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

Centamin

The Sunday Times

Shares in this Egypt-focused gold miner have tumbled over the past year as production has disappointed. But there are now signs of improvement: output was up 17% over the previous quarter during the final three months of 2018. With an undemanding forward price/earnings (p/e) multiple of 10.9, those with an “appetite for risk” could “dig for treasure”. “There’s no better… shelter” from today’s “barrage” of global shocks than gold. 118.4p

GlaxoSmithKline

The Daily Telegraph

Plans announced in December for Glaxo to merge its consumer healthcare division with America’s Pfizer have transformed the investment case for this pharmaceutical giant. The creation of the new consumer entity, which will be demerged within three years, will enable the pharmaceutical operation to clear debts and invest in vital research and development. The spin-off will also end a conglomerate discount that saw the whole valued at less than the sum of the parts. “Glaxo is still regarded as AstraZeneca’s poor relation,” but this could be the start of the fightback. 1,452p

Nanoco Group

The Mail on Sunday

This Manchester-based tech business develops nanomaterials that can display colours more accurately on phone and tablet screens while also improving battery life. The technology also has applications in cutting-edge fields such as driverless cars and cancer treatment. The challenge for this small, loss-making business is to commercialise its knowledge “before running out of money”, but partnerships with more than 20 large firms increase the odds of success and it has cash in the bank. “A buy for the plucky investor.” 44p


Three to sell

Aggreko

Investors Chronicle

Management at this power-generation equipment rental group has spent recent years grappling with falling margins and a rising number of debtors who have yet to pay invoices. We think that the downtrend could be more “deeply entrenched” than the market appreciates. A large fixed-cost base makes returns very sensitive to fluctuations in the economic cycle. A deteriorating global economic outlook and growing competition from generalist equipment rental companies make the shares look overvalued on 14 times forecast earnings. 717p

HSBC

Shares

HSBC may call itself the “world’s local bank”, but Hong Kong alone accounts for one-third of revenue. The brand’s strong position in the Far East promises long-term upside but leaves HSBC heavily exposed to China’s slowdown in the meantime. Overall performance is dragged down by low-margin and underperforming operations in investment banking, UK mortgages and the US. Don’t be tempted by the 6% dividend yield: given the risks, this stock is a value trap. 650.61p

TalkTalk Telecom

Motley Fool UK

This broadband provider added 44,000 customers in its third quarter, while total headline revenue in the three months to December rose 2.9% to £386m. Still, the money made from each customer fell 2% and the balance sheet is also a worry. At the half-year point the mid-cap had £800m in net debt, equivalent to almost two-thirds of its overall market capitalisation. A 2.4% forecast dividend yield “isn’t exactly attention-grabbing”.103p


…and the rest

The Daily Telegraph

Buy Johnson Matthey: the group’s catalytic converter business continues to benefit from strong overseas demand for diesel trucks, while the electric-vehicle battery operation is cutting edge (3,045p). Bad news from Metro Bank has hit confidence in challenger peer OneSavings Bank, yet the latter offers a 3.7% dividend yield and trades at a much more reasonable price (386.2p). Cineworld’s £2.7bn purchase of Regal Entertainment has opened new growth opportunities in America, but the acquisition has also raised debt levels and the cinema business faces a long-term threat from digitally streamed content. Sell (266p).

Investors Chronicle

The asset management industry is consolidating, opening up new opportunities for fast-growing specialist consultancy Alpha Financial Markets Consulting (234p). The UK equity rout has created a buying opportunity at Hotel Chocolat – the retailer is opening new stores in the UK and plans to enter the US and Japan (305p).

Shares

Private-equity investment trust ICG Enterprise’s portfolio is focused on defensive health and education businesses and is trading at a big discount to net asset value (NAV) (811p). “Outstanding” summer trading and a strong Christmas performance only bolsters the case for buying premium drinks producer Fevertree as it expands in the US and Europe (2,601p).

The Times

A weak UK car market has hit shares in vehicle distributor Inchcape, but the market has yet to fully appreciate the group’s “highly cash-generative” business model (573p). Soft drinks bottler Coca-Cola Hellenic Bottling Company is growing at a double-digit rate in central Europe and looks undervalued relative to peers (2,508p).


A German view

Adidas is a rare bright spot among German blue-chips, says Der Aktionär. The sports-equipment manufacturer is benefiting from a structural increase in demand as more people try to remain fit and healthy. Research group MarketsandMarkets estimates that the global market for sports equipment will be worth $3.75bn in 2021, compared with $2.73bn in 2015. A marketing campaign with rapper Kanye West, who designs limited-edition trainers, has proved inspired, while Adidas has also been able to tap into the shift away from virgin plastic by incorporating ocean plastic into its trainers. The stock looks good value on a price-to-sales ratio of just 1.5, as opposed to Nike’s 2.3.


IPO watch

Jeans manufacturer Levi Strauss & Co. is set to launch an initial public offering (IPO) this year, says Amelia Lucas on CNBC It is aiming to raise $600m-$800m and reach a valuation of more than $5bn. The market for denim is healthy: Levi Strauss announced sales of $1.39bn for the three months to September, a 10% rise on the previous year. It won’t have the stockmarket to itself, however. VF Corp, which owns rival jeans brands Lee and Wrangler, plans to spin off its denim labels into a new company called Kontoor Brands. That flotation was to take place in March 2019 but the paperwork at the Securities and Exchange Commission was delayed by the US government shutdown.

 

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