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
This construction-services business operates in a sector that remains on “shaky ground”. The woes of Carillion, Kier, and Interserve have prompted tricky questions about thin margins and management practices in the contracting business. Yet cash flows at Morgan Sindall are healthy and higher full-year profit forecasts suggest that things are heading in the right direction. A growing order book shows that clients regard it as a reliable operator. On just eight times forecast earnings, “the stock should build further from here”. 1,188p
Pets at Home
The UK’s leading pet-care business sells products online and through its network of 452 physical stores. The £1.16bn business boasts a 23% market share in a “resilient niche” marked by high levels of repeat business. Management has responded to competition online and from discounters by investing in new products and offering price cuts. Recent gains in market share appear sustainable, while the group’s shares are still reasonably priced on 16.6 times earnings despite a recent rally. This is a business to “sink your teeth” into. 231p
The Daily Telegraph
They say you should never try to “catch a falling knife”. But contrarians will always be drawn to a good turnaround story. Two profit warnings and the exit of founder Ray Kelvin have seen shares in the fashion retailer sink from £31 18 months ago to less than £10 today. Yet this is still a business with a powerful brand, a strong online presence and limited debts. With the stock on ten times earnings there is value here for patient investors. 930p.
Three to sell
The Sunday Times
This Aim-listed company has ambitious plans to store gas in salt caverns in County Antrim. The “Islandmagee” project has been beset by problems over the last decade, with the share price crashing from 80p in 2009 to just 0.4p today. The venture will cost £300m, dwarfing InfraStrata’s current £6m valuation and leaving it in a weak negotiating position with clients, investors and banks. Management is eyeing up other projects, but with little prospect of returns for shareholders anytime soon this is one to avoid for all but the bravest investors. 0.4p
ASOS was one of the pioneers of UK online-fashion retail, but repeated profit warnings and slowing growth suggest that its glory days are over. Growing competition from the likes of Boohoo and N Brown have compressed margins, with ASOS blaming recent poor performance on “the high level of discounting” in the sector. Its fast-fashion model also relies on a “giddying” array of new product launches, which make it difficult to predict future performance. With shares trading on a vertiginous 41 times earnings and no dividend, it is time to sell. 2,380p
Gold’s rally to $1,500 has been a boon for gold and silver miners, but the rising tide has not lifted all boats. Shares in this Mexico-focused operator are down a fifth so far this year. The company has been beset by production problems and rising costs. With the shares on 34 times earnings there is better value on offer with industry peers. We suggest you take advantage of the current excitement over precious metals to rejig your holdings. Sell. 740p
…and the rest
Commercial property group St. Modwen Properties has been tilting its portfolio towards urban warehouses amid the e-commerce boom. Yet the stock, on a 17% discount to forecast 2019 net asset value, does not reflect its “balance-sheet strength” or growing diversification (411p). Ignore talk of electric vehicles: there should be robust demand for Johnson Matthey’s catalytic converters for the foreseeable future and it is also investing in battery technology (2,910p).
Shares in Secure Trust Bank are trading at rock-bottom multiples, but the business is “better quality and lower risk” than many of its banking peers. Buy (1,280p). Catering hire and laundry firm Johnson Service is a long-term growth story that remains under appreciated by retail investors – “boring is beautiful”, so buy (165p). Google-owner Alphabet is investing in everything from biotech to artificial intelligence and self-driving technology. With so many sources of future growth this is a solid long-term buy ($1,182.25).
The Daily Telegraph
Aim-listed Oxford Metrics has cornered the market in “motion capture”, a technology used to digitise human movement in everything from football video games and Nasa spacesuits to Hollywood. Growth is strong and it could become a takeover target – buy (86p).
IT services business FDM Group has been “overly punished” by uncertainty over Brexit and offers a 4.5% yield. “Buy on weakness” (767p). Heat treatment and metals specialist Bodycote is worryingly exposed to weak global industrial markets – avoid (705.5p).
A German view
Germany’s MorphoSys may soon become into a commercially-successful biotechnology firm, says WirtschaftsWoche. The group boasts more than 100 drugs in research and development, one of the broadest pipelines in the sector. Many are being produced in partnership with others. It hopes to launch its first drug on the US market by the end of the year: Tafasitamab, an antibody treatment for advanced lymphoma, a cancer of the blood; it augurs well that America’s Food and Drug Administration has deemed it a breakthrough. Heavy investment means MorphoSys will post a loss of €80m this year, but it can afford to thanks to a cash pile worth €400m. It’s “a speculative buy”.
A Czech lender to consumers with sketchy or non-existent credit histories is to become the first company to float in Hong Kong since Chinese internet giant Alibaba postponed its initial public offering (IPO) last month amid political upheaval. Prague-based Home Credit does business in ten countries and has a large Chinese division. It hopes to raise over $1bn. The IPO will be an important test of sentiment, note Julie Zhu and Jennifer Hughes on Reuters, especially as the last four months of the year are usually the busiest for flotations in the territory. Over the past decade, they have accounted for an average of 51% of the funds raised every year.