Share tips of the week – 18 March

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.

Three to buy

DS Smith

The Sunday Times 

DS Smith provides packaging, paper products and recycling services. It’s a fairly “boring” business, “but in these turbulent times, the company’s dullness makes it interesting”. It may be affected by the invasion of Ukraine  – it has a stake in a Ukrainian firm that has stopped operations – and by rising costs for producing and transporting paper. But its cashflow is strong and it is passing price rises on. “Our love of online shopping looks here to stay and there are few viable alternatives to a cardboard box”. A safe choice. 311p 

Fresnillo

The Telegraph

Labour reforms in Mexico, staff absences due to the pandemic and delays to major products have all contributed to miner Fresnillo’s underperformance. These issues will continue into 2022, but net cash of £52m should enable it to “overcome an extended period of operational challenges”. It’s starting production at two projects in 2022 and two others should follow in 2024. Gold prices may rise as high inflation and war “remind investors of gold’s historical role as a store of wealth during periods of … turbulence”. 730.2p

Hotel Chocolat 

Investors’ Chronicle 

Premium chocolatier Hotel Chocolat’s profits for the second half of 2021 were up by 56% to £24.1m. Although the overseas markets of the US and Japan aren’t profitable yet, sales were up 150% and 131% respectively, and nine new stores opened in Japan. Its gross margin was affected due to increased input costs and foreign exchange effects, and the dividend has yet to be reinstated as management prioritises “the need to invest for growth”. But the firm has a promising long-term outlook and a well-performing multi-channel sales model, and the shares look good value. 440p 

Two to sell

Dotdigital

Investors’ Chronicle 

Software-as-a-service (Saas) provider Dotdigital was boosted by the pandemic as companies were forced to use SMS marketing messages – one of the services it provides – to update customers on a regular basis. But SMS is paid for on a per-message basis, and revenue for this channel is now falling. Management is expecting revenue for the coming and future years to be slower than predicted. Tight labour markets have hindered growth in the US; full-year sales for last year were up 19% compared to only 3% for this year. The shares look far too expensive for a company with “slowing growth that is struggling to get a foothold in the US”. Sell. 74p 

Melrose 

The Times

Melrose specialises in buying, investing and selling on companies. It has “cast itself as a company doctor” and is currently at a “periodic crossroads, when most of its operations are nearly ready to be sold”. Shareholders will get the money but “the hunt is on for fresh meat”. The shares have fallen since the Russian invasion of Ukraine and the conflict has put on hold plans for another return of capital this year. Its current investments are highly cash generative and analysts predict an increase in profits. But the company has automotive and aerospace operations, both of which are “subject to developments in Ukraine”. The war could boost defence orders and make target businesses more affordable, but “attempts to float the divisions could be delayed” which “could leave Melrose in limbo for an extended period”. Avoid. 113p

...and the rest

Investors’ Chronicle 

Chemicals firm Elementis plans to reduce costs, but looks expensive unless its debt pile shrinks. Sell (114.4p). Online shopping “poses a real threat to long-term retail property values” for Hammerson. Sell (35p). Logistics firm Wincanton could be a takeover candidate. Buy (312p). Danish pharma firm Lundbeck is a recovery play on a p/e of ten. Buy (DKK160.6).

The Mail on Sunday

Supermarket Tesco can cope with slow growth and inflation. Buy (273p). Insurer Direct Line pays generous regular and special dividends. Buy (266p)HICL offers a 4.75% yield from infrastructure on long-term inflation-linked contracts. Buy (172p). Thread and zip maker Coats is still innovating in sustainable products. Buy (69p). Self-storage group Lok’n’Store has grown its dividend every year since 2007. Buy (920p). Aim-listed glasses maker Inspecs should pay its first dividend of $0.01 for the year just ended, rising to $0.04 by 2023. Buy (330p).

Shares

BAE Systems will gain from more defence spending. Buy (736p). High gas prices will help biomass firm Drax. Buy (667p)

The Telegraph

Augmentum Fintech invests in early-stage disruptive financial services firms. It’s been hurt by the growth-stock sell-off, but a 17% discount to net asset value isn’t justified. Buy (117.5p).

The Times

Property-services firm Savills will pay a 27.05p dividend to make up for 2019’s skipped payment. All risks are priced in. Buy (1,224p). Hammerson is restarting dividends, but it’s hard to see how it will tempt shoppers away from screens and back into malls. Avoid (33p).

Recommended

What to do as the age of cheap money and overpriced equities ends
Investment strategy

What to do as the age of cheap money and overpriced equities ends

The age of cheap money, overpriced equities and negative interest rates is over. The great bond bull market is over. All this means you will be losin…
29 Sep 2022
These 3 top value stocks offer
Share tips

These 3 top value stocks offer

Professional investor Adam Rackley of Cape Wrath Capital highlights three overlooked value stocks to buy.
29 Sep 2022
Why everyone is over-reacting to the mini-Budget
Budget

Why everyone is over-reacting to the mini-Budget

Most analyses of the chancellor’s mini-Budget speech have failed to grasp its purpose and significance, says Max King
29 Sep 2022
Bank of England spends £65bn to “restore orderly market conditions”
Budget

Bank of England spends £65bn to “restore orderly market conditions”

The Bank of England has said it will spend £65bn buying bonds to stabilise the financial markets after the government’s mini-Budget. Saloni Sardana ex…
29 Sep 2022

Most Popular

Earn 4.1% from the best savings accounts
Savings

Earn 4.1% from the best savings accounts

With inflation topping 10%, your savings won't keep pace with the rising cost of living. But you can at least slow the rate at which your money is los…
27 Sep 2022
How the end of cheap money could spark a house price crash
House prices

How the end of cheap money could spark a house price crash

Rock bottom interest rates drove property prices to unaffordable levels. But with rates set to climb and cheap money off the table, we could see house…
28 Sep 2022
What changes to the pensions charge cap mean for you
Pensions

What changes to the pensions charge cap mean for you

The government could raise the pensions charge cap – the amount you can be charged in your workplace's default pension fund. Saloni Sardana explains w…
27 Sep 2022