Share tips of the week – 25 February

Centrica high debt levels and uncertain dividend prospects make it a sell

(Image credit: © Bloomberg via Getty)

By MoneyWeek

published 25 February 2022

in Advice

Three to buy

Avingtrans

The Sellafield nuclear power station houses thousands of tons of nuclear waste, which needs to be packaged and stored securely. Avingtrans “will play a key part in that”: its Metalcraft division makes the steel boxes that store waste and has been awarded a £70m contract to supply around 1,000 units over the next six years. More contracts are likely: Sellafield will need around 70,000 containers over the next three decades. Avingtrans’ wider strategy is to buy struggling companies in the energy and power sectors, turn them around and sell for a profit. Rising inflation could provide a “tougher environment” for struggling firms, increasing opportunities for new deals. 400p

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A dip in value-goods retailer B&M’s shares “present a compelling entry point for growth”. The groceries-to-general merchandise seller should benefit from the rise of household bills as “cash-strapped consumers” look to save wherever possible. Sales soared to a record high in a “Covid-19-inflated year”, but shares are down 12% due to concerns the pandemic-driven boom will fade. A decline is forecast for the year to March 2022 as sales normalise, but growth should then resume. At the current price, the shares are “cracking value”. 567p

TV advertising breaks are being replaced by billboards, posters or products placed directly into TV shows. Mirriad’s artificial intelligence technology makes this possible. Customers include Unilever, Channel 4 and Sony, and the firm also works with influencer agencies to place ads in videos posted by popular TikTok and Instagram creators. Mirriad charges a fee of 20%-30% based on the value of the ad. The TV ad market is worth $145bn a year, and so a 0.5% share would give the company revenues of $180m. 1,800p

Hopes of interest rate rises have sent Lloyd’s share price up. Forecasters expect the Bank of England benchmark rate to rise from 1% to 1.25% by 2022. But the advantage of higher interest rates is “outweighed by the implications of Britain’s struggling economy”. UK-focused banks could be in for a rise in bad loans as businesses struggle to keep up with the rising cost of living. Revenues are also likely to struggle amid a “long and broad economic downturn”. Challenger banks could also “chip away at its customer base” in the years ahead: digital-led rivals now hold an 8% market share in the UK. Avoid. 5,147p

Energy and services company Centrica sought to implement a simplification strategy a couple of years ago, but “it remains a convoluted entity that seems to lack a clear path to growth”. The group is still trying to shift from non-core operations (oil and gas production) to core activities (energy supply and services). The remaining work to achieve its goal could hinder its share price in the long run, and long-term growth potential remains unclear even when it is achieved. The energy supply industry is competitive – many users go for the cheapest tariff available. Demand might also come under pressure as the cost of living continues to rise. The company has high debt levels, and its dividend prospects remain uncertain. Sell. 77.9p

The oil boom sent BP’s profits to $4bn for the fourth quarter of 2021, up from $115m in 2020. But fossil fuel investment in non-Opec countries is rising and a nuclear deal between the US and Iran “could flood the market with supply”. Avoid (387.35p). Tesco, Britain’s biggest food retailer, could come under pressure as people “flock to value retailers”. Competition is heating up and it may need to cut margins. Avoid (294.67p).

Law firm Keystone Law is humming along, but a price/earnings ratio of 40 “prices in a lot of good news”. Sell (800p). Property giant Land Securities is shifting away from central London offices and selling low-growth hotels and retail parks. The strategy is “sound”, the balance sheet “solid” and it yields 4.5%. Buy (795.4p). Berlin landlord Phoenix Spree Deutschland is “like watching paint dry”, but rental demand is strong and the shares cheap. “One to hold on to.” (389p).

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