MoneyWeek’s comprehensive guide to this week’s share tips.
Three to buy
Fenner
The Sunday Times
King Coal’s woes have weighed on this maker of conveyor belts and energy industry widgets. Yet Fenner’s shares have rebounded as energy prices rally, Saudi Arabia reforms and Donald Trump declares his love of coal. Clarity is needed on who will replace boss Mark Abrahams, but “prospects are bright”. 335p
Morgan Sindall
The Mail on Sunday
In 1977, two graduates started a business to help US banks moving to London to fit out their offices. Today Morgan Sindall is valued at more than £620m and has expanded into urban regeneration as well as construction and infrastructure. With the government paying more attention to infrastructure, the shares are a buy. 1,412p
WM Morrison
Shares
Morrisons has reported an eighth consecutive quarter of like-for-like sales growth in the quarter to 29 October, yet the shares have drifted downward. Buy in before Christmas trading begins. Its promotions are attracting shoppers and its premium own-label range has been expanded. A strong balance sheet and a pension surplus means it may offer a progressive dividend. 217.75p
Three to sell
Mitie
Investors Chronicle
The support-services sector has had a torrid time of late, with share-price collapses at Carillion and Interserve. Mitie has also announced bad news, but there may be more to come. Its debt is high, profits are falling, and it faces two investigations from financial regulators. Steer clear of a firm that is vying with Interserve for the title of “second most-shorted outsourcer in the UK”. 238p
Snap Inc
The Times
A hit smartphone app for teens and a billionaire 27-year-old founder might make you think Snap has all the makings of a new tech giant. Yet we are now three “dismal earnings reports” on from the “overhyped float”. We expect new tech firms to lose money, but on the key metric of user growth Snap is underperforming, suggesting that Facebook has successfully cloned its best features. $12.91
Watkin Jones
The Daily Telegraph
Shares in this student-accommodation specialist have risen almost 90% since January. The recent year-end trading update provided further encouragement, but it means further good news is unlikely. A forward p/e ratio of 16 represents a big premium compared with mainstream builders, while the shares yield less than peers at 3%. Time for shareholders to take profits. 249p
And the rest
The Daily Telegraph
Shares in Gama Aviation look “obscenely cheap” given the opportunities in the industry (193.5p). Support-services firm Carillion has bought itself breathing space by scrapping its dividend – existing investors should hold, others avoid (46p).
Investors Chronicle
Tate & Lyle’s investments in “wellness ingredients” means a sweet future (700p). Rising meat consumption spells bright prospects for animal biotech specialist Genus, though the shares are highly rated (2,413p). Employee-benefits specialist Personal Group is ready to bounce back and offers a 5.7% yield to boot (409p).
Shares
Turkish and Russian Domino’s Pizza operator DP Eurasia looks like a stronger bet than its UK counterpart (230p). Small cap Harwood Wealth Management is growing through acquisitions (155p). Flat-panel displays are replacing projectors and audio-visual distributor Midwich stands to benefit (527p). An €18m deal with the European Space Agency has allayed fears that Brexit could mean less business for SciSys (126p). Holiday retailer On the Beach is harnessing its innovative online platform (411.75p). There are issues at Stobart’s biomass energy division, but it is profitable and should pay a 6.2% dividend yield this year (288.5p). Storage space provider Lok’nStore is expanding (385p).
The Times
A strong share price run at JD Wetherspoon’s coupled with thin margins leave “little room for error” (1,252p).
IPO Watch
Bakkavor, a ready-meals supplier to major food retailers such as Tesco, has said it is to go ahead with its IPO after all just a week after pulling out. It will offer shares at 180p (compared with the 195p-235p price range before it pulled the flotation blaming “volatility in the IPO market”), valuing the company at £1.04bn. Baupost, a hedge fund with a stake of about 40%, has placed 20% of its shares with new investors, reports The Times. The Icelandic brothers who founded the business, Agust and Lydur Gudmundsson – have also sold a stake of about 5%. The fund and the brothers together retain a 75% stake. The float aims to raise £100m for investment and to cut debt. Last year, Bakkavor generated revenues of roughly £1.8bn and a pre-tax profit of £63.1m.
A Swedish view
In the struggling European energy sector, electricity firm Fortum is a rare bargain, says Affärsvärlden. If you had bought the shares when it floated in 1998, you’d have seen a 13% a year return. Energy prices in the Nordics have fallen hard in recent years, and the industry also suffered from the fallout following the Fukushima nuclear disaster in Japan. Not Fortum, however, which has expanded. In October, it announced the €8.05bn acquisition of German peer EON’s 47% stake in energy company Uniper, which has triggered a bid (under German rules) for all of the outstanding shares. Uniper is considering the approach as hostile. EON, meanwhile, has agreed to pay Fortum 20% of the purchase price if it withdraws from the deal. Whatever the outcome, Fortum is attractive. It trades on a p/e ratio of 21.