MoneyWeek’s comprehensive guide to this week’s share tips.
Three to buy
Netflix
The Times
The world’s largest video-streaming business will pump $6bn into exclusive content this year and as much as $8bn the year after. This strategy is working, with the firm breaking the 100-million subscriber mark this year. The shares have nearly doubled in the past year, but if one can stomach the “eye-watering” price-to-earnings ratio of 112 then the business has enough momentum to stay among the market leaders. $199.48
Persimmon
The Sunday Telegraph
The government’s extension of the help-to-buy scheme until at least 2021 is good news for this housebuilder – about half of its sales are supported by the scheme. Fattening margins and a well-padded balance sheet should mean generous dividends, so the shares are still worth buying on ten times next year’s forecast earnings. 2,849p
Velocity Composites
The Mail on Sunday
The woes of BAE and Bombardier have weighed on the stockmarket debut of this aircraft industry supplier, which makes composite kits to improve the fuel and environmental performance of aeroplanes. However, aircraft fleets are expected to grow by about 90% over the next 20 years and Velocity is well placed for more cost-conscious times. “Investors who buy at today’s price should be well rewarded.” 84p
Three to sell
Domino’s Pizza
Shares
Some analysts think that new technology, lower prices and stronger advertising will boost this takeaway chain. But recent sales growth reflects weak comparatives last year rather than a genuine improvement in trading. New store openings cannot fix the problem of a saturated market and may cannibalise existing sales as competition mounts. 187.75p
International Personal Finance
Investors Chronicle
The sub-prime lender’s business has suffered from a raft of new rules as well as mounting competition in some of its core European markets. A 5.8% forward dividend yield looks tempting, but a tax dispute in Poland and new price-cap regulation expected in Romania suggest that the group faces too many regulatory and competitive headwinds to justify holding on. 188.75p
OPG Power Ventures
The Daily Telegraph
This Indian electricity generator has increased coal-fired capacity, broadened its portfolio of supply contracts, and paid a maiden dividend. Yet the shares have plunged amid a spike in coal prices and speculation that India could marginalise coal to the benefit of solar. With interest cover on payments on its net debt of £308m looking increasingly skinny, the safest option is to pull the plug. 30.5p
And the rest
The Daily Telegraph
Riverstone Energy’s shale-oil properties are significantly undervalued (1,251p). Defence firm Cobham has performed horribly, but is focusing on core activities and sorting out its balance sheet (143p).
Investors Chronicle
A government clamp down on energy tariffs should help multi-utility group Telecom Plus win more business (1,195p). Learning Technologies is well placed to cash in on a global e-learning market that will be worth $275.1bn by 2022 (61p). Recruiter Harvey Nash boasts a strong brand in a specialised industry (91p).
Shares
Shares in cruise operator Carnival have been hit in the wake of hurricane season, but it is resilient and 2018 should bring better results (5,033p). Events firm Ascential’s launch of a new event in China makes it attractive at the current price (346p). There’s more upside to come for retail-packing specialist Hilton Food (788.75p). Patient contrarians should buy into automotive retailer Vertu Motors (46.5p). A turnaround is gathering pace at TV producer Zinc Media (1.14p).
The Times
Language-support-services specialist RWS Holdings isn’t cheap, but a recent $320m acquisition will turn it into the third-largest player in its growing market (460p). Electronic components supplier Acal is heading for a significant period of growth (334.5p). Sell online clothing retailer Asos – the firm’s shares are trading at almost 60 times this year’s earnings, a rating that “requires a high degree of faith” (5,490p).
IPO watch
Cabot Credit Management, the UK’s biggest debt collector, intends to go public with a £1bn listing on the London Stock Exchange next month. Cabot says it plans to raise £195m for “general corporate purposes”, including paying down debt. The firm’s private-equity owners, JC Flowers and Encore Capital Group, will be able to cash out on part of their investment as part of the initial public offering (IPO).
The news comes weeks after Peter Crook, former boss of troubled subprime lender Provident Financial, resigned from Cabot’s board; his exit delayed the timing of the IPO, which Cabot had planned to announce in September, says Reuters. In 2016, it posted operating profits of £125.7m on revenues of £270.2m, says the Financial Times.
A French view
Everything’s looking good at fashion group SMCP, due to its position in the “affordable luxury” part of the clothing market, says Investir. The firm, which owns three “emblematic brands of Parisian fashion” – Sandro, Maje and Claudie Pierlot – grew sales at an annual average of 24% from 2014-2016.
It’s gaining market share in France and has grown abroad (overseas sales account for 57% of revenues) and embraced the internet (online orders have risen from 2.6% of sales in 2014 to 12% today). SMCP, which is now 60%-owned by Chinese textiles group Shandong Ruyi, listed in Paris last week to raise capital to pay down debt and expand globally. The initial public offering isn’t cheap, at 11.5 times Ebitda, but it has a record of profitable growth. “This attractive story doesn’t seem to be over.”