Share tips of the week – 22 April

Three to buy

Bunzl

The Telegraph

Bunzl is a manufacturer of packaging, hygiene equipment and personal-protection items that does business in 31 countries. The firm has been able to pass on rising costs to customers while optimising operational efficiency by consolidating its warehouse space and increasing automation. Bunzl deploys a successful “growth through acquisition” strategy, having acquired four companies last year. A price/earnings (p/e) ratio of 19 and yield of 1.9% aren’t cheap, but earnings and dividends have grown strongly for many years. 3,065p

Games Workshop

Investors’ Chronicle

Demand for this firm’s cult tabletop games, figurines, and video games remains strong, despite recent supply-chain problems. The company has a fanatical fan base, which powers strong sales and growing royalty income. In the six months to November, royalties doubled to £20.1m. Before encountering supply-chain issues (which are now easing), the company reported sales of £353.2m for the financial year to May 2021, up by 38% from 2019’s pre-pandemic high. 7,600p

Wickes

The Sunday Times

This DIY and garden retailer has been trading at a significant discount compared with rivals. The chain “has always been value focused”, which suits the current environment, and its customers are skewed towards older and wealthier homeowners who are more likely to weather rising inflation and coming financial pressures. The shares are up 15% in the last month, but remain cheap at around six times expected earnings for this year. 201p 

Three to sell

Asos

The Times

Fast-fashion clothing retailer Asos is battling supply-chain issues, higher labour and freight costs, and competition for ever-dwindling consumer spending power.  The company saw an 87% decline in pre-tax profits for the six months to the end of February 2021, and its shares have crashed 70% over the last 12 months. The stock is almost as cheap as it’s ever been, but analysts expect the outlook to worsen. Avoid. 1,612p 

Kingfisher

The Sunday Times

While Wickes is “nailing it”, rival Kingfisher – which owns B&Q, Screwfix and Castorama in France – has seen its shares drop 25% the past year. The group is struggling with higher shipping expenses, inflationary energy and material costs, and the impact of new lockdowns on Chinese manufacturing. It won’t be able to pass all these costs to customers, so analysts are predicting pre-tax profits will fall from £949m last year to £769m in 2022. The company is struggling to “right size” its physical stores, while online orders still account for only 18% of sales. A forecast p/e of ten is too high. Sell. 259p

Ocado

Investors’ Chronicle

Online food retailer Ocado often looks more like a Silicon Valley tech firm than a grocer. The company requires ceaseless investment and has only turned a full-year profit three times since it was founded: it posted a £177m pre-tax loss for the 12 months to November 2021 and estimates its profit “lift off” to hover as far in the future as 2025. Capital expenditures have quadrupled since 2018, to £680m for its last financial year. The pandemic boom in home shopping is wearing off: sales fell by 5.7% for the 13 weeks to 27 February as consumers ventured out. Sell. 1,244p

...and the rest

The Mail on Sunday

Care home real-estate company Impact Healthcare is aiming to address the declining number and quality of care homes across the UK. It now owns 129 homes with more than 5,000 residents. Buy (124p).

Shares

IP Group is a UK intellectual property investment group specialising in technology. It provides investors with exposure to a range of up-and-coming firms with the potential for huge growth. Buy (88.5p).

RELX is an information services group, publishing on topics such as risk, science and technology, and law. It has “recession-proof earnings” and a record of solid growth – which is valuable given the slowing UK economy. Buy (2,417p).

The Telegraph

Insurer Aviva disposed of eight non-core businesses in last financial year. That raised £7.5bn, which has partly been used to reduce the firm’s debt. It has carried out £1bn in buybacks and intends to return a further £3.8bn to shareholders through a return of capital next month. Buy (428.9p).

The Times

Supermarket Income REIT leases property to chains such as Sainsbury’s and Tesco. Leases are long and around 85% of rents are linked to inflation, meaning the yield of 4.8% is attractive. It’s now raising money to buy another bundle of assets worth £270m. Buy (125p). Shares in supermarket giant Tesco have taken a battering due to fears about inflation. Profits will fall short of the upper end of guidance, but this has been priced in by the market. Valuations are not expensive, cash flow is strong and the balance sheet is in good shape. Buy (264p).