Three to buy
Dogs are for life, and so are their vets’ bills. CVS is one of six large firms that control half the UK veterinary market. It owns more than 500 veterinary surgeries, three laboratories and seven crematoria across the UK, the Netherlands and the Republic of Ireland. New management has shifted its focus from mass acquisitions to organic growth, upped its spending on facilities, and made an “impressive dent” in its debt. Operating profit tripled in the five years to June 2021 and is expected to climb a further 25% this year. Competition in the sector has sent the shares down by around a quarter since the start of the year, but demand looks set to remain high. 1,592p.
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This fantasy games and figurines maker thrived in the pandemic as people invested in their hobbies, but has suffered from the growth stock sell-off. However, core sales for the year just ended are set to be at least 9% higher than the previous year’s record £353m, while royalties jumped 72% to £28m. It has an “unlimited scope” for innovation and “many different growth avenues”: it’s bringing out several video games this year. 6,045p.
Procter & Gamble
The Sunday Telegraph
Customer loyalty to P&G’s brands, which include Head & Shoulders shampoo and Fairy Liquid washing-up liquid, should enable it to pass on inflation to consumers without hurting sales. The company has a record of stable, growing returns and further growth potential thanks to “premiumisation” trends (consumers trading up to its more expensive brands). It’s a “very high-quality company that merits purchase”. $143.74.
Three to sell
Specialist social-care provider CareTech was affected by staff vacancies caused by Covid-19. It resorted to hired agency staff, which meant increased costs. Half-year results showed modest growth in revenue, flat profits and rising debt due to acquisitions. The company’s co-founders are seeking financing to allow them to take it private, and as a result it will not pay an interim dividend. There are two 750p offers, but talks are progressing slowly. Sell. 630p.
Online wine retailer Naked Wines posted decent results for the year to March. Sales were up £10.1m, profit was up £6.2m and pre-tax profit increased to £3m from a £500,000 loss last year. However, the CEO raised the possibility of a loss for the 2022-2023 financial year. Even more concerning was the possible breach of the firm’s $60m asset-backed lending facility. There is too much uncertainty surrounding the business and management has warned the path to its goal “will not be linear”. Avoid. 156.2p.
Tekmar, a supplier of protection systems for undersea pipes and cables, should have benefited from the increased investment in wind power. However, the company has “struggled to turn that potential into cash” and is now in a delicate financial positions. It’s still winning big contracts, but the market is showing doubts about its ability to return to profitability. Bosses have “acknowledged its plight” by putting it up for sale – and not from a position of strength. Some investors might want to hang on, but others should “take what little is on the table now and sell”. 8.25p.
...and the rest
The Sunday Times
Alternative asset manager Gresham House is “proving money can grow on trees”. Assets under management jumped 65% to £6.5bn last year, thanks in part to the £3bn of commercial timberland that it now manages. The sustainability-focused firm is small, but its chief executive “has shown his prowess”. Buy (823.3p).
Gold is a “traditional safe haven” in periods of inflation, but surprisingly it hasn’t shot up recently. However, there are good reasons to expect its price to rise, as supply is “all but certain to fall” and investment demand should rise. Miner Newmont is focusing on making its operations more efficient. It has a free cash-flow yield of 5%, “a large proportion of which should go back to shareholders”. Buy ($65.17).
Housebuilder Berkeley might not “entirely avoid the perils of a UK economy in its current shape”, but this is “likely to take the form of a pause rather than an outright setback”. It has a “well-executed, sound long-term strategy”, which should shield it from short-term volatility. Buy (3,837p). Cable maker Volex’s “position near the technological cutting edge” should shield it from “macroeconomic headwinds”. The firm’s “well-motivated and experienced management” looks able to fulfil its potential. Buy (240p). Micro Focus helps its customers make the most of their IT systems. However, this is one of the first things to go when businesses start “battening down the hatches”. It’s a good company, but it’s operating in a bad environment. Sell (306p). Utilities reseller Telecom Plus’s new bundle offers provide customers with cheaper deals. This “new-found edge is already seeping through to the bottom line”. Debts have improved and profits could accelerate. Buy (1,950p).
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