Three to buy
B&M European Value Retail
(The Sunday Telegraph) “Sluggish pre-Christmas trading” is a distant memory for this discount chain, which remains open as 70% of its range is designated as essential items. Business is hardly booming amid the lockdown, but the company is better placed than rivals to “bounce back” later in the year, thanks to the continuing physical presence of its shops. Brave investors will find the group’s combination of a solid balance sheet, “good management and momentum” make it worth “putting in your basket”. 300p
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(Shares) If the coronavirus really does “change the workplace forever” then businesses will need even more of the IT services that Microsoft provides. Most promising are cloud services, which generated $16.1bn in profit in 2019 and are its fastest-growing division. The global cloud-computing market is forecast to grow at an annual rate of 17% until 2026. On 26 times earnings the valuation is vulnerable to future disappointments. But resilient cash flow, auspicious growth prospects and a “fortress-like balance sheet” mean that we see upside. Buy. $165
(The Mail on Sunday) This family business specialises in sophisticated LED lighting. Sensor-driven lights in warehouses save energy and cut bills, while the firm’s hospital and emergency exit lights comply with strict safety regulations. Sales have grown by an average of 8% per year over the past 19 years and the dividend has grown by more than 50% over the past five years. The group has no debt and about £50m in cash, which is “highly reassuring”. 287p
Three to sell
(Investors Chronicle) This sub-prime lender looks cheap, but a 20% forward dividend yield is a red flag that all is not well. The group specialises in unsecured loans, high-interest credit cards and car finance for those who struggle to secure mainstream credit. The unfolding economic catastrophe means that loan impairments are set to spike while demand for new loans vanishes. Social distancing also poses challenges for the group’s face-to-face debt collection operations. This is all a recipe for a nasty denouement. Sell. 161p
(The Times) Shares in this biotechnology group are up by almost 1,270% since January amid hopes that its high-speed coronavirus diagnostic kits could prove a game changer. The kits have received fast-track approval and are being sold to more than 80 countries. Novacyt’s newfound prominence will also help it raise capital for its existing oncology screening technologies. There is “huge potential” here, but with no earnings per share or dividend the current valuation is “built on optimism and not profits”, so avoid the bandwagon. 215p
(Motley Fool UK) This London-focused real estate investment trust yields an attractive 4.5%. Yet income-seekers should steer clear. With the economy sinking, demand for office and industrial sites has further to fall and current earnings projections look overly optimistic. The group recently disclosed that half of rents due at the end of March had not been paid. What’s more, on 18.2 times 2020 earnings the shares aren’t even cheap. Avoid. 827p
...and the rest
The Daily Telegraph
Vimto-owner Nichols has become the latest firm to scrap its dividend, but strong brands and an “asset-light” business model leave it well placed to weather the storm. Hold (1,150p). The Schroder UK Mid Cap investment trust offers a way to gain exposure to the potentially superior returns of the best of the mid caps, which are the “footsie stocks of the future” (440p).
Shares in disinfectant specialist Tristel are up to a heady 35 times forecast earnings, but a strong financial record gives us confidence – buy (425p). Tanzania-focused miner Shanta Gold cut net debt by more than half last year and stands to gain from the strengthening case for the yellow metal. Buy (9.5p). Defence engineer Ultra Electronics is well placed in high-priority areas such as anti-submarine warfare and cybersecurity and operates in a sector where demand is largely unaffected by Covid-19. “Go defensive” and buy (1,898p).
The Mail on Sunday
Locked down Britons are snacking more and cleaning more, which is good news for natural ingredients and flavourings business Treatt: its products are used in both food and soap. The firm has never missed a dividend and is better placed than most to maintain that record. It’s a “strong hold” (496p).
GlaxoSmithKline is a top-tier player in respiratory and HIV-treatment markets and the spin-off of its consumer healthcare operations should add value. It’s an attractive defensive play (1,515p). Paper and packaging group DS Smith is locked into the structural growth of e-commerce and looks cheap on nine times forecast earnings. Buy (292p).
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