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
ConvaTec is one of the main global players in ostomy and wound care, oligopolistic markets with little competitive pressure. Despite these attractions the shares have been weak this past year because of operational issues and a profit warning last October. Yet the firm will be a long-term winner as structural shifts in disease patterns and an ageing population ensure growing demand for its services. Sound financials and high profit margins just make the business even more appealing. 225.25p
The Mail on Sunday
This Yorkshire-based power plant has been shifting its operations from coal into biomass (burning wood pellets from sustainable sources), which today accounts for two-thirds of its power generation, and growing. With the government aiming for 30% of all energy to come from renewable sources by 2020, this is a solid long-term buy. Share buybacks and a growing dividend should also appeal to income seekers. 350.25p
Souring sentiment towards the vehicle market has sent the price-to-earnings (p/e) ratio of shares in Vertu, the UK’s sixth-largest car retailer, down to single-digit levels. Patchy consumer confidence and sterling weakness certainly present challenges, but the outlook for the used car market – the source of 70% of Vertu’s revenues – is improving. This strongly cash-generative business also boasts solid management and a “pristine balance sheet”. Contrarians should “hop behind the wheel”. 48.75p
Three to sell
The Sunday Times
News that Kroger, America’s second-largest food retailer, will use Ocado technology to build up to 20 automated distribution centres has settled the long-running City debate about whether Ocado is a struggling grocer or a tech innovator. This “mighty endorsement” has sent the firm’s market value up to £5.3bn, but there are still questions about how much cashflow the licensing model can ultimately generate in the low-margin grocery market. Time to take profits. 800p
Royal Mail was already contending with a structural decline in letter volumes as more communications shift online, and the imminent introduction of General Data Protection Regulations (GDPR) is not going to help matters. The new rules give customers more control over how companies use their data, potentially hitting the market for advertising mail shots. Management expects a 4%-6% drop in business over the medium term. Greater clarity on the group’s pension obligations is one positive, but it is still a sell. 567p
The Sunday Telegraph
The Imperial Leather maker warned in March that profits would fall short of expectations, sending the shares down by 25%. The bathing, beauty and food products supplier is feeling the burn across multiple countries as cost-conscious consumers switch to cheaper brands. A strong balance sheet and history of dividend growth will reassure some, but on 17 times next year’s earnings, the shares look pricey. 242.75p
…and the rest
The Daily Telegraph
Shares in patent translator RWS have fallen because of currency movements, but that presents an opportunity to buy into a business with good fundamentals (385p).
Sub-prime lender Provident Financial has “been through the wringer”, but a stronger balance sheet and growing loan book herald a recovery (676.5p). Aim-listed fish-farming industry supplier Benchmark offers exposure to swelling global demand for seafood (51p). Logistics business Stobart Group plans to grow its aviation operation at Southend airport and offers a tasty 8.1% forward dividend yield (237p).
An obstacle-laden turnaround plan at retailer Mothercare is only for the adventurous – avoid (19.5p). Many commercial-property developers panicked after the Brexit referendum, but British Land has “played a blinder” and now enjoys a stronger market position (698.5p). Paddy Power Betfair has grabbed a lead in the race to capitalise on the opening of the US sports gambling market (8,250p). The government price cap and increasing competition mean that Centrica faces “pressure from all sides” – sell (141p).
Negative sentiment towards the car market has hit shares in Auto Trader, but it is better seen as an underrated internet business (377p). Red tape is growing, leaving regulatory compliance software provider Ideagen in a “sweet spot” (122.5p). West African gold-miner Avesoro Resources is back on the growth path after last year’s disappointing performance (272.5p). Ignore the tech bears; digital-focused Next Fifteen Communications offers plenty of growth (489p).
An American view
The grocery market is ruthless, says Barron’s. There is Amazon’s Whole Foods unit and Walmart to contend with, plus dollar stores, warehouse clubs and chemist shops all growing their range of food offerings. Kroger, however, has still managed to increase its market share in recent years. Founder Barney Kroger opened the first branch – a combination of bakery, butcher’s shop and grocery store – 135 years ago. Last year, sales of Kroger’s own-label goods came to $20.9bn, or 26% of total sales, among the highest penetration rates of traditional grocers. It is big on data, too – its analytics operation generates three billion purchase recommendations a year. The shares trade on a p/e of just 12.
Arion Bank, the domestic arm of failed Icelandic bank Kaupthing, is planning an initial public offering (IPO) in Reykjavik and Stockholm by the end of next month. The float would represent a major test of investor appetite for Icelandic assets, following the collapse of the island’s banking system in the 2008 financial crisis, notes the Financial Times. A flourishing tourism industry has seen Iceland enjoy a solid recovery in the past decade. However, due to a strong Icelandic króna, tourist numbers look set to drop, leading to concerns about the health of the economy and banks’ lending practices. In the first quarter of 2018, Arion’s net profit fell by 42% on 2017, to 2bn Icelandic krónur (£14.2m).