The FTSE kicked off June in a positive manner, but a number of potential banana skins lie in wait for markets this month – the Federal Reserve could raise interest rates as early as the 15th, while a vote to leave the EU on the 23rd is likely to lead to a short-term correction, at the very least.
The bank holiday on Monday means this week’s roundup of share-tips from the national newspapers is shorter than normal – nevertheless, here they are.
Wednesday
Hill & Smith – Hold
Questor kicked off this week’s roundup by recommending that investors hang on to Hill & Smith. The company makes road signs, safety barriers and railway signals, so stands to win off the back of government infrastructure development plans. It is also active in the US, where it has similarly benefited from government building work and it continues to push into new sectors as well. Recent solid results have driven the shares to trade on a 14 times multiple, but as analysts have noted, this ignores the potential for the company to become a bid target – that lightly used £210m debt facility certainly looks attractive.
IG Group – Sell
Tempus said it would be a good idea to avoid IG Group. This stock has historically been seen as a proxy for volatility, with a lumpy earnings stream being seen as a result, but the column notes this is less the case now. The company is, however, continuing to increase its client base and with a payback time of around three months, it is at least for now sitting in something of a virtuous circle. The growing customer base will help ensure full-year results are ahead of expectations and the fourth quarter will see the second-best earnings increase in the company’s history, but with the stock already trading on an 18-times multiple, much of the good news already appears to be factored in.
Thursday
Wolseley – Sell
Tempus recommended selling Wolseley. Wednesday’s results flagged a worrying slowdown in Q4 activity, with price deflation – running at 2.3 per cent – presenting something of a headache for management. On top of this, beyond the US, the other territories were showing lacklustre performance, driven by a whole range of factors from currency headwinds to warm weather. Margins have improved, but this stock trades on a 16 times multiple and that’s a bit rich for the column’s taste.
Telford Homes – Hold
Hold Telford Homes, said Questor. The housing market shows no signs of abating and some brokers are tipping the stock as likely to fight its way back to recent highs of just under £5 a share. As noted above, its strategy of focusing on non-prime areas of London appears to be paying off as that has insulated the firm from exposure to the luxury end of the market. It can also boast of the fact that much of its forward pipeline is already sold, securing 50 per cent of the next three years’ forecast revenues. On top of this, the company is making the most of private rented accommodation’s ascent into a unique asset class. However, general economic malaise – driven largely by pre-referendum wobbles – is still weighing on the company despite all the good news, suggesting there’s a need for some degree of caution here.
Friday
Johnson Matthey – Sell
Tempus said investors should avoid Johnson Matthey. The column believes that the confidence in yesterday’s results – overall revenues for the year were up 7 per cent and 2016/17 performance is expected to be well ahead of 2015/16 – stems from the belief that tighter legislation in the wake of the VW scandal will bring good things for the company in the future. Yes, there’s a new product cycle underway and given the performance over the last 12 months, the comparatives will be that bit more achievable, but a slowdown in demand from China has the potential to cause headaches. That boost from changes to regulation could still be some time off, meaning the stock could be one to avoid until then.
Renew Holdings – Buy
In the last tip of the week, Questor recommended buying Renew Holdings. This engineering group has been a long-term buy-tip of the column and its growing order book, plus rising revenues suggest it has been a good call. The company works on complex – so presumably high-margin – engineering projects such as decommissioning nuclear power plants, along with infrastructure support for Network Rail. It has a strong track record of cash generation, which is helping manage debt and even though the column called the shares as cheap two years ago – since which time they have risen by 57.8 per cent – they still trade on a relatively modest 13 times multiple. Questor thinks there’s more to come.
Performance of stock over 2yrs
Source: FE Analytics
