Three to buy
The Sunday Telegraph
Demand for upmarket mixers from pubs, hotels and restaurants “has been decimated by lockdowns over the past two years”. But strong consumption at home drove a 23% increase in sales for Fever-Tree last year. This was helped by new launches and a shift in marketing spending towards consumers drinking at home. The company will now have to deal with inflation, which has already caused a decline in gross margins of 4.1%.
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But it holds nearly 40% of the UK retail mixer market and is the dominant tonic and ginger-beer brand in the US, which provides it with “significant pricing power that should offset higher costs”. 1,843p.
Hilton Food Group
The Sunday Times
Britons eat 2.5 billion beef burgers and 6.1 billion rashers of bacon each year, and Hilton provides a “significant chunk” of that. Recent acquisitions have bolstered and diversified its business, including the UK’s biggest butcher to the hospitality industry, a smoked salmon firm that takes it into the US, and a Dutch vegan-products company. Those deals have pushed up debt, but there’s “plenty of headroom” and they will plump up profits. 1,132p.
An ageing population and the need to fund retirement should fuel growth in the savings market. Insurer and asset manager M&G is well-placed to benefit. The group is ahead of its targets for capital generation and cost savings. This has allowed it to launch a £500m share buyback programme that, together with dividends, will mean M&G has returned £1.8bn of capital to shareholders since it was spun out of Prudential in 2019. 225p.
Three to sell
This oil and gas firm has been struggling to get prompt payment for its production from the Kurdistan Regional Government (KRG): it’s owed $111m. A “disagreement” with the KRG has also seen it abandon two development licences. Free cash flow could rise from $86m in 2021 to $250m this year, and the dividend has climbed by a fifth to $0.18 per share, but its continued issues with the KRG make it one to sell. 154p.
The Daily Telegraph
High-priced growth stocks don’t usually do well in the face of rising interest rates. That suggests it’s time to book profits in eyewear specialist Inspecs. There isn’t anything going wrong: sales are up, brand range and distribution reach are increasing due to deals abroad, and opticians will be able to offer a full range of services again now that Covid-19 restrictions are over. But the stock has gained nearly 72% since July 2020, it has “yet to break into the black on a statutory basis”, and the current valuation prices in a lot of growth. Take profits. 335p.
Shares of interdealer broker TP ICAP have fallen by over two thirds since it was formed by the merger of Tullett Prebon and ICAP in 2016. It is struggling to produce sustainable earnings due to pressure from Brexit disruption, currency fluctuations and muted trading in the fixed-income and swaps markets. The costs of its five-year plan to “diversify its client base” and move towards digital trading have also hurt profitability. A forward price/earnings ratio of five looks cheap, but unpredictable markets may mean its earnings could easily disappoint later in the year. Avoid. 119.2p.
...and the rest
Discount retailer B&M will benefit from the cost of living squeeze. Buy (550p). Promotional products firm 4imprint has seen demand recover to pre-pandemic levels, but must now cope with supply-chain issues. Sell (2,855p). Marine engineer James Fisher had a “disappointing and difficult year”. Sell (414p). The slow recovery of the aerospace and automotive industries and cost increases due to rising oil prices are weighing on engineer Bodycote. Sell (679.5p).
South Africa-based miner Tharisa has benefited from higher metal prices, and has strong cash generation with a generous dividend. Buy (155.8p). Shares in road safety engineer Hill & Smith dropped after the government put the smart motorways roll-out on hold, but the outlook remains positive. Buy (1,412p). Property and industrial services company Hargreaves Services’s first-half results were better than expected; the second should be even better. Buy (550p).
The Daily Telegraph
Rising interest rates are good for investment platforms, such as AJ Bell, because they earn more interest on customers’ cash deposits. Buy (305.2p).
Marks & Spencer is dealing with inflation and turning around its clothing business, but both are priced in. Buy (162p). Software-as-a-service (SaaS) firm EMIS can grow market share, expand its range of products and raise margins. Buy (1,328p). Demand for offices in Germany is stronger than in London and landlord CLS has 38% of its assets there. A 43% discount to forecast net asset value is too high (208.5p). Insurer Phoenix will no longer rely on “snapping up open or closed books of business” now it has a bigger pensions and savings arm. That’s good for steady dividend growth. Buy (635p).
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