Three to buy
ConvaTec
The transformation of this medical-technology firm “appears to be bearing fruit”. The group registered 7.9% growth from its top 12 priority markets in 2021, and expects to deliver organic sales growth of between 4% and 5.5% for 2022. Focused acquisitions are helping growth, non-core businesses have been sold and efficiency measures have paid off. It’s the “clear market leader” in the disposable infusion market: its infusion sets, used by diabetic patients, have around 80% market share. Margins have the potential to continue improving. 221.9p.
Energean
Investors’ Chronicle
MoneyWeek
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Gas exploration and production company Energean is predicted to double revenue this year and post over $1bn in pre-tax profit in 2023. The company is listed in London and Tel Aviv, and Israel is key to its growth. Rising demand for natural gas in the country – driven by population growth, the move away from coal and railway electrification – looks like a “fertile market” for Energean. The firm has signed 18 gas sale agreements, which will lock in sales for 16 years. It aims to pay an inaugural dividend of at least $50m by the final quarter of this year and to grow that fast, distributing at least $1bn by 2025. 1,150p.
Smiths Group
The Mail on Sunday
This engineering firm has created an upgraded airport scanner to check passengers’ bags “just as they are”, saving the hassle of “fumbling for that plastic bag of toiletries”. These are in use in Italy and the US, on trial at Heathrow, and due to be installed in busy airports around the world. Smiths’ other businesses, such as semiconductor quality checks, are also growing. The shares have seen “ups and downs”, but the future looks bright under a new CEO. 1,435p
Two to sell
Harworth
The Telegraph
Shares in land regeneration and property developer Harworth have “advanced smartly” since June 2020. Its portfolio has long-term potential, but “the easy money has been made”. The company has a strong balance sheet with very little debt, and throughout its last financial year continued to buy new sites. However, some of Harworth’s target markets could struggle with inflation, supply chain issues, staff shortages, rising interest rates and a possible economic slowdown. The current share price stands in line with the net asset value (NAV) of 178p. That NAV may be conservative, yet “the cold, hard mathematics of valuation suggest it is time to (reluctantly) take profits”. 185p.
Petrofac
Investors’ Chronicle
Oilfield-services firm Petrofac pleaded guilty to bribery offences last year, and the £77m fine from the Serious Fraud Office was felt on the 2021 bottom line. Saudi Arabia, Iraq, and the United Arab Emirates all banned it from bidding for work in 2019 – when the scandal first emerged – and Petrofac’s revenue has shrank since, from $5.5bn to $3bn, and it has yet to see a major pick-up in oil and gas projects despite rising prices. The UAE has lifted its ban on the company bidding for contracts and its order book has grown to $2.2bn, up by $600m compared with the end of 2020. However, analysts don’t see cash profits reaching the 2018 level of $671m over the next few years. Sell. 109p
...and the rest
Investors’ Chronicle
North Sea oil producer EnQuest expects 2022 cash profits to fall below 2019 levels, despite strong prices. Sell (31p). IT equipment distributor Northamber’s results were hurt by higher logistics costs. The semiconductor shortage doesn’t bode well either. Sell (57.5p). Engineering services company Driver’s struggling Middle East and Asia Pacific operations have “more than wiped out” gains from its profitable divisions. Sell (30p). Central Asia Metals is a low-cost high-margin copper miner with a consistent and growing dividend. Buy (240p).
Shares
Gas producer Diversified Energy should benefit from the West’s need to “wean itself off Russian energy”. The company achieved record production in 2021, while keeping operating costs low. Buy (118.8p).
The Sunday Times
Animal-health firm Dechra Pharmaceuticals will profit from all the pets bought in the pandemic. Buy (4,088p).
The Telegraph
Water supplier United Utilities’ provides a necessity at prices linked to inflation. Around 70% of customers pay by direct debit, which affords “relatively high certainty that it will collect the money due”. Buy (1,098p).
The Times
Smiths Group is too expensive for a chronic sufferer of inconsistent top-line growth. Avoid (1,435p). Keywords Studios, which provides services for the growing video-game industry, has robust growth plans. Buy (2,564p). Insurer Chesnara buys closed books of insurance policies. Cash generation is strong and the dividend “reliable and generous”. Buy (301p).
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