MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK’s financial pages.
Three to buy
Abercrombie & Fitch
The Daily Telegraph
The US-listed clothing retailer was once an investment darling, admired for its ability to pull in a youthful audience and generate excellent margins for its premium offering. Yet an arrogant management team pushed the exclusivity message too far, triggering a social-media backlash and collapsing sales. New leadership has been repairing the brand’s image and redesigning the stores. It’s a risky bet, but with the shares still in the “bargain basement” you could double your money in the coming years. $22.93
The Times
Mark Zuckerberg is sometimes portrayed as a “nerdy good guy”, but you don’t build a $500bn business by being “nice all the time”. The Cambridge Analytica scandal highlights what we already knew: Facebook plays “fast and loose with its users’ data”. Yet most people are happy enough with the trade-off and advertisers have stuck with Facebook through previous scandals because its gets results. This is a buying opportunity. $169.39
Reckitt Benckiser
The Times
Reckitt shares rallied strongly last week after it pulled out of talks to buy the consumer health unit of US pharma giant Pfizer. Investors had been concerned that splashing $15bn-$20bn on the business would prove too much of a financial stretch at a time when Reckitt is still struggling to digest last year’s $16.7bn acquisition of baby formula maker Mead Johnson. With a Pfizer deal off the cards, the company’s management will now be under more pressure to deliver organic growth from the existing portfolio. Buy. 5,896p
Three to sell
Gym Group
Investors Chronicle
The no-frills fitness operator continues to add new sites, opening 21 locations last year, with a further 18 added through acquisition. Top-line growth is strong, but cash profits have been slipping at “mature” sites – those open for at least 24 months – raising questions about mounting competitive pressure. Debt levels are also rising, suggesting that the group’s margins need a “workout”. A forward price/earnings (p/e) ratio of 27 “makes the shares too rich for our blood”. 253p
Fever-Tree
The Sunday Times
The tonic-water maker has been riding a resurgence in the popularity of gin to become one of the most highly valued companies on London’s Aim market. The group also boasts an “ultra lean” business model: it outsources manufacturing and distribution and employs just 60 staff. The shares have gained an amazing 1,994% since listing in 2014, but a heady p/e multiple suggests the share price may have become “detached from reality”. With revitalised competition from arch-rival Schweppes, this “gin bubble will not last for ever”. Avoid. 2,807p
Micro Focus
Shares
We got it wrong, says Shares. The magazine tipped this software play earlier this month on the basis that the shares had been oversold, only for them to plunge 60% following a profit warning on 19 March. The issues mainly stem from the $8.8bn takeover of HPE’s software assets. It’s a “stark reminder of the risks involved” when buying stocks. Avoid until the firm’s management shows that it is getting a grip on the situation. 975.5p
…and the rest
The Mail on Sunday
Expansion into new markets is making chinaware specialist Portmeirion (its wares are pictured above) a more resilient pick and the stock should have further upside from here (1027.5p).
The Daily Telegraph
Multinational health provider Mediclinic has not “covered itself in glory” since joining the FTSE 100 two years ago, but there are signs of a turnaround, with a more stable political situation in South Africa an added bonus (579p).
Investors Chronicle
Investment managers are increasingly turning to portfolio analysis services such as StatPro to comply with new Mifid II regulations and fend off competition from passive funds (177p). A long-awaited recovery in the global shipping market should buoy shipping services business Clarkson (3,400p). Wealth manager Brewin Dolphin’s pivot towards high-margin discretionary wealth management is starting to pay off, yet the shares still trade at a discount to rivals (341.75p). Copper prices are up 50% in the past two years amid forecasts of a looming deficit in supplies, leaving Aim-listed Atalaya Mining with more cash to expand operations (212p).
Shares
Chemicals business Synthomer, which makes polymers used in everything from shoe insoles to carpets, should continue to deliver earnings growth (488.5p). Tighter air quality regulations will drive growth at ventilation products business Volution, but the stock still looks cheap (200p). LCD screen supplier Midwich is using acquisitions to enter new territories (550p). Patient investors should invest in WM Morrison and its expanding wholesale operation (208p).
A German view
Investors should take a good look at Essilor, the world’s biggest optical lens manufacturer, says WirtschaftsWoche. It has just merged with Luxottica, the No.1 eyewear group, whose brands include Ray-Ban and Sunglass Hut. There will be plenty for the combined entity to do: 4.3 billion people globally suffer from poor vision, but only 1.8 billion have glasses or contact lenses. Workers’ poor eyesight costs the global economy around $275bn in lost productivity. So there is a solid structural growth story here, while the group could get a further fillip from buying up competitors in the fragmented market. Essilor still only has 13% of the eyeglass lens market, and Luxottica 14% of the eyewear one. Essilor’s dividend yield is 1.42%.
IPO watch
DocuSign, the company which pioneered the e-signature, has filed for an initial public offering to go ahead in the second or third quarter of 2018, reports TechCrunch. Since its foundation in 2003, the San Francisco-based company has raised over $500m from firms such as Bain Capital, GV (Google Ventures) and Dell. In its latest funding round in 2015, DocuSign was valued at $3.08bn. The firm is aiming to get the world’s businesses to sign documents online and has worked with enterprises including T-Mobile, Salesforce and Bank of America. North America is its main market, but it is also expanding around the world.