Three to buy
Associated British Foods
Royal Mail
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(Interactive Investor) The shares soared last week on news of a 34% jump in parcel deliveries in the five months to August compared to the same period last year. There are growing hopes that the domestic and international parcel operation could be positioned to rescue the business from plummeting letter volumes. Much now depends on whether unions can agree to a £200m cost-cutting programme. Industrial relations are rarely easy at the group, but the “sober realities” of a deep recession may bring a moment of clarity. Those with the stomach for the evident risks should buy. 226p
Stenprop
(Shares) Industrial property has been a rare bright spot in the crisis but shares in “big box” warehouse trusts are expensive. This multi-let industrial property investor, which focuses on smaller and more urban units, offers a cheaper way to play the trend. “Hardly any” more units of this type are built today, and a 92% occupancy rate attests to the strength of demand. Exposure to smaller firms is not ideal in the current climate, but it also means more diversified revenue compared to big-box providers, which often rely on a handful of major clients. On a discount to net asset value, the shares are a buy. 117p
Two to sell
Halfords Group
(Motley Fool UK) Shares in this retailer of bicycles and car parts have rocketed over the past month; with more people cycling, investors see a bright future for the shares. Yet no one can agree just how bright: analysts’ forward price/earnings (p/e) ratios range from 9 to 17. The truth is that predicting future earnings is a “nonsensical” exercise in guesswork. The actual earnings record, moreover, is sobering: operating profit has declined for the last five years and averages about 6.8 on a p/e basis. “I’m out”. 185p
International Personal Finance
(The Sunday Times) Lockdowns have created new challenges for this doorstep subprime lender, which has a particular focus on central Europe and Mexico. The work of agents was disrupted and bad loans leapt by almost 50% in the first half. Most disquieting of all, management has warned that questions about whether it will manage to refinance a €397m bond next spring create a “material uncertainty” about the group’s future as a “going concern”. The upshot: while the shares are undoubtedly cheap, that is because they are a very “risky bet”. Sell. 62p
Safestore
(The Times) This personal-storage specialist has enjoyed surprisingly robust demand this year, boosted by firms looking for a secure place to stockpile unused equipment. The group has 159 sites across the UK and Europe. Yet the company is starting to offer more discounts to boost business and brokers question whether sales can hold up if the economy tanks again. This is a resilient stock, but on a toppy 27 times earnings there is little margin for error. Sell. 787p
...and the rest
The Daily Telegraph
Construction business Morgan Sindall stands to be a prime beneficiary of Rishi Sunak’s infrastructure splurge. Buy (1,220p). Superdry’s share price is “bombed-out” but the clothing retailer boasts robust cash generation and a reputation for reasonably-priced quality, leaving it well-placed to prosper in a pandemic-scarred economy. Buy (135p). These are not happy times for banks, but valuations of the likes of OneSavings Bank are so low that patient investors will find decent value. Hold (297p).
Investors Chronicle
Stronger summer trading at Headlam Group, Europe’s leading floor-covering specialist, gives us confidence that this cyclical business is heading for better times. Buy (305p). Developer Electronic Arts, best known for its sports simulation games, is well-placed to benefit from the roaring video games trade ($130.13).
The Mail on Sunday
Shares in animal genetics specialist Genus recently hit a record high but should “bring home the bacon” – buy (3,980p).
Shares
Odyssean Investment Trust offers investors a reasonably-priced way to obtain a “ready-made portfolio” of promising small-cap shares. Buy (98p). Homeware brands owner UP Global Sourcing has reported strong online sales growth. Buy (102p).
The Times
Luxury brand Burberry stands to gain from post-lockdown spending and its social-media savvy also bodes well (1,482p). Talk of an “entente cordiale” between France’s Accor and Buckinghamshire-based InterContinental Hotels Group may help propel shares in the British chain higher (4,389p).
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