Three to buy
ConvaTec
The Sunday Times
This medical-equipment maker has suffered “a bruising run” in recent years. Two profit warnings, supply-chain disruption and the sudden departure of the chief executive have seen the firm relegated from the FTSE 100. Yet there are signs that a turnaround plan is beginning to work. In the long term, the world’s ageing population means growing demand for the catheters and ostomy care that ConvaTec provides. On 14.2 times forward earnings the shares trade at a significant discount to their peers. 150p
Mpac
The Mail on Sunday
This Coventry-based engineering specialist makes machines that pack everything from “Glenfiddich whisky to ice cream”. It also designed the device that “allows PG Tips to make its pyramid teabags”. Clients include drink and drugs giants such as Nestlé, Diageo and AstraZeneca. Most revenue comes from the US and Europe and the business is expanding overseas. This is an attractive buy on a “three to five-year time horizon”. 203p
Next
Money Observer
The high street is a tough place to trade, but Next remains a force to be reckoned with, thanks to savvy online investments and credit arm Next Pay. Half of sales are now generated online and the firm is more profitable than rivals – including internet-only operators such as ASOS and Boohoo. Management is repositioning the store estate to act as part of the distribution network. The “revolutionary” move to begin selling rival brands on its website promises further growth as the brand turns into an online marketplace. 5,656p
Three to sell
Ei Group
Shares
This pub group has agreed a 285p-per-share takeover offer from private operator Stonegate pubs, which owns the Slug & Lettuce chain. Stonegate plans to continue executing Ei’s existing strategy at greater scale. The deal means that the shares have returned 66% in a little over eight months, trouncing the 5% return from the FTSE 350 in the same period. It is likely to require regulatory approval and will then result in the shares being delisted. So it’s time to take profits and recycle capital back into other operators in the sector. 285p.
G4S
The Sunday Telegraph
This security business is one of the world’s biggest cash handlers, yet it’s proved useless at safeguarding investors’ capital in recent years. Management wants to spin off the cash division to focus on its “secure solutions” side, which operates in 90 countries. But a buyer hasn’t yet been forthcoming and a demerger may result. Management has a “questionable” record of delivering on its promises, issues with the pension fund may drag down profits and dividend growth isn’t a given. Stash your cash elsewhere. 195.25p
Pershing Square
Shares
This investment trust offers exposure to excellent businesses in North America. Yet a new $400m bond issue comes at a bad time. It will increase borrowings from 18% to 25% of assets; “high levels of gearing can work against a trust in a market downturn”. We would also question the wisdom of borrowing extra money to invest in America at a time when that nation’s equities look historically overvalued. “Take profits now.” 1,446p
…and the rest
The Daily Telegraph
Honda Motor’s position in hybrid vehicles and motorbikes makes it well-prepared for coming disruption of the industry. Investors can buy in via its New York-listed “American depositary receipts” (ADRs: $26.20). Higher gold prices and output mean that miner Centamin could make up for past disappointments (118.25p). Owing to the fuss over Brexit, British “micro-caps” have been unjustly neglected. The Downing Strategic Micro-Cap trust offers exposure (62.5p).
Investors Chronicle
In a gold rush they say that it is better to sell shovels than to pan for gold yourself, so mining services business Capital Drilling is worth a look (47p). Sell Balfour Beatty: margins are wafer-thin and allegations of irregularities in its US military housing business bode ill (224.5p).
The Mail on Sunday
Kettle-parts maker Strix has taken a hit in the wake of the Woodford debacle, but it is a well-run business with enticing global prospects (169p).
Shares
Ocado’s shares have dramatically rerated as it has blossomed into a “software-driven” facilitator of online delivery, prompting some in the industry to draw parallels with Amazon. Buy (1,187p). Profit upgrades have driven an impressive rally at corporate online trainer Learning Technologies and there is further upside in prospect (114.75p).
The Times
Primark-to-Twinings tea business Associated British Foods is performing strongly, but the shares have been going through a weak patch – buy (2,393p).
A German view
Last year two companies that had always belonged together finally united, says WirtschaftsWoche. Luxottica, an Italian maker of spectacles, merged with Essilor, France’s producer of corrective lenses for glasses. Disputes between the two bosses have marred the last few weeks, but the outlook for the business remains as compelling as ever. Around 4.5 billion people need to have their eyesight corrected, but only two billion have glasses or contact lenses. EssilorLuxottica accounts for 45% of the global market for spectacle lenses; it also makes 25% of the world’s mountings for glasses. The balance sheet is strong, with the debt to Ebitda ratio a mere 0.6. The shares are well worth a look.
IPO watch
Kunlun Group, the Chinese owner of Grindr, has revived plans to float the popular gay dating app after the US dropped its opposition. A few months ago the Chinese gaming company agreed to a request from the US Committee on Foreign Investment in the United States (CFIUS) to sell the US-based app by June 2020 because America was concerned about the personal data of millions of American users. That put a planned flotation on hold. Kunlun has said it will close Grindr’s China operations, and no data will be sent there. The listing will be on a stock exchange outside China. Kunlun acquired a 60% stake in Grindr in 2016 for $93m before buying the rest of the company.