Broker Numis Securities has updated its recommendations this week, with a number of stocks geared to the recovery featuring highly.
Here we feature five of their top picks for this month which the analysts expect to see strong share price growth in the coming months.
Liontrust
Buying shares in asset management firms has been an excellent investment strategy in recent years, with the signs being that it will continue to be so.
Reforms announced in this year’s budget have increased the amount of money that can be put into a stocks and shares ISA and also made it likely that more investors will be managing their money in retirement rather than buying an annuity. Both factors should boost inflows for asset management forms.
Numis rates Liontrust Asset Management most highly in the sector, saying that it expects it to deliver very strong earnings growth over the next few years of 89 per cent in 2014, 36 per cent in 2015 and 30 per cent in 2016.
“Long term, we believe Liontrust, with a strong UK retail franchise, will benefit from the structural shift we see in pensions from an institutional (DB) product to retail (DC),” said analysts David McCann and James Hamilton.
Shares in the company have soared away since that start of 2013, almost doubling in value as the FTSE All Share has risen just 26.15 per cent.
Performance of stock vs index over 2yrs
Source: FE Analytics
The company expects to double funds under management to £7bn over the next three to five years thanks to growth in the macro, credit, Asia and multimanager funds in particular.
Numis forecasts earnings per share rising from 14.4p this year to 25.5p in 2016, and sets a price target of 325p, 30 per cent above the current 250p.
Interserve
Facility management company Interserve offers a secondary way to benefit from the UK building boom with an attractive yield of 3.2 per cent, Numis analysts say.
They add the £250m acquisition of Initial Facilities is a catalyst for the growth of the companies UK support services division.
“The acquisition of Initial provides Interserve with an important step-up in scale and offering in UK support services, which we believe will cement the group's ability to outperform UK facility management peers,” he said.
“Elsewhere, we see ongoing growth in the group that should progress into 2015 as construction markets improve and add to the existing positive outlook elsewhere.”
"Interserve's P/E discount to peers is clearly at odds with Interserve's outlook, and as a result we raise our target price and point to strong upside from here, notably against FM [facilities management] peers with lesser potential.”
The company is trading on a discount to its peers on current P/E multiples, and Numis says the share price is not factoring in strong earnings growth of 20 per cent in 2015.
Lookers
Numis analysts say that second hand car dealer Lookers is another strong company looking cheaper than its peers which is benefitting from increasing UK consumer confidence.
“We think Lookers remains an attractive play on the UK car market, notably the improving prospects for aftersales,” they said.
“Forecast momentum has been very positive and assumptions behind earnings estimates still appear conservative.”
“The strong liquidity and proven selective approach to deals suggest that further accretive bolt-on acquisitions are likely in a consolidating market, with that of Colborne Garages being a recent, notable example. On a PE discount to the sector, we would continue to buy the shares.”
The stock has been a huge success in recent years, appreciating by more than 150 per cent over the past 24 months.
Performance of stock vs index over 2yrs
Source: FE Analytics
However, Numis analysts say that they foresee further growth, setting a price target of 175p, 17 per cent above the current share price.
“Despite its robust share price performance, the valuation remains at a discount to the sector and only a modest premium to its auto retailer peers, despite significantly higher EBIT growth,” they said.
“Given the strong fundamentals and positive earnings momentum, we reiterate our buy recommendation.”
Faroe Petroleum
Analyst Sanjeev Bahl expects Faroe Petroleum to provide decent returns for shareholders, making it the broker’s top pick in the small cap oil and gas sector.
The analyst has set a price target of 157p for the shares, which are currently trading at 119p.
It has been a tough year for the company, with shares down 16.55 per cent as the index has risen 8.59 per cent.
Performance of stock vs index over 1yr
Source: FE Analytics
However, Bahl says that exploration and appraisal projects in the first half of this year should drive the share price higher.
The analyst says that the Butch East and South West wells in the Norwegian North Sea offer good potential for monetisation should decent reserves be extractable thanks to strong partner group of Centrica, Tullow and Suncor.
There is also good potential in the Pil well, which should extend the life of the Njord field.
“Faroe remains one of [our] top exploration/appraisal levered E&P picks for 2014 with the bulk of the company's activity in the first half of 2014,” Bahl said.
Abcam
Analyst Charles Weston sees a potential 39 per cent uptick to the share price of Abcam, a reagents vendor, currently trading at 510p.
The stock is a top 10 holding of four companies in the IMA universe including FE Alpha Manager Harry Nimmo’s Standard Life UK Smaller Companies fund, which has 3 per cent of the portfolio in it.
Baillie Gifford British Smaller Companies, Baillie Gifford UK Equity Alpha and Unicorn Outstanding British Companies also hold it in their top 10s.
The stock has suffered significant share price declines in recent months after noting a decline in its antibody business.
Performance of stock vs index over 2yrs
Source: FE Analytics
However, Weston says this fall is overdone, and says that momentum in non-primary antibody sales and Rabitt Monoclonal Antobodies should drive growth.
