Three to buy
Dunelm
(Investors Chronicle) Dunelm operates a UK-wide network of 171 superstores selling home furnishings. The firm went through a difficult period after struggling to digest its 2016 acquisition of online retailer Worldstores, but is now “firmly back on the front foot”. The online business is growing rapidly and the successful rollout of a new digital platform is particularly encouraging. Free cash flow and margins are improving and talk of a post-election bounce in consumer confidence should also provide a boost. 1,082p
Travis Perkins
(The Sunday Telegraph) This builders’ merchant has a “do-it-yourself” plan: management has sold its wholesale heating and plumbing business for £46m and also plans to dispose of DIY chain Wickes. That would make it less dependent on the cyclical retail trade and give it more space to invest in strongly performing divisions such as Toolstation, which is “snapping at the heels” of Screwfix. Changes to stamp duty, along with a brighter outlook for housing, should also provide tailwinds. “There is more to gain from this renovation”. 1,661p
Harworth Group
(The Mail on Sunday) This property developer specialises in regenerating old industrial sites. Spun out of UK Coal, Harworth turns its locations, often former coal mines, into places where people want to live and work. The group is well managed, boasts sound finances and has a strong portfolio. The new government’s pledge to step up northern investment bodes well. The shares have doubled since 2015, but there should be plenty more to come. 154p
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Three to sell
AO World
(The Times) The “hype has long gone” from this white-goods internet retailer. It was once valued at £1.8bn, but operational problems in its continental divisions and weaker consumer spending have cut that figure to £411m. A turnaround plan involves revamping product lines and the German unit. That may eventually bear fruit, but profitability is still at least two years away and in the meantime the shares pay no dividend. A forward price/earnings ratio of 17 is too high. Avoid. 86p
Joules
(Shares) Our bullish call on this premium British clothing company hasn’t worked out. The shares have slid by more than 30% over the past year after a bad Christmas trading update came with a warning that full-year pre-tax profit will be “significantly below market expectations”. The group says that it was unable to satisfy strong Christmas shopping demand because of an “internally generated stock availability issue”. While the underlying brand appears strong, this apparently “self-inflicted” problem does not inspire confidence. Sell. 170p
Reach
(Shares) Shares in this media publisher, formerly Trinity Mirror Group, have risen by a staggering 45% since December. The market realised that negative sentiment towards traditional publishing had gone too far. Reach’s transition towards more digital operations provided a further attraction. The shares are still cheap, but further upside will require more good news on the fundamentals. “Lock in” a spectacular profit “while the going is good”. 143p
...and the rest
The Daily Telegraph
Ten-pin bowling is a “perennially popular form of family entertainment” and Ten Entertainment, the second-biggest UK market player, seems a reliable income pick (310p). US-focused plumbing-supplies business Ferguson has bounced back from adversity to become a resilient operator with “very strong management” (7,216p).
Investors Chronicle
Industrial businesses are increasingly looking to digitise their operations, presenting a big growth opportunity for IT play AVEVA (4,772p). High-growth European tech firms are often overlooked by global private equity, but that opens a promising niche for venture capitalist Draper Esprit (490p).
Shares
From electronics in cars to e-commerce to cloud computing, technology is transforming the way we live. This is an exciting, but also expensive and complex sector where there is a case for professional help, so take a look at Allianz Technology Trust (1,789p). Shares in fantasy miniatures business Games Workshop are making new highs, but its valuable intellectual property should continue to drive strong returns. Keep buying (6,970p). Supermarket Wm Morrison faces a tough competitive landscape, but the balance sheet is in order (192p).
The Times
Avoid Hikma Pharmaceuticals: this year “will be no blowout” and on a dividend yield of 1.52% the price looks elevated given the risks (1,975p). Specialist chemicals group Croda International is an impressive FTSE 100 performer and its life-sciences division is another promising source of growth – hold (5,060p).
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