Share tips of the week, 18 June

Three to buy

MJ Hudson

(The Mail on Sunday) MJ Hudson’s share price has bounced recently but there should be much further to go. The firm offers legal and administrative services as well as financial advice; its analytics division, meanwhile, has grown by 80% over the past year. The firm has successfully completed four acquisitions and “more deals are in the pipeline”. Brokers predict a 35% increase in sales to £27m for its financial year ending 30 June “with profits soaring from £0.6m to £2.8m”. Dividend payments are also expected for this year. The shares “should deliver long-term rewards”. 50p

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(Investors’ Chronicle) Industrial landlord Urban Logistics has benefited from the shift from “a just-in-time delivery system to a just-in-case”. It has used this sentiment (brought on by Brexit, the pandemic and the Suez Canal blockage) to extend some leases at higher rents before the initial term is up. Rising demand has translated into a 6.5% boost to like-for-like contracted income. New lettings and rent reviews yielded a 14% rise in rents. This is not just “an acquisition-led growth story”. 161p

Clinigen

(The Daily Telegraph) Clinigen has struggled in the last year as niche pharmaceuticals have taken a backseat during the pandemic. But the firm “generates double-digit returns on capital and makes positive cash flow”. When Covid-19 ends, hospital-based cancer treatments and clinical trials should return to previous levels; good news for Proleukin, its kidney cancer drug, for instance. Sales and profits should rebound in the year to June 2022, which bodes well for the stock. 615p

Three to sell

Capita

(The Sunday Times) It appears to be “groundhog day” at Capita. The outsourcing firm’s 2018 “Simplify, Strengthen, Succeed” strategy has turned into “Future Capita”, with which CEO Jon Lewis hopes to streamline the group and save £50m a year. Though Lewis “inherited a basket case… the time for blaming his predecessors has passed”. The share price has sunk by 85% since Lewis joined. Competitors Serco and Mitie have rebounded despite difficulties in the outsourcing industry but Capita, “one of the government’s big suppliers”, is still struggling. Avoid. 41p

Planet Fitness

(Barron’s) Planet Fitness was the gym industry’s “leading stock play” in March 2020. But after the pandemic struck its shares plunged from $88 to $24. Health clubs could continue to struggle as “members permanently drop spin classes for exercising at home”. Even before the pandemic “there were signs Planet’s performance was peaking”. Same-store revenue growth gradually slipped from 20% a year before 2010 to 9% by 2019. The upshot is that the stock’s 2022 price/earnings ratio of 45 looks “too generous”. Avoid. $80

Anglo American

(Morningstar) The outlook at the London-listed miner is highly uncertain. “Keeping costs low is key to miners’ profitability” and Anglo “isn’t one of the low-cost operators in the industry”. The company’s balance sheet is strong, but the firm’s profit margins sit below those of its peers. Longer-term, commodity prices are expected to drop as China focuses on consumer goods instead of industrial output, which has been the driving force behind iron ore and copper. Industrial unrest in South Africa is a further worry. Avoid. 3,027p

...and the rest

Shares

Insurer Aviva has seen its shares go up thanks to activist investor Cevian’s stake building (see page 18). The firm has already sold £7.5bn of businesses, and Cevian is calling for CEO Amanda Blanc “to go further and faster”. The stock has further to rise. Buy (426p). Publisher Bloomsbury’s full year results to February 2021 exceeded expectations as the lockdown-inspired reading boom has endured. Sales jumped by 14% to a record £185.1m and pre-tax profits were up by 22% to £19.2m. Buy (350p).

Investors’ Chronicle

Workspace, a real-estate investment trust that lets offices to small and medium-sized businesses, benefits from occupancy rates more than it does from rents. The average rent per square foot fell by 31% last year but has now stabilised. The shares are on a narrow discount to net asset value (NAV) of 4%. Hold (889p).

The Mail on Sunday

Capital, which helps miners drill for metals, has been “a prime beneficiary” of the optimism surrounding gold. It reported its best-ever first quarter this year and the second may be even better. Buy (82p).

Morningstar

Ashtead, which rents out industrial and construction equipment, is “looking expensive compared to its fair value”. The company proved resilient throughout the pandemic, but the sector is “highly fragmented” and customers can “switch easily to other companies”. Avoid (5,250p). Generic pharmaceuticals company Dr Reddy looks too pricey given that the sector is risky and competition is rife. Avoid the shares ($72.66).

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