Two to buy
Vestas
(Investors Chronicle) Denmark’s Vestas has installed almost a fifth of the world’s wind-turbine capacity outside China. It is the world’s top supplier of onshore turbines. Government subsidies to the “green” economy have made wind power more popular, but increased competition has squeezed margins. That problem should subside this year, however, and “momentum is building in higher-margin servicing” post-installation. The company has been debt-free since 2013 and has over £1bn of net cash. A valuation of 26 times 2021 earnings is reasonable given the auspicious long-term outlook. 943kr
Pernod Ricard
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(The Times) France’s Pernod Ricard is the world’s second-biggest drinks group behind Diageo. Activist investor Elliott Advisors had been pressing it to merge with a large rival to improve operating margins, but CEO Alexandre Ricard – whose family hold 14.2% of shares and 20.1% of the voting rights – gave the idea “short shrift”. However, he is following a policy of “bolt-on acquisitions” and improving margins is part of his plan. Despite Covid-19 and a €999m writedown (largely due to Absolut Vodka, which relies on airport sales), it has increased its market share while profits have fallen less than expected. €142
Two to sell
J Sainsbury
(Investors Chronicle) The supermarket group had steadied the ship after the pricey failed merger with Asda, but the pandemic has brought new problems, notably a squeeze on margins amid a shift towards less profitable online sales and large potential losses at its bank. The balance sheet remains “stretched”. The shares are inexpensive, but the growing army of short-sellers is right to sense “a value trap”. 213p
FirstGroup
(The Times) “There is... no case for investing in a UK public transport stock.” This train and bus operator has not paid a dividend since 2013 and is struggling to cope with its debt load. And don’t count on matters improving. The sale of its US operations, first announced in March, will produce little money and Britain’s semi-privatised railway system looks likely to be scrapped. Bus systems need massive investment. Avoid. 50p
...and the rest
The Daily Telegraph
Aviva’s new CEO Amanda Blanc aims to reform the underperforming insurance giant. Its “decent digital capability” and strong balance sheet bode well. Covid-19-related claims may inflate premiums. Buy (274p). Cable-assemblies maker Volex “has put its house in order and profits have responded”. Hold (189p).
Investors Chronicle
Derwent London “was one of the few commercial property groups to increase its dividend in the wake of Covid-19”. A solid balance sheet allows it to shrug off “short-term pain on rent collection”. Buy (310p).
Shares
Inspecs, an Aim-listed eyewear-frame maker, offers an appealing “growth story”. People will be rushing to catch up on eye appointments now that lockdown has lifted and there are still 2.6 billion people worldwide who need their vision corrected. Buy (230p).
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