Share tips of the week – 28 January

Three to buy

Hargreaves Services

This former coal-mining company owned 17,000 acres of land a decade ago. It retains 11,000 now, which it’s cleaning up to convert into space for homes and businesses. It currently has several ongoing developments and a strong pipeline. Its trading, recycling and industrial-services arms are also performing well, and are expected to grow over the next five to ten years. The company has pencilled in a dividend of 20p for 2022, putting the stock on a yield of 5% at the current price. 400p.

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Marks & Spencer

Shares

High-street retailer Marks & Spencer has further to go. The company “continues to demonstrate strong progress in transforming the business”. It had a stronger third quarter than analysts had predicted – sales for the 12 weeks to 1 January climbed to £3.27bn, up 18.5% from the previous year, and were 8.6% higher than in the same period in 2019. This was mostly driven by its clothing and home sections: sales for both were up over 50% on a two-year basis, “which suggests that the firm has finally got its web offering right”. Food sales were “also outstanding”: M&S grew the most rapidly of any store-based food retailer during the quarter and had its highest ever Christmas till roll. 221p.

Mr. Cooper Group

Barron’s

This US mortgage firm is unusual because it profits from rising rates. About half its revenue comes from servicing loans – a higher percentage than any competitor. It also owns Xome, an auction platform for foreclosed properties, whose business is picking up after the expiry of a moratorium on foreclosures. It hopes to sell Xome, which could be worth between $750m and $1bn – roughly 20%-30% of its total market cap of $3.2bn. $41.34.

Two to sell

Rentokil

The Daily Telegraph

Pest-control expert Rentokil is buying US rival Terminix for $6.7bn (£5bn) – just over half of its own market value of £9.5bn. Its shares “have taken quite a battering since” as investors question the deal.

If Rentokil is overpaying “at least it will be doing so largely in its own shares rather than in cash”, which should cushion any impact on its balance sheet. What’s more, the share price had risen strongly in the last few months, “so if Rentokil is overvaluing Terminix it is at least paying for it in an overvalued currency”.

But “this does not… make everything fine”. Those who get the new shares – Terminix’s current shareholders – could decide they want to sell, which might well lead to a “torrid time for Rentokil’s share price”. Steer clear. 512.6p.

Currys

The Sunday Times

Currys – previously known as Dixons Carphone – has 829 shops and 35,000 employees “selling everything from washing machines to laptops”. Sales growth over Christmas slowed due to supply-chain issues and inflationary concerns and the company has cut its profit guidance for the year.

Part of the sales decline was due to Currys “having had a good 2020” as people invested in home entertainment. But it remains to be seen whether spending habits will be maintained now that restrictions are ending.

The group shut down over 500 shops in 2020, but has yet to acknowledge the need to reduce its bricks-and-mortar presence further. Shares have fallen 16% so far this year, but “if a further restructuring is on the cards, there could be more pain to come”. 99.2p.

...and the rest

The Daily Telegraph

Unilever’s £50bn offer for GlaxoSmithKline’s consumer health unit was rejected, so it will either have to “raise its bid or walk away”. There is a danger of overpaying, bidding wars and “battles for regulatory clearance”. But the deal seems unlikely to go ahead, so hold on (3,517p). Doric Nimrod Air Three suffered in the pandemic as investors shunned its aircraft-leasing business model. But it has declared an unchanged quarterly dividend of 2.0625p and has an “extraordinary” yield of 21.7%. Hold (38p).

Investors’ Chronicle

“Parking excess stuff in safe storage is now a permanent feature of modern life” due to the decreasing size of modern houses. That’s great for Safestore. Hold (1,320p). Best of the Best, which runs online competitions, saw a surge in activity throughout the pandemic. The shares have sold off due to weaker guidance, but revenues are still at twice the level they were reaching before it went fully digital shortly before the pandemic. Hold (450p).

Shares

Shares in video-game developer Frontier Developments fell following a downgrade to forecasts for 2022 and 2023, but the issue seems to be “management’s overly ambitious guidance rather than fundamental development of the business”. The potential is still there. Buy (1,330p).

Motley Fool

Vistry Group’s low share price “belies the possibility of strong and sustained profits growth”. The housebuilder’s cheapness reflects concerns that demand for new-build properties will fall, but low mortgage rates and government support should prevent that. Buy (1,080p).

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