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
Marshalls
The Times
Adverse weather conditions are the “dubious” excuse offered for many underwhelming corporate results, but Britain’s largest provider of paving and landscaping products has more reason than most to complain. The “Beast from the East” led to a miserable winter for the firm, but performance has since rebounded as strong commercial and public-sector demand for new-build housing and infrastructure helps “the sun to shine”. Possible takeover deals further enhance growth prospects over the next few years. 483.5p
PureTech
The Sunday Times
PureTech is a portfolio drugs company, identifying promising treatments and then spinning them off at a profit. For example, affiliate resTORbio, which is developing treatments for respiratory tract infections, raised £77m when it listed in January. PureTech offers exposure to a wide range of drug developments in areas as diverse as schizophrenia, pain medication and even prescription video games, used to treat ADHD. Such a model helps investors to spread risk; the business merits a closer look. 154p
Royal Bank of Scotland
The Mail on Sunday
The Bank of England’s long-awaited interest-rate hike is good news for bank balance sheets, but memories of the financial crisis have left many investors wary. RBS is still part-owned by the state, but that stake is steadily falling and the first dividend since 2008 has just been announced. With the deadline for PPI claims finally approaching, this looks like a buying opportunity for income investors who sense a turnaround. 240p
Three to sell
JD Wetherspoon
The Sunday Telegraph
Britain now has around half a dozen listed pub companies and some offer good value. Sales growth at JD Wetherspoon is likely to remain strong thanks to an “innovative smartphone app” and its famously cheap offering to consumers. However, analysts at Berenberg think that rising costs could hamper earnings growth and with a price-to-earnings ratio of 17.5 “the shares are nowhere near as cheap” as the beer. Avoid. 1,226p
J Sainsbury
Shares
Shares in Sainsbury’s have surged almost 50% since March, boosted by the announcement by CEO Mike Coupe (pictured) this spring of an audacious £7.3bn takeover of Asda. The merged giant would command a third of the UK grocery market, but the complexities of the merger and regulatory approval process are likely to divert a lot of the board’s attention. That does not bode well for the company’s prospects at a time when like-for-like sales are “swimming in treacle”: they rose just 0.2% in the first quarter. 333.75p
Royal Mail
Investors Chronicle
Royal Mail bulls will tell you that the group’s scale makes it a winner. Yet this month’s £50m fine by Ofcom for abuse of its dominant market position is a reminder that it can be tough at the top. The fine is peanuts compared with the overall balance sheet, but it might curb efforts to grow the parcel business for fear of incurring more regulatory scrutiny. With letter volumes falling it is hard to see where growth can come from, but at 12 times forward earnings the market is still not pricing in Royal Mail’s serious structural challenges. 454p
… and the rest
The Daily Telegraph
Pub chain Fuller, Smith & Turner should keep outperforming as consumers switch to premium drinks (1,250p). City Pub Group, Marston’s and Greene King are also attractive propositions in the pub sector (221p; 93p; 481.75p).
Investors Chronicle
Many investors are wary of water companies amid mounting political pressure, but efficient Severn Trent is a good bet for an era of tighter regulation (2,012p). There is fierce competition for dominance of Europe’s skies, but revenue strength makes easyJet a resilient pick (1,560p). Shoe Zone’s shift to cheaper, out-of-town “big box” stores should boost profitability and the 6.2% dividend yield is attractive (170p). Cash generative UDG Healthcare should benefit from the pharmaceutical outsourcing trend (766p).
Shares
Components business TT Electronics is moving into profitable niches such as machine learning (265p). International Biotechnology Trust offers an attractive way into a sector that will benefit from ageing populations and emerging-market growth (664p). Motor insurer Sabre Insurance is offering a “juicy” 6.2% prospective yield (285p). Shares in bespoke IT systems supplier SciSys still look cheap even after a 36% share price rally (189.5p). The worst is over for ventilation systems business Volution (191p). Publisher RELX is a high-quality stock offering value (1,699p).
The Times
Latest results at Hikma Pharmaceuticals have soothed investors (1,745p). Geographical diversification should insulate office property business CLS Holdings from a messy Brexit (220.5p). Those brave enough to buy the Turkish dip should consider Baring Emerging Europe investment trust (670p).
A German view
IVU Traffic Technologies is a play on the future of public transport, says WirtschaftsWoche. The German group makes software and IT systems for public transport networks, covering everything from fleet management to ticketing. Last year it clinched a contract with DB Regio, a subsidiary of the German railway company operating commuter trains, to supply the country’s short-distance train networks with its software. IVU’s products will also be used in 1,300 buses belonging to Norwegian transport group Torghatten. The ongoing digitalisation of cities’ transport networks and the shift to electric vehicles both bode well for the group. Orders rose by 15% year-on-year in the first quarter.
IPO watch
China’s Nio, an electric-car manufacturer, has filed for an initial public offering in New York. The Shanghai-based group plans to raise $1.8bn, which would mark the fourth-largest US flotation this year. Nio was set up in 2014 and last year launched a seven-seater electric vehicle, the ES8. It is now working on a five-seater, the ES6. Nio resembles a small Tesla – and it certainly burns through cash like its US counterpart. In the first half of 2018, it spent $549m on keeping its operations going, up from $168m for all of last year. It finally began to generate revenue this year, notching up sakes of $7m in the first half of 2018 – a period when net losses exceeded $500m.