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
Alliance’s “asset-light” business model, whereby it owns the product licences for over 90 pharmaceutical and healthcare products, but outsources the “capital intensive” activities such as manufacturing and logistics, is unique. It also makes the company “very cash generative”. Sales and profits have grown by 21% a year over the last five years. That makes the shares, on just 13.4 times next year’s earnings, “too cheap”. Buy. 71.6p
This tool-hire firm has weathered the collapse of Carillion and the “dark days of 2015” that saw two profit warnings, and is now in better shape than its competitors. It has invested in predictive analytics and artificial intelligence in order to allocate equipment around its network of depots more efficiently, which has driven up its utilisation rate and its return on capital employed. Wider construction weakness and the “huge potential bear point” that is Brexit make it a risky play. But with the shares losing ground recently, now may prove “a good time to buy into a long-term recovery story”. Buy. 50.6p
Cybersecurity firm NCC has done well since being spun out of the state-owned National Computing Centre 20 years ago. But it has had “more lows than highs” recently, including a profit warning in January. However, the staffing problems it encountered, caused by a shortage of skilled IT workers, are now largely solved, while underlying sales are growing and debt is falling. The stock is cheaper than its peers. It’s “worth tucking away”. 179.2p
Three to sell
Patient Capital Trust
The Daily Telegraph
We have “run out of patience” with Patient Capital. The 34.3% discount to net asset value (NAV) appears enticing, but as the trust owns mostly immature unlisted assets, gauging their value is difficult and so the discount is “more art than science”; note that the value of several companies has been written down recently. Meanwhile, Neil Woodford has now simply made too many mistakes for this mess to be dismissed as “a run of poor form”. His £1m sale of his own shares in July hardly helps matters. Investors should cut their losses and get out. 43p
It looks as though Restaurant Group may have “bitten off more than it can chew” by buying Wagamama. The chain provides a “sprinkle of pan-Asian magic” to counterbalance tired leisure-centre-based brands such as Chiquito and Frankie & Benny’s. But net debt has soared sixfold from £25.7m to £317m to finance the purchase. And this burden “gives limited wigggle-room” now that higher costs and increasingly rattled consumers have become major “sources of uncertainty”. Sell. 140p
This former provider of translation services for software firms has moved into the video-games market. It is expanding rapidly through both organic growth and six or seven takeovers of start-up games services companies a year. It has “embedded itself” with the top developers, such as Sega, Activision and Nintendo. Nonetheless, a “racy tech-market rating” of 29.8 times forecast earnings is simply too high. Avoid. 1,195p
…and the rest
Serviced office group IWG is embracing a franchising model that should free up plenty of cash for shareholders. Buy (409.3p). Car-fuel systems manufacturer TI Fluid Systems is in pole position to deliver a greener future. “The shares remain too cheap and don’t reflect the quality of the business.” (195.6p).
Gamma Communications, a provider of voice, data and mobile services for companies, thrives on the “anytime, anywhere” work culture. Its UK business “is running smoothly” and it is set for further growth – buy (1,085p). Gift cards and stationary maker IG Design has bought its way into the US market. Past performance suggests it should succeed there (604p).
Johnson Matthey, the leader in catalytic converters, has made “big strides” thanks to demands for cleaner air. Its battery business, eLNO, could be a gamechanger for electric cars too (2,830p). Medical equipment-maker ConvaTec was relegated to the FTSE 250 when its share price deteriorated. A turnaround programme has since set it on the road to recovery (176p).
The Daily Telegraph
There is still work to be done at AG Barr, which makes soft drinks including Irn Bru. But interim results suggest July’s profit warning may have been a “blip”. Buy (579p). Sales of printed books are falling faster than expected,while publisher Pearson is struggling to make up the lost ground in digital sales. Avoid (738p). Sliding house prices have hit ULS Technology, which supplies software platforms to businesses involved in the property market. Hold (44.1p).
A German view
France’s aerospace and defence group Safran is one of the companies affected by the grounding of Boeing’s 737 Max planes, says WirtschaftsWoche. But the company, whose products range from aircraft engines and interiors to missile-propulsion systems, also supplies Boeing’s rival Airbus, so it is guaranteed to profit from the secular growth of the global aviation market. Its high-tech systems will help it exploit the rising demand for quiet and energy-efficient engines, while a recent takeover will bolster its sales of aircraft cabins and cockpit equipment. Safran will also be involved in the construction of a Franco-German fighter jet. It’s “a long-term bet on Europe’s aviation and defence technology”.
Another company has managed to raise more than $1bn through an initial public offering (IPO) in Hong Kong despite the torrid political backdrop. Following last month’s $5bn listing of the Asian unit of brewing giant Anheuser-Busch, Chinese sportswear group Topsports International has priced 930 million shares at $1.08, near the lower end of the previously indicated range, note Daniel Shane and Hudson Lockett in the Financial Times. With over 8,300 shops and 16% of the market, Topsports is the top sportswear retailer in China. It stocks brands including Adidas and Nike. Sales jumped by 22% to $4.5bn in the year to March 2019 while profits grew by a fifth to $ 300m.