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
This Czech Republic-based technology security provider already protects 435 million people worldwide, with a focus on desktop users. Messaging app WhatsApp recently became the latest “big-name brand” to fall victim to hackers, so there is growing opportunity in the smartphone sector as well as scope to “upsell” premium services to existing users. On 13 times 2019 earnings, the stock is on a 40% discount to FTSE 250 peer Sophos. 298.75p
Paragon Banking Group
The Sunday Times
“What a time to be a banker.” Low interest rates, tougher regulation and rising competition are “squeezing profit margins on all sides”. Yet Paragon, a “challenger” bank, is managing to grow its lending book and net interest margin nonetheless. Almost 90% of new mortgages go to professional buy-to-let investors, a niche clientele more profitable than traditional mortgage customers. Paragon may prove an “attractive” takeover target in a consolidating sector. 462.75p
Lloyds Banking Group
The Mail on Sunday
This banking behemoth may offer its customers low interest rates and branch closures, but the investment case is more robust. Today’s bank is a “leaner and fitter” outfit than the one that helped nearly sink Britain’s economy during the financial crisis a decade ago. It is also a more “vanilla” savings and loans organisation than a risky investment banking-exposed peer such as Barclays. Recent performance has been “rock solid”, if unspectacular. A yield of 5.2% and good dividend growth make the shares “well worth a look”. 60p
Three to sell
A profit warning has driven the shares down to just 0.9 times forecast book value, but that doesn’t make Galliford Try a bargain. This housebuilding, regeneration and construction business has been hit by project deferrals and higher-than-expected contract costs, piling the pressure onto “wafer-thin” construction margins. A slowing housing market in London and the South East also bodes ill for the housebuilding operation. 556.5p
The Daily Telegraph
Uber’s “rocky start” as a public company means it is looking for a growth story to serve up to investors. Any decision to bolster its food-delivery operation, Uber Eats, poses a real competitive threat to Just Eat, whose software currently serves 26 million hungry customers “from Canada to Brazil”. Competition is intensifying globally, putting “chunky” underlying profit margins – currently 49% in Britain – under pressure. Slowing order growth makes the price/earnings ratio of 26 look “heady”. 622p
The cheap rides at Uber may be “coming to an end”. The firm, which reported a “stunning” $3bn operating loss for 2018, does not have many options if it hopes to become profitable one day. Price rises would reduce passenger numbers and erode competitiveness against taxis, while reducing drivers’ pay amid worsening labour relations – Uber drivers recently called a global strike – would aggravate problems with staff turnover. Bulls point to a shift to driverless vehicles, but the technology is still at an early stage. $38.83
…and the rest
The Daily Telegraph
The demise of its merger plans with Asda has triggered a fall in J Sainsbury’s share price, but although it now looks cheap, the debacle leaves it without a strategy and could prompt turmoil in the boardroom – avoid (207p).
A £450m government investment in IT for GPs could prove a growth catalyst for healthcare software provider EMIS (1,144p). Games Workshop caters to fans of fantasy worlds, but repeated earnings upgrades and a 3.5% forward dividend yield make this an investment case “firmly rooted in reality” (4,032p). Specialist recruitment group Robert Walters is well-placed to benefit as ageing populations and technological change spark a global “war for talent” in coming decades (582p).
North America-focused trust Pershing Square offers exposure to a portfolio of excellent businesses at a 26.7% discount to net asset value (1,336p). In a “battered” holiday market, online retailer On The Beach has “stormed ahead of its competition” with a 41% jump in revenue in the six months to the end of March (438p).
Insurer Admiral is a “class act”, but rising costs and claims inflation make for “choppy seas” ahead – avoid (2,120p). Buy office provider Workspace on weakness: it is a “highly profitable business” with a more flexible lease model that appeals to modern businesses (960p). The risks are high, but Uber is “streets ahead” of the competition – a “worthy wager” ($41.29). Shares in “efficient” miner Anglo American look reasonable on 8.4 times earnings (1,910p). Wealth manager Quilter is well-positioned in a consolidating market (142.25p).
An American view
US hospitals “have switched en masse from paper to digital records” in the past ten years, says Avi Salzman in Barron’s. That was excellent news for Cerner, one of the health IT firms that installed and maintained these systems, and the stock continues to look promising. It should now profit from a new shift. Medics have hitherto billed on a so-called “fee for service” basis, but the government increasingly wants to pay based on outcomes: hospitals have to prove that they are improving people’s lives. Cerner’s “population health management” system helps hospitals track patients’ behaviour and thus improve their long-term health. The group has just started paying a dividend.
Finablr has made a lacklustre debut on the London Stock Exchange. The Dubai-based payments and foreign-exchange platform, whose brands include Travelex Holdings, UAE Exchange and Xpress Money, was priced at 175p for its initial public offering (IPO), but promptly slipped below 160p. It had already had to trim its price from the 210p-260p range previously indicated. “Investors may have had their fill of fintech flotations in skittish global markets,” say Clara Denina and Abhinav Ramnarayan on Reuters. Finablr’s debut followed Nexi and Network International; the latter is another payments group based in the United Arab Emirates. It floated in London in April.