Three to buy
AG Barr
(Shares) The company behind Irn-Bru (Scotland’s favourite soft drink) has been hit by bar and restaurant closures but stands to gain when the recovery eventually comes. Its portfolio of well-known brands, which also include Strathmore water and Funkin cocktails, is a significant asset that commands customers’ loyalty. Prudent management has suspended the dividend, which may not return for several years. Thanks to its careful cash management, AG Barr should have enough liquidity even if lockdowns last into next year, making this a resilient, quality stock. 500p
Calisen Group
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(The Sunday Telegraph) This smart-metering business was floated earlier this year by private equity group KKR at a £1.3bn valuation. The market crash has since knocked a quarter off the share price, presenting a buying opportunity for investors seeking a defensive business. Calisen boasts 8.5 million meters and is contracted to install 6.4 million more. Credit Suisse analysts say that future rates of return should outstrip those of the regulated utilities that Calisen resembles. Net debt of £1.4bn is one area of concern, but predictable growth means that this is a stock worth buying for the long term. 190p
Smith & Nephew
(The Mail on Sunday) Covid-19 is not lifting all healthcare boats. The cancellation of non-urgent surgeries has hit Smith & Nephew, which makes hip replacement and post-operative wound care products. But in the long term, demand for its services will grow thanks to an ageing population. A strong balance sheet bodes well and the share-price weakness could prove a buying opportunity for a stock that is usually dull and defensive. 1,658p
Three to sell
Applegreen
(The Sunday Times) This petrol forecourt operator serves motorists in Ireland, the UK and North America. The 2018 acquisition of Welcome Break for €321m considerably increased debt levels but management thought that higher petrol revenue and growing demand for convenience food would solve that problem in time. But motorway traffic volumes have fallen to 40% below normal thanks to the pandemic, forcing the group to cancel the dividend and request rent holidays. Caught between absent motorists, heavy debt and unpaid landlords, it may be only a matter of time before Applegreen is forced to tap investors for new funds. Stay away from this stock. 278p
BT Group
(Motley Fool UK) An 18-month dividend suspension is more bad news for long suffering shareholders. Mobile and broadband services are more essential than ever, and BT boasts respectable profit margins and decent cashflow. Yet profits are being eaten up by new network investments, while debt and pension deficits also need servicing. On a price/earnings ratio of five the shares are cheap. Yet value investors should look elsewhere. 105p
Compass
(The Times) The world’s largest caterer usually serves 5.5 billion meals per year, but it has been hit hard by the cancellation of large gatherings. Half of its usual markets are closed. Even the end of lockdowns brings little hope as social-distancing measures will remain in place for some time to come. The longer-term outlook is also foggy – “fewer jobs will mean fewer lunches”. On 15 times earnings the shares are too expensive. Avoid. 1,299p
...and the rest
The Daily Telegraph
Symrise, which makes the flavourings used in plant-based protein, offers exposure to the boom in imitation meat (€92). Cybersecurity business GB Group is richly valued but the outlook is positive. Hold (648p).
Investors Chronicle
Prudential’s $9.5bn mountain of surplus capital gives it vital strategic flexibility in growing Asian markets and the dividend, yielding 3%, looks well-covered. Buy (1,129p). Internet domain name registry CentralNic is likely to receive a boost as more work moves online and the firm is positioned to buy up smaller rivals (90p). If InterContinental Hotels returns to its pre-crisis performance once the epidemic is over then the current rating will prove a bargain (3,608p).
The Mail on Sunday
Packaging specialist Mpac has exchanged tobacco for asthma inhalers and is inexpensive on a price/earnings ratio of six. One to tuck away (255p).
Shares
Royal Dutch Shell has “ripped off the band aid” of a dividend cut and should reap the rewards in the form of a more solid balance sheet and greater investment. A good way to bet on an eventual oil price recovery. Buy (1,272p). Hotel Chocolat shares are not looking so sweet after falling by almost a quarter this year but the long-term growth outlook is auspicious. Buy (323p).
The Times
Fizzy drinks bottler Coca-Cola HBC is reasonably priced on 15 times earnings and should bounce back with the recovery (1,897p). Stockbroker and investment manager AJ Bell is not cheap but the firm is “going places” – buy (396p).
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