* Share rally in domestically focused UK companies to fade
* Global companies offer better value after missing out onrally
* Resources stocks expected to get dividend boost
By Atul Prakash
LONDON, April 11 (Reuters) - A year-long outperformance bydomestically focused British stocks is likely to evaporate thisyear as investors switch to cheaper shares with moreinternational exposure.
Shares in some companies that get most of their revenues inthe domestic market have gained anywhere from 30 to 60 percentin the past 12 months. By comparison, the FTSE 100 index overall is only up about 5 percent.
Consequently, a basket of about 70 domestically focused UKcompanies now trade at 19 times 12-month forward earnings,against a 10-year average of 14 times earnings, according toThomson Reuters Datastream.
Capita is trading at 17 times forward earnings, forexample, compared with a long-term average of 15 times earnings.Marks & Spencer is at 13.2 times 12-month forwardearnings; its long-term average is 11.5 times earnings. http://link.reuters.com/dux28v
"The UK domestic trade, which is focused on ways to exploitthe UK consumption angle, has travelled a long way and thevaluation support for the strategy has diminished," said IanRichards, global head of equities strategy at Exane BNP Paribas."We feel investors now need to employ alternative strategies."
Analysts said that investors who want to keep their money inLondon-listed stocks should switch to internationally focusedcompanies. Overlooked during the domestic rally, they are nowcheaper and offer higher dividend yield, which compares the sizeof the most recent payout with the share price.
Among them are defence contractor BAE Systems, foodingredients firm Tate & Lyle and mobile operatorVodafone, which generate 80 to 99 percent of theirrevenues outside Britain. They offer dividend yields of 4.1 to5.0 percent compared with 3.6 percent for the FTSE 100.
"A broader search for value has been prompting investors tolook at some internationally focused companies having bettervaluations and dividend yields compared to the domestic ones,"said Keith Bowman, an equity analyst at Hargreaves Lansdown.
Resource companies are one internationally exposed sectorwith attractive valuations and potentially higher yields. Withdemand for commodities weakening, shareholders are pressuringthem to cut back on capital spending and focus on returning cashto investors, analysts said.
Such companies include BP, which gets about 34percent of its revenue from the United States. It raised itsdividend by 5.6 percent after trimming capital spending plans.Royal Dutch Shell has promised to lower its spending aswell. Each had spent an amount equal to about a third of itsmarket capitalisation in 2013.
"Energy and materials are value opportunities. We do need acatalyst, but we believe we have one, with companies in thesectors starting to focus on better free cash flow and improvingreturns to shareholders," said Robert Parkes, an equitystrategist at HSBC Securities.
"Domestically focused UK companies have had a strong runalongside the improving UK growth numbers. We expect the pace ofgains to moderate going forward." (Graphics by Vikram Subhedar; Editing by Larry King)
