MoneyWeek’s comprehensive guide to this week’s share tips from the rest of the UK’s financial press.
Three to buy
ConvaTec
The Sunday Telegraph;
Last year, medical products and technology firm ConvaTec became London’s largest healthcare initial public offering (IPO) for 20 years. It has been hitting the acquisition trail, but its strong cash flows and the country’s ageing population make it a good long-term pick. The shares have been rising “cautiously” since the flotation, but they’re trading on 16 times this year’s earnings, so still look good value. 238.25p
Severfield
The Mail on Sunday:
The UK’s largest manufacturer of structural steel is involved in everything from sports stadiums to bridges and power stations. A multi-year efficiency drive should protect margins even if UK demand pulls back as Brexit gathers pace and the weak pound is making its exports more competitive. The chance of special dividends over the next few years further sweetens the deal. 77.75p
Whitbread
The Sunday Times
The owner of Premier Inn and Costa Coffee is trying to navigate a “minefield” of higher inflation and labour costs. But it unveiled a £150m plan to cut staff costs in November, while the weaker pound and stronger demand from foreign tourists means revenue-per-room at Premier Inn surged in December. The shares look cheap. 4,097p
Three to sell
Vislink: Shares
A deal to sell Vislink’s communications systems business to XG Technology for $16m will be vital to shore up its “stretched balance sheet”. So XG’s request to pay $9.5m in loan notes rather than cash has raised concerns. XG’s balance sheet is far from solid, so expect “further twists and turns” in the saga. If the deal falls through it will be a be a “massive blow” for Vislink. 16.25p
Countrywide: Investors Chronicle
The level of housing stock on estate agents’ books hit a record low in 2016 and transactions are likely to fall again this year. That would be bad enough for a group like Countrywide, but with competition from online providers such as Purplebricks increasing, and proposals to ban letting agent fees to tenants, it’s no surprise that analysts expect a significant cut in the firm’s dividend payment. 171.5p
Mears: The Times
Mears delivers social care on behalf of local authorities. The firm has recently decided to walk away from 15 unprofitable contracts, taking write-offs in the process. The biggest constraint on its business is the shortage of high-quality care workers even as demand for social care grows. Profits should pick up this year, but the 2.8% dividend is “not much to shout about”. Avoid. 460.25p
And the rest
Shares: IT consultancy FDM has beaten market expectations for the third year (620.5p). Belfast-based software firm Kainos should profit from government digitisation projects (198p). Employee benefits specialist Personal Group’s insurance side makes it a good bet for the long term (350p). Shares in biotech firm Shire are looking cheap (4,658p).
Investors Chronicle: Shares in components manufacturer Senior look cheap as stabilising oil prices and higher US infrastructure spending bring brighter prospects (193p). Retailer Shoe Zone is pushing down its rental costs and paying out a special dividend (180p). A mounting cash pile at Russian oil company Exillon Energy might turn investors’ heads (155p).
The Daily Telegraph: People don’t stop spending on their pets in a downturn, making Aim-listed vet business CVS a good defensive choice (1,082p). Outsourcer Serco is not without risks, but “looks to be on the way back” after a difficult period (147p). Supermarkets still face fierce competition, but low expectations and falling debt make Wm Morrison a buy (240p).
The Times: Sub-prime lender Provident Financial is not cheap, but its dominant position “looks unassailable” (2,836p). Oil firm Cairn Energy is “worth a speculative punt” (243p). Newly merged gambling firm Ladbrokes Coral could surprise on the upside (128.5p). Data and credit-checking business Experian is a reliable business with plenty of cash (1,551p).
An American view
Bearish investors who have sold shares in Zimmer Biomet Holdings in the past few months have thrown the baby out with the bathwater, says Scott Black of Delphi Management in Barron’s. There has been a lot of talk about healthcare companies raising prices too far, but this maker of orthopaedic products, such as knee and hip joints, has actually trimmed its selling prices over the past two years, so unlike drug firms, “it can’t be accused of price-gouging”. The outlook is auspicious: people of 65 and over – those most likely to need new joints – comprised 7.6% of the world’s population in 2010, and in 2020 the figure will 9.3%. The company should grow revenues by 4% to around $8bn this year. It is also paying off debt incurred by a recent acquisition and costs a lot less than its major rivals.
IPO watch
Burundi-based miner Rainbow Rare Earths is to float on Aim at the end of this month, hoping to benefit from China’s near-monopoly on the supply of rare-earth elements, which are increasingly in demand to make powerful magnets for products such as electric cars and wind turbines. Its Gakara Project is almost ready to begin production and contains some of the world’s highest-grade deposits of rare-earth metals. The company has already signed a ten-year agreement with ThyssenKrupp to supply 5,000 tonnes of metals concentrate a year.Rainbow is backed by Pella Resources, an Africa-focused natural resources group that invests in early-stage companies. Previous Pella-linked IPOs include Petra Diamonds, which floated on Aim in 2008.