Share tip updates: William Sinclair and Darty

published 19 September 2014

William Sinclair (LSE: SNCL)

In January last year, I tipped the shares of William Sinclair, the maker of J Arthur Bower's compost and other horticultural products.

My reasoning was that the company had gone through some tough times and that things could only get better I was wrong. The shares have almost halved since then and the dividend has been scrapped.

The firm has got itself into a bit of a mess. It had agreed to sell its Bolton Fell Moss peat bog to Natural England for just over £20m, but had to wait for the cash. Poor weather, and the loss of sales that came with this decision, forced it to issue a convertible bond with eye-watering interest rates to keep the business going on a day-to-day basis.

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It then committed the schoolboy error of jacking up its peat prices to compensate for lower volumes. Many of its customers decided to go elsewhere. As a result the company is losing money.

Yet it still has some good brands and customers. It's invested £15m in a new facility at Ellesmere Port on the Wirral to make a peat substitute compost, SuperFyba. If this takes off it should start making money again.

The market value of the company's shares is now £10.6m at a share price of 61p. This is about the same as its net asset value. The shares are definitely not for the nervous but could be worth a punt given how far they've fallen.

Verdict: a high-risk buy

Darty (LSE: DRTY)

In March 2013, I tipped shares indistressed electrical retailer Darty at42p. The shares are now 82% higherthan they were then, but they have fallen35% this year.

Last week the companysaid that profits at its recently purchasedMistergooddeal.com website would belower than expected, and as a resultanalysts in the City have quickly reviseddown their expectations for Darty'sprofits as a whole.

Yet, Darty's strategy of getting outof weak markets, cutting costs andconcentrating on its core areas ofFrance, Belgium and Holland stillpromises to deliver higher profits duringthe next few years. Selling electricalgoods is a very tough market, especiallygiven the fierce online competition.

However, Darty is holding its own andhas some good businesses. Dixons andPC World in the UK have proved that it ispossible for bricks-and-mortar retailersto do well. Darty France could arguablydo the same over the English Channel.

The shares look cheap on a prospectiveearnings before interest and tax (EBIT)yield of 12% (that is, operating profit /enterprise value) and offer an attractiveprospective dividend yield of 4.1%with the potential for further dividendgrowth.

I reckon the shares could be duea bounce and from here they look onceagain like a decent, albeit risky, short-termpunt.

Verdict: a short-term punt

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.