Can the UK’s stock market produce another £200bn company?

Seismic events or a shift in valuations are likely necessary for more UK stocks to be worth £200bn, analysts have told City A.M., after Astrazeneca became the first company in six years to pass the milestone.

The drugmaker’s market capitalisation reached £200.3bn at Tuesday’s close on the back of a 78 per cent rally over the previous five years, driven by its big bet on cancer drugs.

The landmark valuation comes a decade after a failed takeover attempt by US rival Pfizer, which now has a market cap of $163.5bn (£127.3bn).

UK remains ‘cheap‘

The wider FTSE 100 index has enjoyed a rebound this year, gaining seven per cent in 2024 and achieving record peaks amid an improving economy, easing inflation and a pickup in M&A.

However, London remains only the the world’s sixth-biggest stock market, with the average daily traded volume on the FTSE All-Share Index tumbling to roughly £3.6bn in July from a peak of nearly £14bn in the same month in 2007.

Despite Astrazeneca’s share price rally, its valuation would barely put the firm in the top 30 New York-listed companies by market cap.

But it’s not just a question of size. London-listed firms remain relatively cheap compared to their peers in other markets, prompting a flurry of takeover attempts from foreign bidders in recent months, as well as a crop of big names ditching their listings for better returns overseas.

In the biggest of the recent snubs that damaged London’s reputation as a trading venue for tech firms, Cambridge-based chipmaker Arm opted to float on the Nasdaq in New York last September.

Arm’s stock price has since surged nearly 80 per cent since then, giving it a market cap of $129.7bn (£101bn) – dwarfing nearly all members of the FTSE 100.

The FTSE 100’s £2.1 trillion combined market cap represents around 12.5 times the forecast aggregate net profits from its constituents for 2024 and 11.5 times for 2025, while the S&P 500 commands a multiple of around 22 times, according to AJ Bell.

Russ Mould, investment director at AJ Bell, told City A.M. that while the UK has long traded at a discount to the US, “the disparity is unusually high” – with New York’s higher exposure to technology widening the gulf in recent times.

“The US tech companies therefore must keep on delivering very strong earnings momentum, and upside surprises, if they are to justify that premium multiple or expand it,” Mould said.

The government and regulators are racing to boost the UK market with measures including an overhaul of listing rules designed to make it easier for companies to float in London and promoting more investment from pension funds.

Which company could pass £200bn next?

Other than Astrazeneca, three London-listed companies boast a valuation of more than £100bn.

Oil and gas giant Shell, which Astrazeneca overtook in value earlier this year, is currently worth £174.6bn. HSBC, Europe’s biggest bank, is valued at £119.2bn, while consumer goods titan Unilever is worth £117.8bn. In fifth place, BP has a market cap of £71.9bn.

“These are all mature businesses, so it will need a combination of events or changes in valuation for them to join the club,” Charles Hall, head of research at investment bank Peel Hunt, told City A.M.

“Clearly Shell and BP will in the short term be driven by oil prices, but longer term the drive to energy transition could bring a change in investor views.”

Two companies have previously passed the £200bn milestone – telecoms giant Vodafone in March 2000, before cratering during the dotcom crash, and Shell in 2018.

“Looking further down the FTSE 100, it will require a bigger leap to join the club,” Hall added.

He said that data and analytics firms Relx (worth £65.9bn) and the London Stock Exchange Group (£53bn) could be “major beneficiaries” of artificial intelligence – demand for which has helped the largest US stocks achieve record valuations this year.

Hall also highlighted GSK (£66bn), formerly known as GlaxoSmithKline, saying the drugmaker “has a number of potential blockbuster launches in its pipeline”.

Still, Derren Nathan, head of equity analysis at Hargreaves Lansdown, said the gap between Shell’s second-place valuation and the rest of the FTSE 100 meant “there doesn’t seem many obvious catalysts to find Astra a friend in the £200bn club”.

“There’s definitely scope for a re-rating of UK PLC, particularly if income stocks come back into favour,” he added.

“But despite the recent volatility, its US big tech that’s dominating the truly mega cap space, and that’s unlikely to change any time soon.”