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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
Babcock International
Shares
This defence and nuclear contractor provides “mission-critical” products and services to the UK armed forces, emergency services and civil nuclear industries. It has been through a cycle of earnings downgrades but now looks set to recover. The group’s combined order book and pipeline is at a record level, and new opportunities in Canada, Norway and Australia bode well. A 5% dividend yield and a solid balance sheet make this a “compelling long-term investment”. 590p
Blancco
The Mail on Sunday
Almost 60% of the world’s population regularly use the internet, sending millions of photos and 160 million emails every minute. That immense volume of data creates privacy risks. Blancco is one of the leading providers of data-erasure software, helping to wipe messages from old phones and electronic equipment. The firm looks well positioned at a time when companies must comply with increasingly strict laws on how they handle customer information. The group operates in 60 countries worldwide and the business is growing fast. Buy. 132p
WPP
Motley Fool UK
This “dirt-cheap” media group is “one of the most disliked stocks in the FTSE 100”. Contract losses and falling earnings have caused the share price to halve since 2017 as clients move marketing work in-house. Yet on a forward price/earnings ratio of 10.2, the shares now appear undervalued. Sales are growing again. A 6% dividend yield means that investors are effectively being paid to wait for a recovery. Buy. 995.5p
Three to sell
Premier Oil
The Sunday Times
Why is this oil explorer the most shorted stock in the FTSE 250? Because punters trading “contracts for difference” use the firm as a proxy to bet on the oil price. That turns the share price into a “quasi-casino”. Production performance has been decent and the forthcoming sale of a field in the Gulf of Mexico could provide some upside. But for now this is a “heavily indebted” business “at the mercy” of the oil price. Avoid. 87p
Royal Mail
The Daily Telegraph
Our decision to tip Royal Mail has not proved “our finest hour”. The shares have declined by 52% over the past three years and the latest interim results brought an admission that it could make a loss next year. Addressed letter volumes have fallen 50% since 2004 and the group has failed to reconfigure its network to take full advantage of the rise of parcel delivery amid the online shopping boom.Ongoing industrial disputes with unions are yet another headwind and cast further doubt on the dividend’s sustainability. Sell. 218p
Premier Foods
The Times
Sales of Mr Kipling’s “exceedingly good cakes” have sparked a profit recovery at this group, which also sells Oxo cubes, Loyd Grossman sauces and Ambrosia creamed rice. Yet the return to profit in the first half may not be enough to turn around the company’s fortunes. A £492.9m debt pile is “far too high”, accounting for more than three times profit before tax and other items. Throw in a pension fund shortfall and any dividend payment is out of the question. Activist investors are calling for the disposal of some brands, but the future strategy remains up in the air. Avoid. 40p
…and the rest
The Daily Telegraph
Hold onto IMI. The engineering group is diversifying away from the volatile energy sector, but on 15.5 times forecast earnings the shares are not as cheap as they once were (1,121p). Smaller stocks look set to outperform so we like the Aberforth Smaller Companies investment trust (1,400p). Online fashion shop Asos uses cutting-edge technology to “detect buying trends” before the competition. Buy a “global retail giant in the making” (3,143p).
The Mail on Sunday
Christmas is a key season for IG Design, a leading manufacturer of gift packaging and greetings cards. The share price has tripled in three years thanks to a strong performance in America. Prospects remain bright but cautious investors may wish to take profits to “brighten up their own festive season” (660p).
Shares
Income investors looking for greater diversification should take a look at the Middlefield Canadian Income Trust, which is London’s only listed Canadian equity income fund (105p). Livestock genetics firm Genus should enjoy strong demand over the next few years as farmers hit by the African swine fever outbreak repopulate their herds – “stay invested” (3,078p).
The Times
Construction group-cum-landlord Watkin Jones is exposed to the compelling structural growth of the residential rental market for students, young professionals and families (224p). An improving outlook for gold and silver recently helped propel Polymetal International back into the FTSE 100. The shares are tempting on a 4.6% dividend yield, but there are risks involved in investing in a miner operating in Russia. Hold (1,162p).
A German view
The Swiss market is full of top-quality stocks, says Wirtschaftswoche. One of the most appealing is Geberit. It makes and installs water supply pipes and fittings. Products range from basins and urinals to roof-drainage systems. It is a beneficiary of the ongoing European construction boom underpinned by historically low interest rates. But Geberit barely needs this tailwind. It has always been highly efficient: its operating margin rose to 31% in the first nine months of 2019 as operating income climbed to CHF732m (£570m). The firm throws off plenty of cash to buy back shares and pay dividends. The current yield is 2%. The balance sheet is solid, with net debt at a manageable CHF533m (£416m).
IPO watch
Beverage giant ThaiBev is considering floating its brewery businesses on the Singaporean stock market, says Bloomberg. It is likely to seek a valuation of up to $10bn. If successful, the listing could become Singapore’s biggest in nearly a decade. The spun-off entity would rank among South East Asia’s biggest beer companies, roughly on par with China’s Tsingtao Brewery Co., but still much smaller than Anheuser-Busch InBev’s Asian unit, which raised $5bn in its Hong Kong initial public offering (IPO) in September. Beer consumption has flatlined in the US, Japan, and China, but Southeast Asia’s expanding middle class and youthful population make it a “bright spot” for the market.
