The stocks and shares the British press is tipping – and recommending you avoid – this week.
Three to buy
C&C Group
Investors Chronicle
Scottish and Irish drinks brands are doing well, which is good news for C&C, the owner of Tennent’s, Magners, Bulmers and Woodchuck. Thanks to a new brewing deal in India and a distribution agreement in South Africa, exports are growing at 15% to 20% each year. Its shares are getting more expensive, at 16 times forward earnings, but buybacks and billowing free cash flow more than justify the rating. 418p
Conviviality
The Mail On Sunday
When Conviviality listed three years ago it owned one off-licence chain, Bargain Booze, and the shares were trading at £1. It has since expanded into one of the largest drinks groups in the UK, buying Wine Rack, Bibendum and drinks distributor Matthew Clark. Integrating the businesses will be hard work, but will increase the group’s product range, boosting sales and cutting costs. Here’s to higher profits. 209p
Hurricane Energy
Investors Chronicle
A collapse in the oil price has not deterred Hurricane Energy, which has pulled off a £52m equity fundraising at a hefty 46% premium to its share price, allowing it fully to capitalise on depressed drilling costs in the North Sea. The timing could “hardly be better”. It’s a “game changer” for the firm. 13p
Three to sell
EasyJet
The Daily Telegraph
The airline industry is entering a new battle over fares. Profits are usually concentrated on the upcoming summer months and demand for beach holidays is strong, but the industry has overinvested in adding new capacity, which has pushed EasyJet’s revenue down from £55 to £51 per seat. That’s a major headwind. “Sell before the shares hit turbulence.” 1,510p
TalkTalk
The Times
TalkTalk has only just recovered from an embarrassing cyberattack, which cost the telecoms provider £42m. A dividend cut is unlikely (and would not go down well with 30% shareholder Sir Charles Dunstone), but investors appear to be betting on an improbable takeover. At 18 times earnings, the shares are now looking a little pricey. 269p
Experian
The Times
When a fifth of your business is in Brazil, “you have a problem”, given the country’s recent woes. That’s the main reason that profits are flat and revenue is down at credit-checking agency Experian. The share price is being propped up by a buyback programme, clocking in at $400m this year – but on 20 times earnings, it’s difficult to find a reason to buy in. “Avoid.” 1,253p
And the rest
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| Buys | |
|---|---|
| Aldermore | New loans are surging and the shares are cheap (Investors Chronicle) 200p |
| Capita | After a tough period, acquisitions are now boosting the business (Times) 1,078p |
| Clinigen | Shares are down at the pharma firm, but the sell-off is overdone (Investors Chronicle) 520p |
| Compass Group | The catering company is enjoying good growth in America (Investors Chronicle) 1,279p |
| Dairy Crest | Dairy Crest has sold its dairies arm and will focus on branded goods (Shares) 573p |
| Hiscox | The insurer has cut its special dividend, but its premiums are rising (Times) 947p |
| Mondi | Operating profit is rising at the South African paper group (Times) 1,358p |
| Ricardo | Emissions testing scandals will boost the clean tech firm (Investors Chronicle.) 837p |
| T Clarke | The shares are a “bargain”, thanks to Brexit fears (Shares) 88p |
| Sells | |
|---|---|
| Bango | The mobile app firm has failed to turn a profit for ten years (Shares) 56p |
| G4S | A turnaround job at contractor G4S “will not happen overnight” (Investors Chronicle) 194p |
| National Grid | Regulators will clampdown on the utility’s profits (Sunday Times) 1,010p |
Directors’ dealings
Koovs, the online retailer “for all your wardrobe needs”, sells Western fashion to India. It aspires to the success of ASOS, which shifts more than $1bn of clothes each year. But Koovs is a smaller outfit, with total sales of £2.1m in 2015. It has also been tapping investors for cash, raising £22m to fund its growing needs.
Chairman Lord Waheed Alli, who previously chaired ASOS, has dipped into his pocket, contributing nearly £6m, making him the second largest investor, behind fund manager Ruffer. Sales are expected to triple this year.
An American view
Warren Buffett’s investment vehicle Berkshire Hathaway owns almost 10% of America’s Axalta Coating Systems, and it’s not hard to see the appeal of this small cap, says David Englander in Barron’s.
Axalta is the global leader in paints and coatings for cars and lorries. It sells its brands through 4,000 distributors. Refinishing – touching up damaged or weathered vehicles – accounts for almost half of company sales.
Products for new cars comprise just 11% of sales in the US and Europe, so the business isn’t very cyclical; collisions and miles driven, rather than new car sales, are key – although the car sales are currently healthy.
Barriers to entry “are steep”, helping to explain why profits are expected to grow by 22% in 2017. It looks reasonably valued on a 2016 price-to-earnings ratio of 24.