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

Eland Oil & Gas

Shares

This Nigeria-focused oil explorer and producer is much more than a speculative energy play. With output expected to increase significantly during the year ahead, this is a “genuinely cash-generative business”. Security remains a concern in a region that has long experienced militant activity, but the company has demonstrated its ability to ride out previous disruption. Further exploration and drilling in the third quarter of 2019 could give the share price a big boost. 105.5p

Renewi

The Mail on Sunday

You might expect a recycling expert to benefit from growing public awareness of the environmental dangers of waste. Yet a run of bad news – including China’s ban on scrap plastic imports and a profit warning – has seen Renewi’s share price fall by two-thirds over the past year. However, analysts reckon there could be “light at the bottom of the recycling basket”. The sector is well insulated from the economic cycle and there is a near-9% dividend yield to enjoy while you wait for a rally. 34p

Whitbread

The Sunday Telegraph

The Premier Inn-owner started the year on a positive note, confirming the completion of its £3.9bn sale of the Costa coffee chain to Coca-Cola. The cash windfall is expected to be used to fund a share buy-back programme. The disposal now frees up management to expand the hotel chain, which is already Britain’s market leader, overseas, particularly in Germany. A takeover bid from a larger hotel group is also a possibility. Investors should keep buying. 4,958p


Three to sell

Funding Circle

Investors Chronicle

Shares in this peer-to-peer lender have fallen 28% since an initial public offering (IPO) in October, but they still don’t offer good value. Its supporters are betting that the “ferocious rate” of growth in loans under management will eventually bear fruit, but the group is not expected to turn a profit until 2021. A worsening economic outlook could spell trouble for a relatively new sector if credit from new investors begins to dry up, yet the stock’s heady valuation does not account for these risks. 312p

IQE

Motley Fool UK

Shares in this Welsh semiconductor business fell heavily on a profit warning last November and there could be more bad news to come. IQE is a key supplier for Apple, yet the share price has remained remarkably stable in the wake of the US tech giant’s sales shocker at the start of this month. A forward price/earnings (p/e) ratio of 17.3 is “slightly expensive” and depends on the firm achieving an ambitious 81% rebound in earnings this year. With China’s economy weakening, another poor trading statement “could be just around the corner for IQE”. 61.95p

Rentokil Initial

The Times

There is something rather “Ghostbusters-like” about this pest-control business, which dispatches its agents to scenes of “domestic and commercial chaos equipped with the latest hi-tech garb and scientific kit”. The group has grown through acquisitions and operates in 90 countries. The frenetic pace of takeovers makes the accounts difficult to understand, and a measly 1.1% dividend yield is “reason enough to steer clear”. 354.25p


…and the rest

The Daily Telegraph

Greater market volatility is good news for spread-betting firms such as CMC Markets (116p). Buy the dip at packaging business DS Smith: sales and profits are rising but the shares trade on just eight times forecast earnings (306p).

Investors Chronicle

Metals prices have sagged due to doubts about China’s economic outlook, but that’s an opportunity to snap up miners such as Central Asia Metals on the cheap. There is an 8% dividend yield to enjoy pending a recovery (214p). Cloud computing group iomart is in a sector with huge commercial potential and could become a takeover target (325p).

Shares

A deal with China’s NetEase to produce a new mobile game could spark a re-evaluation of prospects at Codemasters (180.5p). News of robust festive trading reaffirms our buy call on well-managed Next (4,865p). UK stocks are trading at a discount to global peers.

The Times

ASOS’s December profit warning was a reminder that even online retailers are not immune from the high street’s woes. The company “will surely be back in fashion again, but it might be better to wait until next season” to buy in (2,853p). Long-term investors in plastic and fibre products maker Essentra should be rewarded as management delivers a turnaround (373.25p). Balfour Beatty boasts a healthier balance sheet than many of its peers, but investors should steer clear of the troubled construction sector (265.75p). A share-price correction at Abcam, one of Britain’s top biotech groups, presents an opportunity to buy a specialist business at a reasonable price (1,203p).


A German view

Denmark’s general insurer Tryg, the country’s top non-life insurer, is extending its reach into the Scandinavian market, says WirtschaftsWoche. The group’s offerings include pet, car, travel and home insurance; it also sells insurance to companies large and small. It has just scooped up a Danish rival, while an agreement with Danske Bank will provide access to over three million clients. Tryg is especially good at managing risk, as demonstrated by a combined ratio (the ratio of payouts to premiums) of 84%. Premiums reached €1.83bn in the first nine months of 2018. The insurer has ample capital reserves and boasts a 4% dividend yield.


IPO watch

Messaging app Slack, a corporate version of WhatsApp, is set to emulate Spotify and go public through a so-called direct listing. Normally investment banks underwrite an initial public offering (IPO), setting the price of a block of shares and buying or selling shortly after the market debut to ensure the price isn’t too volatile. Slack, however, will save money on investment banking fees by offering stock directly to investors, letting it trade freely when the market opens. Refusing an IPO means it won’t raise capital through going public, but it has already raised large sums in private financing rounds. The five-year-old company is worth around $7bn.

 

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