The unfortunate events of yesterday seem to have pushed the EU referendum debate in a new direction – the performance of markets this morning suggests it has made the chances of a Brexit less likely, with the sectors most at risk from the event rallying this morning.
At the stock-specific level, in this week’s roundup of share-tips in the national newspapers, there were five buy-tips compared with two sell-tips, although one of the recommendations to sell was for the entire FTSE 100 index.
Tuesday
UBM – Buy
Tempus got this week’s share-tip roundup off to a start by recommending investors buy UBM. The company is close to completing the sale of its PR Newswire division, a move that will trigger a healthy special dividend payout to investors and leave the business focused purely on the exhibitions space. Although the column questioned just how much scope there is for growth through acquisition here, management has been successfully picking up some smaller operators. The shifting business model makes the current picture difficult to read, but with the stock now trading on a 14 times multiple, UBM has found its way back on to the buy list.
FTSE 100 – Sell
Questor recommended avoiding the FTSE 100. The column concluded that despite the recent spate of weakness, now is not the time to wade in. The rapid slowdown of Chinese economic growth is one key worry, while concern is also being cited over the most recent commodity price rally, which having been fuelled by a weak US dollar, again risks running out of steam. The overall P/E ratio for the FTSE 100 is also looking toppy, standing at a 16 times multiple versus the long term average of 15. At first glance the fact we are nearly back at 6,000 may make this look like a good entry point, but this seems to reflect the fundamental shape of the market.
Performance of sector over 1yr
Source: FE Analytics
Wednesday
First Group – Hold
Hold First Group, was the message from Questor on Wednesday. Shares in the company jumped 6 per cent on Tuesday off the back of results that saw some solid profits announced from the company, but debt levels remain high and this is where the note of caution comes from. Cost reductions have helped lift profits in the UK, although demand in the US is tailing off – presumably falling petrol prices are weighing here. Although the latest set of financials do give confidence in management, there appear to be questions over what happens next. As a result Questor has downgraded its earlier "buy" recommendation.
Ashtead Group – Buy
Tempus said investors should buy Ashtead Group. Shares in the equipment hire company surged on Tuesday in the wake of its full year results, helped along by the promise of rising dividends and a share buyback scheme. A number of the company’s development plans are now reaching maturity, so capital expenditure will start to fall, while margins in equipment rental have hit a healthy 46 per cent. There’s little sign of a slowdown in its US operation, which forms the bulk of the business, either, leaving the column to conclude that this stock looks undervalued on the fundamentals.
Thursday
Berkeley Group – Buy/sell
There were mixed views on Berkeley Group yesterday. Questor recommended selling it, saying that while the company may have reported record profits, there is growing concern that we’re approaching the peak of this housing cycle. Margins may have hit 33 per cent for the year to April, but average prices are under pressure and because of the year-end timing, the numbers don’t reflect the slowdown in buy-to-let as a result of tax changes. There’s some good income to be had here, with a 6.7 per cent yield, but the risk of capital loss cannot be overlooked, even if the shares do trade on a mere eight times earnings.
Tempus took the opposite view, recommending investors buy the stock. The column noted the shares are among the most heavily shorted in the London market right now, but applauded the fact that average prices are falling and pointed out rampant inflation in housebuilding costs now seems to be coming under control. The company has 11 years’ worth of land in the bank, with two years of forward sales already booked. Tempus said the only risk appears to be a significant hike in borrowing costs, but the concern here seems overdone.
Friday
Safestore – Buy
Buy self-storage company Safestore, said Tempus earlier this morning. This is a market that seems primed for growth – 70 per cent of the company’s customers have never used a service like this before and with site space limited, there shouldn’t be a race to the bottom in terms of price. Safestore’s occupancy rate is just 70 per cent, so well below its rivals and with this figure inching higher, it means there’s still revenue to be generated without additional capital spend. As the column states, this might not be a well understood sector but it gives good exposure to high property prices.
Wincanton – Buy
Questor said buy Wincanton. Solid results earlier this week have helped cheer shares in the haulier, which despite reaching 2008 saddled with too much debt, has managed to spend the last few years paying it back apace. With a dividend yield of 4.5 per cent and the shares trading on a cheap eight times multiple, there’s certainly plenty to like about this stock – even in a recession, people need food and fuel to be moved around the country.
