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 Times
HSBC’s cost-cutting drive could prove bad news for this Aim-listed IT services business, which trains and contracts out tech experts to blue-chip firms. The bank is one of FDM’s biggest customers. Brexit fog has caused the shares to slump 26% since May and the uncertainty is not over yet. Still, FDM has proven its resilience through previous slumps, with the relatively cheap rates it charges customers keeping it competitive. The digital transformation still has a long way to run, so the firm “should be a winning bet”. 756p
The high-profile sacking of CEO Steve Easterbrook this month generated headlines, but a promising growth strategy should continue without him. The golden arches are among the world’s most widely-recognised symbols, testament to the group’s unrivalled brand power. Restaurants have been refurbished and the business is investing in technology and data analytics to drive future growth. The dividend has risen for 42 years in a row. $197
The Sunday Telegraph
Private equity group Draper Esprit’s £683m portfolio includes microchip maker Graphcore, analytics provider RavenPack and review site Trustpilot. These businesses are growing fast but the shares have slipped since the summer following the Neil Woodford implosion, which has raised questions about the liquidity of stakes in private firms. Yet Draper is a long way from a cash crunch and costs just 4.2 times this year’s earnings. 469p
Three to sell
BT’s dividend yield poses a quandary. At 7.9% it is “sorely tempting”, but also high enough to raise questions about whether it is vulnerable to a cut. Many shareholders bought in at the time of the Thatcher-era privatisation and regard the dividend as “sacrosanct”. Yet an £11.3bn pensions shortfall and sluggish growth bode ill. Heavy investment in new broadband fibre will also depress profit growth. BT is a “highly uncertain investment… probably best avoided” by income seekers. 194p
Shares in this vehicle replacement specialist are down by more than a third this year and we don’t expect shareholders to find any respite soon. Slow payments from insurance firms, who pick up the tab for the group’s hire cars and repair services, is a growing problem but management will struggle to negotiate a better arrangement with its powerful clients. New UK competitors should also keep up the pressure on the group’s margins. Sell a business stuck in “reverse gear”. 112p
Lloyds Banking Group
The Daily Telegraph
A £238m after-tax loss for the third quarter at Lloyds grabbed the headlines, but some of the underlying trends are even more worrisome. Key measures of profitability and impairment charges for bad loans are moving in the wrong direction, while “lower for longer” interest rates are a structural obstacle to any real recovery. The dividend looks safe for now, but it cannot keep rising for ever if profits are shrinking. It’s time to dismount from the black horse. Sell. 57p
…and the rest
The Daily Telegraph
French software business Dassault Systèmes uses intelligent software that vastly speeds up the processes of design and testing for its car and aerospace clients. That puts it “at the forefront of the next industrial revolution” and comes with “robust growth prospects”. Buy (€136).
Smaller homes, a more mobile population and ever more stuff mean that demand will only grow for self-storage, so buy into Lok’n Store’s ambitious expansion plans (574p). A forward price/earnings ratio of 16.4 is inexpensive for a business with the growth prospects and stature of this IT reseller Computacenter (1,367p). A good year-end trading update has confirmed our view of media firm Euromoney as a high-quality business operating in an industry with significant barriers to entry – keep buying (1,378p). Don’t be discouraged by a profit warning from chemicals firm Synthomer. The long-term fundamentals are encouraging and it is outperforming peers (287p).
Spirax-Sarco Engineering is making strides in a difficult market environment thanks to its niche product offering, which includes steam control systems – a “top-quality play” (8,080p). Hazardous waste handling is an unglamorous business, but it spells opportunity for Augean. On nine-times forecast earnings, risk-tolerant investors may be able to “clean up” (158p).
FTSE 250 publisher Future has taken sensible steps to deal with a changing media landscape, but on 31.7-times forecast earnings, the shares look “a little pricey” – avoid (1,418p).
An American view
Oshkosh is “poised to give investors a lift”, says Leslie P. Norton in Barron’s. The group’s offerings include construction equipment such as scissor lifts and other aerial platforms – these comprise around 50% of sales – military utility and combat vehicles, and fire engines. Oshkosh’s platforms and lifts are very popular in China now that the government is clamping down on traditional bamboo scaffolding and insisting on better workplace-safety practices. Sales of military vehicles have risen in America and European countries are showing an interest too. Oshkosh boasts a 23% return on equity, compared to 16% for the S&P 500 as a whole. The stock is on just 11 times forward earnings.
Française des Jeux (FDJ), France’s state-owned lottery operator, is about to embark on an initial public offering (IPO) in Paris. FDJ’s shares will be priced between €16.50 and €19.90, valuing the company between €3.15bn and €3.8bn. It is selling a 52% stake, which will fetch between €1.23 and €1.73bn for the government. French finance minister Bruno Le Maire said the state, which currently holds 72% of FDJ, will retain a 20% stake, allowing it to influence governance and strategic choices. “The privatisation of companies such as… FDJ is integral to President Emmanuel Macron’s plans to raise funds for innovation projects and boost the overall economy,” says Reuters.