Three to buy
ZOO Digital
(Shares) One way to “tap in” to the boom in streaming services is through Aim-listed ZOO Digital, a small firm “ripe for strong profitable growth over the coming years”. It runs a platform that allows users to repackage their content for different geographies, languages and formats. When film production was shut down due to the pandemic, ZOO Digital remained busy helping clients – including Netflix, Amazon and Apple – repurpose their back catalogues. Revenue guidance for the year to March 2021 was upgraded to £39.5m, a 33% increase year-on-year. As production for new shows “springs back to life, prospects look even better”. 121p
Royal Mail
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(The Sunday Times) A year ago, Royal Mail “was in dire straits”. Now it sounds “increasingly bullish”, not least because GLS, its international parcels business, is “flying”. Around half of the group’s profits come from GLS and management hopes to double the division’s earnings to €500m (£430m) by 2024-2025. Some analysts think this business alone is worth more than Royal Mail’s £2.5bn market cap. “For now, as GLS keeps delivering, this is a buy.” 516.2p
Restore
(The Daily Telegraph) Document management and data specialist Restore “stayed in the black in 2020” and its “sound finances” mean it is “well placed to see through even a bumpy recovery”. A high price/earnings ratio “does not entice”, but the “efficient integration” of information-management firm EDM and a possible uptick in IT recycling, shredding and office removals as companies reassess their need for office space should give profits a boost. 402p
Three to sell
Greggs
(Mail on Sunday) The closure of all of its 2,000 stores throughout multiple lockdowns meant the bakery chain saw its sales drop by 30% in the year to January 2021. But customers have been “flocking back” since shopping restrictions were lifted and management “hopes profits will recover to 2019 levels this year”. Still, shares have been heading up in recent months and “long-term investors could hedge their bets, sell some shares, and bank a bit of profit”. 2,498p
Volution
(The Daily Telegraph) Shares in fans and ventilation-systems manufacturer Volution have had a “very strong run” over the last six months and “have got well ahead of themselves”. The firm’s price/earnings ratio has soared to over 21 from 13, while the price/book ratio has jumped from 2.3 to 4.5. These measures don’t always “revert to the mean”, but a convincing case is necessary to justify why they deserve to sit “permanently higher than they were”. Sell. 419.5p
Trainline
(Investors’ Chronicle) Ticketing site Trainline has become the joint-second most shorted stock on the London Stock Exchange. This seems to “reflect the belief that the number of people commuting each day will never return to pre-pandemic levels”. While Trainline could capitalise on the boom in “staycations”, there were “industry trends in motion before 2020” that should worry investors: a reform of the “complex network of private train operators has long been on the cards”. Revenues dropped 74% to £67.1m year-on-year to February 2021 and losses before tax deepened to £107m from £80.2m. On a p/e ratio of 46 times forecast earnings for 2022, this is a sell. 436p
...and the rest
The Daily Telegraph
Carnival, the cruise company, has seen its shares double from their pandemic lows. But the firm’s debt grew from $11bn in November 2019 to $18.9bn in 2020 and it’s estimated to be burning through $500m every month. Sell (1,552p).
Mail on Sunday
Digital 9 Infrastructure, which listed in March, plans to invest in the underground cables that bring the internet into homes and offices. This is a “fast-growing industry that governments around the world are keen to promote”. It’s a good long-term buy (112p).
Shares
Virgin Wines’s upgraded outlook sees sales for the current year coming in ahead of previous expectations. The easing of lockdown could affect its success, but the firm is confident the “accelerated shift in consumer behaviour” will continue driving online retail. Buy (246p). Concrete maker Somero Enterprises has also benefited from the shift to online shopping as the need for warehouse space increases. The shares have been performing well for months and the firm has upped its 2021 guidance due to surging demand in its “key US market”. Buy (459.49p).
Investors’ Chronicle
Housebuilder Barratt Developments has benefited from a booming property market, but “positive headlines around housing transactions” do not mean the “pace of share-price gains” will continue indefinitely. Hold (782p). Miner Metal Tiger looks well poised to benefit from the rise in copper prices, which have hit a ten-year high of $10,000 per tonne. The firm’s decision to seek a dual listing on the Australian stock exchange “couldn’t come at a better time”. Buy (32.27p).
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