per cent over the last five years. At 472p they are trading on under 11 times forward earnings, meaning that the combined value of all Babcock’s shares is 11 times the profit it is expected to make next year. Its competitors are more highly valued than this.

Now might be the time to add these shares to your portfolio.