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

Burford Capital

Shares

The law industry turns over more than $800bn a year and this Aim-listed “superstar” is the market leader in providing finance for lawsuits in return for a share of the awards.
It is expanding in the particularly litigious US and Australian markets. Institutional investors paid £18.50 per share in a fundraising round at the start of October, but market falls since then have given investors an “almost unheard of” chance to pick up a quality stock at a 15% discount to the price paid by the “smart money”. 1,562p

Just Eat

The Sunday Times

The shares may have fallen a little too far. The rise of challengers Deliveroo and Uber Eats, which, unlike Just Eat, run their own food delivery networks, has hit sentiment. Yet forthcoming figures should provide a reminder that the online takeaway market still has plenty of room to grow. With almost half of sales now made internationally, the business has spread risk. 602p

Whitbread

Investors Chronicle

Whitbread’s £3.9bn sale of the Costa Coffee chain to Coca-Cola has received “overwhelming approval” from shareholders but the buzz may have distracted the market from the group’s hotel operation. The Premier Inn budget chain is already the largest network of hotels in the UK, with 74,000 rooms, but plans to add 13,000 more. The business is also expanding in Germany. When the Costa deal completes, the ongoing group will be valued at about 12 to 14 times expected earnings at the current share price, which is very attractive for a “class operator”. 4,328p


Three to sell

Debenhams

Motley Fool UK

Debenhams is
to close 50 stores and cancel the dividend. The market likes the group’s plans, but the revamp will not come cheap. Debenhams is also paying more than
the current market rent on 110 stores and is locked into long-term leases that are difficult to re-negotiate. Underlying pre-tax profits fell by 65% in the year to 1 September. This business “will probably survive” but it may well need fresh cash, which could prove “highly dilutive” for existing shareholders. Avoid. 9.72p

Lloyds Banking Group

The Times

Once a bank struggling with enormous payment protection insurance claims, bad debts and funding pressure, Lloyds has bounced back from the financial crisis to become
“a giant cash machine”. The UK’s top retail bank can leverage its market share to make profits. Share buybacks next year could amount to
£2bn. Lloyds now hopes to generate new growth from selling more investment products and investing in digital operations, but the benefit is likely to be marginal. And a no-deal Brexit would see shares get “hammered”. Avoid. 57.83p

Mediclinic

The Daily Telegraph

This international private hospital operator has put out another poor trading statement. Patient numbers at its Swiss unit have been weak and new regulations have dented margins. The Alpine nation hosts Mediclinic’s largest operation, but fortunes elsewhere are not much better – trading in South Africa remains mixed. This business has proven more complex than we thought – “time to swallow the medicine and move on”. 371.1p


…and the rest

Investors Chronicle

“Nearly new” independent car dealer Motorpoint is more flexible than franchise dealers and is trading at a discount to its peers (219p). Events and specialist publishing business Informa’s £3.6bn takeover of rival UBM this spring was far from universally popular, but the move could prove transformative for earnings in the medium to long-term (732.8p). Talk of a takeover makes Aim-listed copper producer Atalaya Mining a speculative buy (251.5p).

The Mail on Sunday

York-based Gear4music, the UK’s largest online music specialist, is growing fast at home and in Europe and should “rise up the charts” (552p). Shares in Craneware, whose specialist software tools help US hospitals become more efficient, have soared tenfold in nine years. Shareholders may be tempted to bank some profit, but they should still hang on to a “good percentage” of their holding (2,700p).

Shares

Cathedral City-to-Clover producer Dairy Crest boasts high-quality assets and a commitment to product innovation (467p). Banknote printer De La Rue missed out on the contract to provide the new blue British passport this year, but activist investors could shake things up for the better – buy (484p). Brexit worries have weighed on public sector IT provider SciSys, but pre-tax profit should grow by 21% this year – buy (143.11p).

The Times

Infrastructure and support services business Stobart Group has descended into a boardroom civil war, turning it into a “toxic stock” (218p). Buy Ryanair – its market strength will help it outmanoeuvre the competition (€11.70).


An American view

At Home group is an unusual but potentially lucrative retail stock, says Nicholas Jasinski in Barron’s. It has almost no online presence but massive, no-frills shops that give customers “unmatched breadth and depth” in all styles of home decor. The group has “brought fast fashion” to its sector, collaborating quickly with suppliers to adapt new styles and put them on sale. The steady stream of new items “gives shopping a ‘treasure hunt’ feel” that appeals especially to millennials, retail’s most highly prized clients. Sales have grown by a fifth for 17 successive quarters, and now total more than $1bn. This “compelling growth story” is also on a discount to other burgeoning retailers.


IPO watch

London-based Orchard Therapeutics, a biotech concentrating on rare diseases, is floating on America’s Nasdaq. The sale of 13.3 million shares, valuing the company at roughly $1.4bn, is designed to raise $200m to cover the soaring cost of research and development and the construction of a manufacturing plant for its key drug Strimvelis. A stem-cell therapy that tackles a metabolic disorder causing severe immunodeficiency, it has already been approved by the EU. Orchard also has five gene-therapy treatments in the pipeline, which along with Strimvelis was acquired from drug giant GlaxoSmithKline. GSK holds a 17% stake in Orchard.

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