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
Keystone Law
Investors Chronicle
This legal platform uses its proprietary software to provide centralised administration and business support to self-employed lawyers in return for a cut of their fees. The platform model allows the business to add new users at limited cost, which makes for strong cash generation. A forward price/earnings (p/e) ratio of 32 is steep, but earnings forecasts have been upgraded frequently and the positive momentum has “solid foundations”. 528p
Marriott International
Barron’s
The world’s largest hotel operator boasts 1.3 million rooms and is expanding into “fast-growing regions”. Airbnb poses a threat, but the group has responded with a luxury strategy focused on selling travel “experiences”, such as tours and spa treatments that make it “more than a hotel company”. Marriott operates an asset-light model – more than 70% of properties are franchised – that generates more than $2bn in free cash flow a year. Earnings growth has outstripped the broader market recently. Check in. $137
Merlin Entertainments
The Times
Europe’s leading provider of visitor attractions has a hand in everything from the London Eye and Madame Tussauds to Alton Towers and Legoland Parks. Visitor numbers last year totalled 67 million across its 130-plus attractions. The shares have proved vulnerable to fluctuating tourist numbers, but a growing global middle class and “parents’ rising desire to do things that keep their kids away from their screens” bode well. At 18.9 times forecast earnings, the shares are “clearly undervalued”. 389.25p
Three to sell
Reckitt Benckiser
Shares
News that PepsiCo chief Laxman Narasimhan will take the reins at this consumer goods giant is likely to mean more investment in brands with the aim of fattening margins. The maker of Strepsils and Dettol has been hit by slowing like-for-like sales growth, a high-profile cyberattack and a balance sheet stretched by 2017’s $18bn acquisition of infant nutrition group Mead Johnson. A new boss means that a “kitchen-sinking” operation of all the bad news is likely. Avoid the stock until that process is complete. 6,565p
Ricardo
Money Observer
This engineering consultancy provides research and development outsourcing to the car industry, with a particular emphasis on transmission and engine emission systems. Exposure to such investment makes the business a cyclical play. The exposure to emission reduction has been a boon over the past decade, with the group’s market capitalisation growing from about £150m in 2010 to £400m-£500m today. That leaves little further upside in prospect, and the transition to electric vehicles is a long-term threat. 740p
WANdisco
The Sunday Times
This Aim-listed developer helps firms move “live” data over to cloud services run by the likes of Microsoft and Amazon. It listed in 2012 and rocketed to a valuation of £1bn, but the market has not grown as fast as hoped and today it is worth just £233m. Sales fell 13% last year and pre-tax losses swelled to $19.4m. Boardroom coups and counter-coups aren’t helping. With 40 competitors in this sector, the short-sellers are moving in. Sell. 504p
…and the rest
The Daily Telegraph
Better relations with regulator Ofcom may help BT to “make its scale count”. The “cherished” dividend also looks safe for now – hold (201.25p). A soaring gold price is no comfort for West African miner Avesoro Resources: there has been another downgrade to production forecasts. Sell (51.5p).
Investors Chronicle
Technological advances have not heralded the dawn of the paperless office, so market leading document-management business Restore should continue to deliver attractive returns (400p). A struggling Nigerian economy is bad news for consumer-goods business PZ Cussons – sell (214p).
The Mail on Sunday
Internationally diversified Sequoia Economic Infrastructure Income Fund is a defensive pick that offers a 5.7% yield (110p). The 130-year old engineering business T Clarke is going from strength to strength (116p).
Shares
Tighter regulation has caused gambling shares to fall more than 40% on average over the past year, but a new focus on mass-market punters is a reason to bet on 888 Holdings (154p). Small caps have the potential to deliver outsized returns, but are often neglected. Invesco Perpetual UK Smaller Companies Investment Trust offers exposure (527.75p). New business wins in Thailand and Pakistan confirm the dynamism of tech business Sopheon and further share-price upside lies ahead (1,115p). Identity data intelligence expert GB Group is a “stand-out” UK tech growth story (540p). Specialist recruitment firm SThree looks cheap on ten times earnings (292p).
A German view
In 1981, Do & Co was a restaurant in the centre of Vienna. Today it’s a global catering group known for high-quality food that notched up annual sales of €860m in 2018; operating profits reached €7m. The group’s three divisions comprise restaurants and hotels; international event catering (including Formula One motor races); and airline meals. The latter category is the biggest, worth 60% of revenues. The long-term outlook for global aviation is encouraging as the world’s population gradually gets richer, says Focus Money, and analysts have been impressed by a new contract to provide meals for British Airways and Iberia. Berenberg Bank sees scope for the stock to gain a fifth.
IPO watch
Trainline, the train- and bus-ticket sales app, made a successful debut on the London Stock Exchange (LSE) last Friday, with the stock jumping by a fifth. The initial public offering (IPO) valued the group at £1.7bn and raised £110m to fund expansion; the group already operates in 45 countries. Trainline’s arrival was “just the ticket for a jittery” IPO market, says Lex in the Financial Times. The LSE hosted 89 tech IPOs last year, the third-highest of any exchange, and Europe has seen 62% more tech firms float in the four years to 2018 than North America. But US tech IPOs remain far bigger on average: witness last week’s $20bn debut of corporate messaging-service Slack.