Share tips of the week
MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
Three to buy
In recent years Rentokil has restructured its sprawling empire to focus on hygiene services and killing off pests a strategy that the market has applauded. Last year it spent £281m on acquiring 41 new businesses (of which 33 were in pest control), reflecting its greater financial firepower. This year it plans to spend another £200m-£250m. The deals enable Rentokil to add businesses that are on its exterminators' existing routes, boosting profitability with little increase to costs. 263p
The Daily Telegraph
This manufacturer of technical tapes and adhesive films originally made consumables for the paper industry. It got into trouble in the 1990s and sold that entire business to a German rival, at a point when it found itself "at death's door". Today, following the 2009 appointment of cabling specialist Volex's Heejae Chae as new chief executive, and the acquisition of three healthcare companies, it has transformed itself into a specialist, high-margin business with enviable returns on capital. Yet its valuation remains reasonable. 475.75p
This transport technology company helps businesses improve their service delivery. After a mixed 2017 financial year, growth opportunities, strategic investments and acquisitions have laid the foundations for greater growth in 2018. Tracsis recently acquired Travel Compensation Services and Delay Repay Sniper for £6.9m, which, along with other recent acquisitions, brings greater cross-selling opportunities. 520p
Two to sell
Martin Sorrell, the boss of this advertising giant, has admitted that 2017 "was not a pretty year". With revenue down 0.3% on a like-for-like basis and operating profit plunging 10.5% to £1.9bn, the group's annual results were the worst since the financial crisis in 2009. Sorrell blamed it on "the short-term focus of zero-based budgeters, activist investors and private equity", who have encouraged firms to cut their marketing spend. While this explains the 5.4% decline in like-for-like billings, it fails to acknowledge why WPP's underlying growth rate is lower than its peers. Sorrell thinks sporting events and the US mid-term elections "should all trigger more marketing investment" in 2018, yet the first two months of the year have provided little reassurance. 1,198p
This challenger bank turned its first statutory annual pre-tax profit in 2017. Net customer lending continued at a "breakneck pace", helping accelerate net interest income growth at a faster rate than its operating expenses. However, it also resulted in the common equity tier-one ratio declining to 15.3%, from 18.1% the previous year. Building delays also meant it only opened seven new branches last year, missing expectations. Customer deposits were up by almost 50%, but the growth was outstripped by the increase in lending of almost two-thirds. The erosion of the bank's capital base raises the spectre of a share issue to back its rising loan book. Meanwhile, the shares are trading at an expensive 2.7 times forward book value. 3,504p
And the rest
The Daily Telegraph
Carolyn McCall has taken over broadcaster ITV, which, with a 4.6% dividend yield, could be a winner this year (171.5p). Directors of drinks distributor Conviviality bought shares after its interim results take it as a sign that the market has overreacted and buy in (288p).
Some are concerned about competition in alternative lending markets, but Close Brothers has generated growth while maintaining margins (1,588p). Johnson Service Group has proved itself after disposing of its dry-cleaning business, prompting analyst upgrades (137p). A 7.4% dividend yield make retail landlord Capital & Regional a buy (54p). Phoenix's purchase of Standard Life Aberdeen's assurance arm will result in an annual £338m rise in dividend payments from 2019 (788p).
Data analytics, events and publishing business Relx is down 14% year-to-date, but sentiment is turning in its favour (1,500p). Chemicals specialist Croda has posted a record pre-tax profit of £320.3m for 2017 (4,347p).
Annual results at engineer Weir Group show the firm is heading in the right direction, giving the opportunity for a dividend increase (1,988p). Hiscox has maintained its independence as one of the few Lloyd's of London insurers that have not yet been bought by larger rivals (1,386p). Demand for big-brand lager continues to grow good news for Anheuser-Busch InBev, owner of Budweiser and Corona (€89.43). The market value of pay-TV giant Sky soared to £23.6bn last week, surpassing arch-rival BT for the first time (1,376p).
A Swedish view
Denmark's Novozymes is a stable business in troublesome times, says Affrsvrlden. The firm sells enzymes to the chemical, food and textile industries, where its products are used to accelerate chemical processes. The business, which was spin out of the diabetes-drug firm Novo Nordisk in 2000, now has 48% of the market for industrial enzymes ( rivals include Germany's BASF and Bayer, and America's DuPont). Today it is growing fast, and its operating margin has risen from 20% to 27.9% in the last ten years. Management is also delivering on its promises a goal to achieve a 24% operating margin from 2020 was hit two years ago. Yet the shares still look relatively cheap given its potential, on a forecast p/e of 23.
Music-streaming firm Spotify has publicly filed to list its shares directly on the New York Stock Exchange, going ahead with an unconventional initial public offering in which it will not raise any fresh capital. The company has been valued at $19.7bn, putting it close to the valuation of Snap, the owner of messaging service Snapchat, which listed in March 2017. At the end of last year, Spotify had 159 million monthly users, of which 71 million were paying users (Apple's rival music service had 36 million users). In 2017, Spotify had revenues of €4.09bn, up 38% on the year before, but still made an operating loss of €378m.