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
The Sunday Telegraph
DWF became the latest law firm to “brave the public markets” in March, one of a steady trickle opting to trade “the protections of partnership for the chance to grow”. The largest division of the company is commercial services – the client list includes Barclays and Uber – while a “connected services arm” that offers legal software and consulting looks promising. A “people” business such as this always risks seeing key assets walk out of the door, but DWF has the scale and experience to prosper. It looks reasonably priced on 18 times forecast earnings. 119.75p
This FTSE-250 potash miner is developing a prospect deep under the North York Moors. In 2016 the group raised $1.2bn to fund the construction of the 1,500m-deep mine and a 23-mile transport tunnel. It is now finding a further $3.8bn as the project reaches a “pivotal stage”. Potash is a vital component of agricultural fertilisers and growing global populations mean huge demand, although extraction is not scheduled to begin until the 2021. This is “a gamble” but the shares look very cheap. 14p
The Mail on Sunday
Once considered dull, the logistics industry has been turned on its head by the rise of e-commerce. That has stoked demand for so-called “last mile” warehouses: smaller, local spaces that play a vital role in the supply chain. This real-estate business carefully chooses sites that are optimally located and screens tenants for financial strength. That strategy underpins a appealing 5.5% dividend yield. 123p
Three to sell
Lloyds Banking Group
The next 18 months are expected to bring a significant recovery in profits and a large share-repurchase programme. Yet Lloyds is the most exposed of all high street banks to UK consumer and business sentiment and a small change in forecasts of non-performing loans could tank the share price. There are also significant headwinds for the core business as the “grim” housing market outlook and heightened regulatory scrutiny – the Bank of England is watching mortgage markets “like a hawk” – threaten profitability. Avoid. 57p
Marks & Spencer
This high-street stalwart has had a tough few years. Management has responded with store closures and cuts to investment levels. The strategy has driven down debt but failed to reverse falling like-for-like sales, a particular problem for a business whose estate of 1,487 stores means high fixed costs. The partial acquisition of Ocado’s UK retail operation does not give M&S ownership of the online retailer’s technology, which is where many think the real value lies. 210p
This science consultancy business offers international clients support with research and development, product development and regulation. The shares have soared over the past six years, while the fee-based model has been a good way to bet on innovation in an industry with a high failure rate. However, a strategic review means that it will now focus on acquiring struggling businesses and turning them around, a riskier bet. Sell. 201p.
…and the rest
The Daily Telegraph
Brewer-to-pubs and hotel operator Marston’s has a sensible plan to boost cash generation and on a forecast price/earnings (p/e) ratio of eight the potential downside for the stock looks limited (114.75p).
Commercial property specialist Helical is trading on a 29% discount to forecast net asset value (NAV) despite solid rental growth and takeover interest – buy (367p). Vehicle tracking and data analysis business Quartix is signing up new clients, has high levels of recurring revenue and offers a 4.1% forward dividend yield (286p). A turnaround plan at outsourcer Capita has so far left the market unconvinced because of contract losses and high debt levels. Sell (107p).
Shares in Royal Mail have slumped 69% in the past year, but the growing UK parcels business and a 7.6% dividend yield make this a contrarian buy (198p). IT business Kainos’s role in advising companies and the government puts it at the forefront of the “digital transformation” (648p). Tough comparisons with last year have weighed on Tesco’s recent performance but grocery sales are still growing and it remains the “undisputed market leader” (226p).
A 75% rally has made the market take notice of Asia-Pacific-focused oil and gas producer Jadestone Energy and plans to double production have brokers tipping more upside to come (58p). Those willing to look past Premier Oil’s $2.3bn in net debts will find a business where rising production and a higher oil price make for an auspicious outlook (74.5p). Newly listed ticketing app Trainline is well-run but too expensive – steer clear (410p).
A Swiss view
Freedom Foods has nothing to do with the spat between America and France over freedom fries, says Finanz und Wirtschaft. The Australian company specialises in food that is free from preservatives and artificial ingredients. A health-food pioneer, it started off in the 1990s with soy and rice milk; it has gradually expanded its range to include gluten-free cereals and protein supplements. It has distribution contracts with major supermarkets and is growing rapidly in China. Investments in production capacity will help it make more of its own brands, which are higher-margin than the food it makes for others. Deutsche Bank expects sales to grow by 30% in three years.
Finally, a fast-growing company coming to market that isn’t in the technology sector. Late last week shares in RealReal, the leader in online consignment sales of second-hand luxury goods, bounced by more than 40% as it made its debut in New York. The group’s shares were priced at $20 and it raised $300m, implying a valuation of $1.65bn. RealReal’s sales jumped by 49% to $69m in the year to April but it made a loss of $23.2m. The company’s prospects look promising as it benefits not only from thrift but a growing feeling among Millennials and Generation Z that second-hand shopping is environmentally responsible, notes Marketwatch.