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
Direct Line
The Sunday Times
Motor insurers face many long-term challenges, from the prospect of safer driverless cars disrupting the market to pressure from watchdogs to treat loyal customers better. The business has also been slow to adapt to the digital age, but Direct Line recently launched Darwin, a digital brand tailored to the price-comparison websites where most insurance is purchased nowadays. An 8% fall leaves the shares looking cheap on a dividend yield of 6%. Direct Line is “revving to go”. 338p
easyHotel
The Times
This budget hotel operator keeps making progress, yet the stock has slumped as though it had issued a profit warning, down from highs of 128p last year. Political uncertainty has reduced both leisure and corporate demand for hotels, yet with an average room price of £45 per night easyHotel is better placed than rivals to weather any downturn. The shares deserve to trade above 2014’s 80p float price. 70p
Morses Club
The Mail on Sunday
Doorstep lenders are often accused of “charging too much and harassing late payers”, but they serve a real need in a country where one in five adults cannot borrow from mainstream lenders. The sector is more regulated than it once was and Morses is trying to take the practice upmarket, launching a specialised debit card to make receiving and spending loans smoother.
The firm has also moved into the online lending market. The shares have done well since listing in 2016 and there is “plenty more mileage” in the stock. 173p
Three to sell
IWG
The Sunday Telegraph
Co-working and corporate downsizing have sparked a boom in demand for serviced offices provided by the likes of IWG’s Regus brand. The group is ploughing about £300m a year into capital expenditure to create flexible working spaces similar to those of US start-up WeWork. The result is that over the last three years underlying earnings have declined while net debt has more than tripled. New accounting rules for leases will do nothing to flatter the books either. Trading on 20 times this year’s forecast earnings, the stock is best avoided for now. 275.75p
VP Group
Shares
News of a Competition and Markets Authority (CMA) probe into possible price-fixing at VP and two other construction suppliers should prompt investors to err on the side of caution. Recent performance at the specialist-equipment rental firm has been mixed, with steady demand in the core UK division and good numbers in Asia, but continued weakness at the offshore oil and gas unit. Big potential fines now mean the sensible move is to absorb the loss and await the outcome of the probe. 916p
Rolls-Royce
Investors Chronicle
A raft of “exceptional” charges saw Rolls-Royce sink to a loss of £803m in 2018. Underlying pre-tax profit was £616m, while improving free cash flow and a pick-up in orders are grounds for optimism. However, accounting changes are flattering the figures, while deteriorating blades in the group’s Trent 1000 engine are another worry. Given a softer outlook for aviation in the near term, we think it is time to “eject”. 916p
…and the rest
The Daily Telegraph
News of a £12m pre-tax loss at digital inkjet printer Xaar blows a hole in cash reserves and saps our confidence in a turnaround – sell (86.75p). Investment trust Oakley Capital boasts a “Rolodex of contacts” among successful European entrepreneurs, but past mistakes mean that it trades at a wide discount to net asset value – buy (197p). Shares in homeware and furniture chain Dunelm have gained 60% this year thanks to solid sales growth, but on 19 times forecast earnings there is “little room for error” (880p).
Investors Chronicle
The medical-equipment sector is grappling with regulation, but surgical wound-care specialist Advanced Medical Solutions will ultimately benefit from the higher barriers to new competition created by more complex laws (324p).
The Mail on Sunday
Turnover at egg-free bakery chain Cake Box rose 30% in the year to March, an impressive result given today’s tough retail environment. Expect the shares to “keep
on delivering” (158p).
Shares
Niche science-kit manufacturer Judges Scientific is trading on just 14.8 times 2019 earnings, a bargain for a business with a record of solid organic growth and astute acquisitions (2,850p). The market has overreacted to a dividend cut at Central Asia Metals. The shares are a great play on copper and zinc (257.5p).
The Times
Hollywood Bowl Group has “played almost the perfect game” since flotation in 2016 and a trading update shows it can continue to grow despite weakening consumer confidence (216p).
An American view
Isra Vision is one of Germany’s best businesses, says Focus Money. It specialises in robotic vision (a key step towards industrial digitisation), measurement, and surface and quality inspection technologies. Its products are applied to areas including car manufacturing, semiconductors and glass for solar panels. Sales rose by 10% to €34m in the latest quarter, with pre-tax profits up 11% to€6.9m.
Orders were up by 15.7%year-on-year, and there is no sign of demand slowing. The company is debt-free and plans to bolster growth further with acquisitions. The stock has risen strongly this year to €35 and looks set to reclaim last year’s record peak of €60.
IPO watch
The initial public offering (IPO) of ride-hailing app Lyft has proved a disappointment, with the shares slipping below their issue price; they now cost less than $60. The group “pushed too hard” and priced its stock at an expensive $72, notes
Andrew Bary in Barron’s. Pinterest, the social-media site based on images and videos – the online equivalent of a bulletin board – is about to float and will reportedly offer its stock for $15-$17 a share, suggesting a valuation of $11bn, a tad less than the $12bn it was deemed worth in its last private funding round. Not only is it “[pricing] the deal to sell”, but unlike Lyft it is also close to making an annual profit.