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
Alfa Financial
The Times
This software provider listed in May 2017 to much fanfare. Businesses are waking up to the importance of upgrading their IT systems, but contract wins can be unpredictable, leaving the earnings profile as “lumpy as a bowl of sugar cubes”. The shares have slid since the float and bad first-half results this month triggered another fall. Yet investors’ focus on the earnings cycle ignores the appearance of new clients and the promise of bigger contracts. For those willing to take on risk, the lowly valuation signals a “screaming ‘buy’”. 148p
Savannah Petroleum
Shares
This Aim-listed oil play, which boasts natural gas and oil assets in Nigeria and Niger, has been underperforming peers of late. A protracted reverse takeover of distressed peer Seven has been blamed for the share price lull, while management reckons that a shareholder selling out may also have contributed to the difficulties. Yet with these issues behind it, the firm can now start to close the valuation gap. The shares offer big potential upside for investors willing to stomach the high risk of exposure to volatile oil prices. 26.5p
PCF Group
The Mail on Sunday
This challenger bank had almost a quarter of a century of experience as an asset finance house, lending to small businesses so they could buy equipment, before obtaining a banking licence last year. The successful deposit side funds a growing loan book – PCF is known for operating in the underserved area of lending to owners of classic cars, motor homes and horseboxes. There is more growth to come after a promising first year. 37p
Three to sell
Bakkavor
The Times
This company supplies major supermarkets such as Waitrose with fresh food. In the six months to the end of June the firm suffered a revenue decline in the UK, which accounts for 90% of total sales. Bakkavor has been hit by higher ingredient costs and says it doesn’t expect this to change soon. Moreover, only 25% of its shares are freely tradeable on the market, so are prone to volatility. Steer clear. 172.75p
IG Design
The Daily Telegraph
Investors in this card- and gift-wrap specialist are sitting on “thumping capital returns” after a £56.5m takeover deal with US peer Impact Innovations. The deal offers enhanced scale and US market share. But the new outfit will be dependent on sales to Walmart, which has substantial negotiating clout, and many British firms have come a cropper stateside before – there is a reason for the old joke about “two peoples divided by a common language”. With the forward price-to-earnings ratio up to 24 there is little more upside on offer, but there is always the risk of disappointments to come. Time to take profits. 584p
ImmuPharma
The Sunday Times
This biotech firm was the darling of the sector last year amid hopes for a new treatment for the autoimmune disease lupus. It raised £10m ahead of results for its drug Lupuzor in April, but it does “not appear to work” and the firm didn’t have anything else in the pipeline. The shares crashed 77% in one day. Management still insists Lupuzor has “blockbuster potential”, but biotech investors should heed a “cautionary tale”. 18p
…and the rest
The Daily Telegraph
Few are bullish about the high street, but income investors should hold Marks & Spencer (its wares are pictured) as long as the dividend remains secure (293.5p). Buy-to-let lending specialist OneSavings Bank is growing its loan book and dividend – a “buy for any reader with spare cash” (409.25p). The mainstream motor insurance market is competitive, but small cap Sabre preserves profitability by serving niche areas (274p).
Investors Chronicle
Gift retailer Card Factory is suffering from low consumer confidence and declining sales (192p). Property investor St. Modwen Properties has shifted from the troubled retail sector into more lucrative industrial logistics and housebuilding, but the shares do not reflect the enhanced growth potential (386p). New technologies mean anyone can be a content creator – broadcast and photographic kit supplier Vitec is well placed to serve this market (1,310p).
Shares
Sausage-skin maker Devro offers a “tasty turnaround” story (191.5p). Half-year results show that earnings at Gamma Communications have jumped 31%. Some profit-taking would be “judicious” at the current multiple, but long-term investors should hold on to a top-quality business (900p).
The Times
Veterinary-products supplier Dechra Pharmaceuticals is a “perfectly healthy business”, but on 71 times earnings the shares are “insanely” overrated (2,452p). The rise of e-commerce has made packaging a hot area, so buy into Mondi, which trades at a discount to rivals DS Smith and Smurfit Kappa (2,149p; 493.25p; 3,200p).
An American view
Under CEO Robert Bakish, US media conglomerate Viacom is slowly getting its act together, says Jack Hough in Barron’s. The immediate aim is to improve the group’s television output and reverse a series of film flops. There are “hopeful signs” – key TV channels MTV and Comedy Central have seen higher ratings recently, while the film division is set to return to profitability in the next few years after narrowing its losses this year. Now Viacom needs to create new content for streaming services. Considering the solid progress so far, the shares look underpriced, trading at seven times earnings and with a yield of almost 3%. “With more signs of progress in the year ahead”, the shares could rise by 20%.
IPO watch
Online video-games retailer Green Man Gaming plans to go public on Aim, London’s junior stock exchange, in September at a valuation of about £100m. Founded in 2009, the firm sells more than 6,600 games for PC, PlayStation and Nintendo Switch. Unlike traditional games retailers, Green Man doesn’t hold any physical stock, instead selling access to games via digital “keys”. The group serves customers across 195 countries, but has hitherto largely focused on the UK, US and Europe, although it is now looking to expand into emerging markets. In 2017 Green Man posted revenue of £47.5m, up 28% on the previous year.
It has raised £6.7m of equity capital and has no debt.