Overview
Companies in Berenberg's UK business services coverage have recorded an average year-to-date share price increase of 8.7%, even as the wider economy showed only weak growth, interest rates remained volatile and inflation persisted. Within the 36-company sample the broker follows, nearly two-thirds have upgraded their FY27 earnings forecasts so far this year.
Drivers of performance
Berenberg said the sector's gains were primarily the result of thematic positioning, corporate acquisition activity and shifts in sentiment that altered valuations. Those factors supported a view put forward in January that corporate-level execution and strategic choices - rather than a macroeconomic recovery or widespread fiscal support - were the main drivers for returns across the coverage universe.
Valuation and cash metrics
The coverage as a whole trades at an average of 11.2 times FY27 price-to-earnings, with a free cash flow yield of 9.2% and an average dividend yield of 3.7%. For comparison, Berenberg noted the FTSE All-Share trades at 12.4 times P/E with a 3% dividend yield.
Earnings upgrades and capital allocation
So far in the year, 21 of the 36 companies in the coverage set have increased their FY27 earnings forecasts. Berenberg said those upgrades were supported by market leadership at individual firms and disciplined capital allocation by management teams. Corporate activity has been a feature: 16 companies completed mergers and acquisitions over the past year, and 16 have implemented or are running share buyback programmes. On average, balance sheets carried net debt of 0.8 times forecast FY1 EBITDA.
Top picks and subsector dynamics
Berenberg's nine top picks selected in January have returned an average 2.4% year-to-date, lagging the broader coverage return of 8.7%. The broker attributed the wider coverage outperformance in part to the creation of a new energy services subsector, which outperformed the rest of the universe.
Individual stock moves highlighted by Berenberg include a 43% rise for Diploma following earnings upgrades and a 33% gain for Clarkson, which the broker linked to structural shipping tailwinds associated with disruption from the Middle East conflict.
Coverage expansion and new subsector
Since January, Berenberg has increased its coverage from 28 to 36 companies. The broker initiated coverage on James Fisher, Elixirr, MHA, Savills and ZIGUP, each assigned a "buy" rating. It also introduced a new energy services subsector incorporating Ceres Power, ITM Power, James Fisher, Ashtead Technology and Hunting.
Berenberg suggested investor rotation away from high-multiple technology stocks toward more defensive, old-economy businesses helped its coverage. The broker characterised many names in the coverage set as offering "picks and shovels" exposure to energy, AI and data centre and defence themes without direct exposure to technology-platform or commodity-price risk.
Price target updates and rating changes
The broker raised price targets for several companies: RS Group's target was moved to 650 pence from 600 pence, RWS's to 190 pence from 170 pence, and SThree's to 330 pence from 250 pence.
Meanwhile, Berenberg downgraded DCC and Mitie from Buy to Hold due to ongoing takeover situations. DCC is subject to a recommended £5.75 billion offer from KKR and Energy Capital Partners, and Mitie is under a recommended £3.10 billion offer from OCS Group.
Private equity interest and deal activity
Berenberg noted that the combination of relatively low valuations, strong cash generation and fragmented end-markets continues to make the sector attractive to private equity buyers. The broker pointed to the Mitie and DCC takeouts in 2026, following two takeouts in the prior year, as evidence that corporate and private equity buyers remain active and that transaction sizes are increasing.
Bottom line
Berenberg's coverage of UK business services has shown resilience through earnings upgrades, active capital deployment and sector reorganisation. The broker's view is that company-level strategy and M&A-led reshaping of the sector have been more important to recent returns than a broad recovery in macroeconomic conditions.