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
Joules
Investors Chronicle
Clothing brand Joules operates a “total retail” strategy, combining 125 shops, a wholesale business and an “extensive online operation”. Management has made an “admirable job” of ensuring that the online and offline operations complement each other, taking full advantage of “all the selling channels at a modern retailer’s disposal”. Retail accounts for 73% of revenue; wholesale makes up the rest. Half of sales are made online and 20% of instore transactions stem from digital avenues such as click-and-collect. The stock offers an “eye-catching” 23% return on capital employed and trades on just 15 times earnings. 260p
4imprint
The Times
This marketing group provides promotional materials such as T-shirts, mugs and umbrellas to raise the profile of its customers’ brands. It is taking market share from rivals and has become the “clear market leader”. The “highly cash-generative” nature of its business provides scope for “special returns” to shareholders. There are risks – low margins, its reliance on the US – but at this price the shares are “a find”. £29.50
Porvair
Shares
Filtration expert Porvair targets niche markets with high demand and strong barriers to entry, such as aviation fuel or aluminium casting.Its business model has led to a lot of repeat business, making income predictable and locking customers in. Porvair’s reputation for reliability means it is “well placed to withstand the economic knocks of the future”. It has certainly “managed volatility impressively” in the past. 630p
Three to sell
Coats Group
The Times
Coats, a member of the FTSE 250 mid-cap index, produces the threads that bind together a fifth of the world’s clothes as well as materials for shoes and trainers. This wide customer base suggests the group should be “bigger and faster-growing than it is”: sales were up by just 2% at the interim stage. The trouble is that most of Coats’s customers are in consumer-facing sectors and thus vulnerable to shifts in confidence and consumption. The uncertain backdrop means there seems little chance of the shares escaping the 70p-90p range they have been trapped in for two years. 76p
Cineworld
Investors Chronicle
Last year’s takeover of America’s Regal Entertainment made Cineworld the second-biggest global chain. However, it also added substantially to the group’s debt load. And now “wobbly trading” means the interest payments “could quickly become a painful millstone”. Admissions slipped by 14.4% in the half-year to August. The US market is extremely competitive and a subscription package (unlimited films for a monthly sum) is floundering. Sell. 241p
Dunelm
The Daily Telegraph
“There is much to like” at homewares and furniture retailer Dunelm. Like-for-like sales climbed by 7.7% last year and operating profits jumped. But after a 50% surge in 2019 the stock is vulnerable. Dunelm is on a “fat multiple” of 16.8 times forecast profits, a hefty premium to the market. That’s too much given the cautious outlook and imponderables such as “consumer preferences [and] the British weather. Avoid. 868p
…and the rest
Shares
Brexit worries have created a bargain 10% discount to net asset value (NAV) for investors in the “well-respected” mid-cap specialist The Mercantile Investment Trust (210.5p). Shares in “high-street bellwether” Next have had a “stellar run” since the start of the year. There’s more to come from this “high-quality, cash-generative shopkeeper” (£58.26). While shares in BAE Systems can no longer be called cheap, defence spending is rising in the US and Britain, and the contractor has proved adept at winning contracts. Buy (563.2p).
The Daily Telegraph
National security fears have put private-equity firm Advent International’s takeover of defence company Cobham on hold. Investors must wait for clarity from the Competition and Markets Authority, although the market reckons the deal will go through (159.8p). Despite “political concerns”, utility SSE still looks like a “solid income option for yield seekers”. Hold (£12.21). Buy cigarette filter-maker Essentra for the “respectable” 5% dividend yield (416p).
The Mail on Sunday
The investment trust 3i Infrastructure consistently hits its target of delivering shareholder returns of 8% to 10%. Stash away a few shares on the dips (£2.92).
Investors Chronicle
Russian miner Polymetal International is “one of the strongest” plays on a rising gold price and still looks cheap (1,150p). Risk management software supplier Ideagen is priced for rapid sales growth – a speculative punt (145.5p). Scottish Mortgage Investment Trust’s big stakes in high-growth companies “could well continue to pay off” in the long run. “Get in cheap” (509.78p).
An American view
Tapestry has gone out of fashion, says Avi Salzman in Barron’s. Shares in the holding company for luxury fashion and accessory brands Coach, Kate Spade and Stuart Weitzman have slipped by a quarter this year, with poor sales at Kate Spade unnerving investors. But the jitters look overdone. Coach, which accounts for 71% of sales, continues to grow solidly and is doing well in China. The other two brands are expanding all over Asia. With the stock on just 11 times forward earnings, investors are getting paid to wait for the offerings at Kate Spade to come back into fashion: the dividend yield is around 5% and Tapestry plans to buy back shares worth 4% of its market value this year.
IPO watch
”You say losses and cash burn; I say investments,” Peloton’s co-founder and CEO John Foley told the Financial Times. Investors clearly don’t think much of his spin, however: the shares in the American fitness-equipment provider slipped by 11% when they made their debut on the Nasdaq on 26 September. Peloton’s sales doubled to $915m in the year to July 2019, but losses quadrupled to $196m. Wall Street’s interest in companies ”without a clear path to profitability” is dwindling, notes the FT’s Richard Henderson. The shares began trading at $27, implying a valuation of $7.7bn. But they fell by 15% before regaining a little of the lost ground.