Three to buy
Lookers Motor Group
Lookers is one of the top three motor vehicle retailers in Britain. It represents 32 manufacturers and sells cars at 150 franchised dealerships. This is a competitive market, yet it reported "respectable" full-year results last week. Underlying pre-tax profits rose by 5% to £68.4m on turnover that jumped 15% to nearly £4.7bn. Usefully, 41% of its gross profit comes from its after-sales servicing unit, which is less cyclical. 92.5p
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The share price of this software play is down 25% since November's record highs, but there is a clear path to a turnaround. Recent half-year results were disappointing, but this is a quality business. Micro Focus provides software modernisation products and functionality to legacy IT systems, where it makes 40%-plus operating profit margins. It does not come without risk, but a full-year 2019 price/earnings multiple of 11.8 means the balance between risk and reward looks "very attractive". 2,048p
Smith & Nephew
Demand for medical devices is growing in developed nations due to ageing populations and "diseases of affluence". Smith & Nephew has adapted to this opportunity. In 2016 it sold its gynaecology business to focus on three franchises: sports medicine and trauma, joint reconstruction, and advanced wound management. It also has a growing presence in emerging markets, where revenues grew by 14% on an underlying basis in 2017. Investors have had to be patient in the past, but the potential growth may now prove worth the wait. 1,275p
Three to sell
The Sunday Times
It is almost five years since this bus and rail operator begged shareholders for £615m of cash aimed at repairing a balance sheet straining under £2bn of debt. Since then, FirstGroup has not paid a dividend and "debt still hangs heavily around its neck". With a value of just £1bn, the company has now also attracted Canadian activist West Face Capital, which wants to use its 5% stake to force a break-up. Meanwhile, UK rail operations look "like a rare bright spot", growing revenues by 3.2% between September and January. Yet that is "not fast enough". 85.25p
TI Fluid Systems
The Daily Telegraph
TI has one third of the market for brakes and fuel lines plus 15% of the plastic fuel-tank systems that are replacing steel. However, investors are concerned about how a company that has built its business on the combustion engine can cope as the industry switches to greener alternatives. TI supplies around €200 of equipment to each car with a combustion engine. It forecasts this to be €700 for a hybrid car or €400 for a pure electric. Yet worryingly, the orders and revenues are lacking. 258p
The owner of The Real Greek and Franco Manca restaurant chains has not been immune to problems within the industry. It warned on profits in September and has yet to see much of a pick-up since then. Its net debt tripled to £9.7m in half-year results, after the firm doubled its number of sites between March 2016 and December 2017. Yet it is not confident enough to raise prices, so margins could be in for a further squeeze. 11p
And the rest
The Daily Telegraph
Shares in housebuilder and land developer J Gleeson have gained nearly a third since The Daily Telegraph tipped them in autumn 2016 taking profits now seems sensible (780p). Buy into plastic-pipe systems manufacturer Polypipe; with the stock offering a free cash-flow yield of 6%, a forward price-to-earnings ratio (p/e) of 13.5 and dividend yield of 3%, "there is a lot to like" (393p). Insurance giant Legal & General posted an upbeat set of full-year results last week (262.25p).
The turnaround at technical car information publisher Haynes Publishing is not over yet, but the shares look cheap, given its potential growth, and offers an attractive dividend yield (214p). Management at drinks business Conviviality has shattered investors' faith with a shock profit warning sell (103p). Third time's a charm for GVC after two failed attempts, Ladbrokes Coral's shareholders have finally voted in favour of a takeover (930p).
Challenger bank OneSavings Bank has seen its share price lose momentum since last summer, but the company may be on track to reward shareholders (408.5p)
If it's true that the leisure market is poised for a resurgence, then travel group TUI, gaming stock GVC and pub JD Wetherspoon look well placed to benefit (1,529p; 943p; 1,306p). Shares in security services play G4S look cheap after a long period of being out of favour (258.5p). Debt is falling at Premier Oil and growth prospects are coming into focus (72p). Shares in Aim-listed fashion site MySale are still below the float price, but there is growth to come (110p).
A German view
Last year was an unusually rough one for Munich Re, one of the world's biggest reinsurance and risk-management groups. A series of nasty hurricanes and storms triggered large payouts, squeezing earnings. But things are looking up. Even if 2018 turns out to be just average weather-wise, profits should reach €2bn, says WirtschaftsWoche.
Meanwhile, ongoing digitalisation (the collection of increasing amounts of data across industries) will allow the group to crunch more information, helping it assess weather-related risks more effectively. It also bodes well that Munich Re has managed to avoid cutting its dividend for almost 50 years, and has grown it by an average of 13% a year since 2003. The stock currently yields 4.6%.
Investment platform AJ Bell has announced plans for an initial public offering (IPO) that could value it at £500m. The IPO will include a retail share offer, available only to AJ Bell's clients, and is expected to happen at the end of 2018 or early 2019. The firm, which was founded in 1995, now has assets worth £42bn, and is one of the biggest privately-held rivals to Hargreaves Lansdown, the market leader. Over the past five years, AJ Bell's assets under administration have grown by an average of 26% a year. Pre-tax profits in its latest financial year hit £21.7m, a year-on-year rise of 29%, on revenue of £75.6m, up 17%.
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