Three to buy
Ocean Outdoor
Serco
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(Investors’ Chronicle) The Covid-19 Test & Trace contract made up 17% of public-sector outsourcing group Serco’s revenues and led to a 31% increase in operating profit in the first half of 2021. Sales are expected to be lower in the second half of the year as Covid-19 “dissipates”, but the company believes “the goodwill it has built up will stand it in good stead”. The firm has a strong balance sheet, which offers protection. The company acquired US defence business Whitney, Bradley & Brown in February, which bodes well as the US defence budget is unlikely to be cut. 140p
London Stock Exchange Group
(Shares Magazine) The stock has swooned since March; investors are fretting over the cost of integrating data provider Refinitiv, acquired for $27bn. But interim results bode well. Pre-tax profits almost doubled to £510m. The deal with Refinitiv “enhances exposure” to subscription- based revenues and secures the firm’s position in Asia and America. The group boasts “unique... market infrastructure and data assets”. 7,812p
Three to sell
Palantir
(InvestorPlace) US software group Palantir “is a wonderful company”, but it is trading at an inflated price. The company does well when it comes to securing contracts with agencies of the US federal government, but growing its client base in the private sector “has been a work in progress”. The stock is on a forward price/earnings (p/e) ratio of 175. Even if it fell by 50%, its valuation would “more than [reflect] its growth prospects”. Avoid for now. $24.90
Capita
(Investors’ Chronicle) “Ever-shrinking outsourcer Capita enjoyed a reasonable half compare with its usual dreadful standards.” The company expects to “finally see sustainable free cash flow in 2022”. But for now, it is “bleeding cash” thanks partly to pension payments and restructuring costs. The firm disposed of £536m worth of assets in the first half, but the fire sale was due to the fast-approaching “wall of maturing short-term debt”. Like most other outsourcers, the firm’s assumptions on government spending “have been proved consistently wrong”, which has led to “troublesome and underperforming contracts”. Sell. 37p
Randall & Quilter
(The Daily Telegraph) It is not clear whether Aim-listed insurer Randall & Quilter qualifies for inheritance-tax (IHT) relief. The crux of the matter is the nature of the firm’s assets (“passively” held investments are not eligible for IHT relief, whereas “trading” assets needed to keep the company running are). R&Q insists its shares qualify, but HMRC may disagree. If you opted for R&Q for the IHT relief, sell and reinvest in another Aim stock. 170p
...and the rest
The Daily Telegraph
Shares in Fastned, the Dutch operator of fast-charging electric car stations, have fallen by 40% since February. That is probably due to the “unwinding” of some “speculative money” that went into renewables; there is no sign of trouble at the company. Hold (€60). MaxCyte, the “futuristic” gene-therapy company, has long-term potential. Last month’s listing on the Nasdaq raised $202m for research and development. Hold (1,105p).
Mail on Sunday
Flooring group James Halstead marked almost half a century of unbroken growth last year, which reflects the group’s culture of “financial conservatism and product innovation”. It boasts schools, stations, offices, shops, homes and hospitals as customers, and “virtually every NHS trust uses its flooring”. The stock should keep repaying shareholders “handsomely”. Hold (550p).
Investors’ Chronicle
Zetefoams is a specialist in cellular-materials technology, or foam. The company is struggling with “significant supply-chain inflationary pressures”. But they were either brought on by the pandemic or exacerbated by it, so they should eventually dissipate. Hold (449p).
Shares Magazine
Elective procedures are returning as Covid-19 ebbs. Demand for medical-equipment firm Boston Scientific’s products is picking up again. The group reported second-quarter profit and sales that surpassed expectations, and it has raised its full-year outlook. The stock has risen by 24% in 2021 and there should be further gains ahead. Buy ($43.81).
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