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
Prudential
Shares
Shares in this multinational insurer have underperformed since a plan to demerge the UK and European operation was announced last March, but investors should not lose heart. This is an “excellent opportunity” to buy a more focused business geared to Asian growth. The Brookings Institution estimates that by 2030 two-thirds of the global middle class will live in Asia. That implies new demand for insurance and savings products and “long-term double-digit growth”. 1,564p
Hurricane Energy
The Sunday Times
Hurricane is an Aim-listed business with “huge potential”, but big risks too. The North Sea oil explorer owns licences that could yield 2.3 billion barrels of oil and gas, the “largest undeveloped resource base in the UK”. Yet extraction from “basement reservoirs” – natural fractures in the sea bed – will require novel techniques that have not previously been used in British waters. The firm’s Lancaster field is expected to begin production within months. If it manages to “whip up a storm” then there is scope for the share price to double. 45p
Team17
The Daily Telegraph
Instead of taking on the risks of developing games in-house, this video-games publisher works like a record label, encouraging outside developers to send in ideas and then selecting the best. Team17 provides the capital and expertise needed to turn good ideas into a product ready for market. A rigorous selection procedure ensures that the business “very rarely loses money on a game”. It’s a low-risk way to play the booming games market. 235p
Three to sell
Sophos
Investors Chronicle
A spate of high-profile cyberattacks – notably the 2017 “WannaCry” hack of the NHS – stimulated demand for cyber-security and drove excellent performance at this security software group. Yet Sophos has failed to maintain momentum after a bumper period in the year to March 2018. Margins are coming under pressure as competition intensifies, making the forward price-to-earnings ratio of 19 look “unjustifiably pricey”. 295.5p
Babcock International
Investors Chronicle
This defence contractor operates in specialised areas such as marine engineering and nuclear decommissioning, but that has not insulated it from bearish market sentiment towards government outsourcers. The shares are heavily shorted, but recent bad news – including extra restructuring charges and lower sales guidance – makes us think that the short-sellers have a point. Unimpressive cash conversion and a worrying debt picture make it a good time to sell up. 510p
Ocado
The Motley Fool UK
A string of technology deals with major retailers over the past two years have proved the Ocado doubters wrong, with the shares returning a whopping 460% since April 2017. Yet most of the deals unveiled so far have lacked detailed financial information and no profits are expected for another two years. That makes it very difficult to evaluate the group’s long-term potential, but the current £9.6bn market capitalisation looks outrageously optimistic. After such staggering gains investors would be well advised to bank their profits. 1,389.75p
…and the rest
The Daily Telegraph
Henderson Smaller Companies is a well-diversified trust with an “exceptional record” that should appeal to growth and income investors alike (840p).
Investors Chronicle
Challenger bank Paragon’s focus on buy-to-let loans is a concern, but lending is growing and it could become a takeover target in a sector “rife” with consolidation (434.5p). There are 57 nuclear reactors under construction worldwide even as major producers cut their uranium supplies. That is a boon for uranium stockpiler Yellow Cake (221p). A competitive UK domestic market and margin pressure in Europe will continue to weigh on performance at online electrical appliance retailer AO World. Sell (90p).
Shares
Businesses are grappling with technological disruption and IT projects specialist FDM is ideally placed to help them (924p). We remain bullish on AstraZeneca in the wake of the pharmaceutical giant’s $6.9bn cancer-licensing deal with Japan’s Daiichi Sankyo (6,167p).
The Times
FTSE 100 distributor Bunzl has agreed no fewer than 157 acquisitions in the past 15 years, but good organic growth shows that the business is capable of delivering healthy returns with or without the deals – buy (2,536p). Construction and engineering group Costain is in rude financial health, but the shares trade on 8.8 times forecast earnings and offer a “tempting” 4.5% yield (341p). Cattle and pig fertilisation service Genus has a “punchy” valuation, but top growth prospects in China and India (2,202p). Consumer-credit data group Experian is “richly valued” on 26 times earnings, but promises “steady long-term returns” – hold (2,110p).
A German view
Single-person households are on the rise, while more and more people are finding jobs, says WirtschaftsWoche. So people have less time at home to do the dusting and hoovering, which bodes well for America’s iRobot, the largest producer of household robots. It has sold 20 million of them and recently reached the $1bn sales mark. The gadgets are popular in the US, but there is still ample growth potential in Europe. The technology can also be applied to other areas, such as assisting with medical procedures and operations, or defusing bombs. The group has applied for 1,000 patents. iRobot’s net profit margin has reached 8.6% and the balance sheet is solid, with no debt and $162m of cash.
IPO watch
Loungers is defying the gloom in the casual-dining sector by seeking an initial public offering (IPO) on London’s junior stockmarket, Aim. The Bristol-based group’s flotation will value it at £300m, or 18 times earnings; most stocks in the industry are worth 50% less. Loungers insists that its all-day cafe-dining concept sets it apart from the likes of Giraffe, Jamie’s Italian and Gourmet Burger Kitchen, which are all retrenching. The idea is that the “all-day concept attracts different demographics for coffee hour, lunch and/or cocktail hour”, notes Matthew Vincent in the Financial Times. So far, at least, this seems to be working. Loungers aims to open another 25 restaurants this year.