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Weekly share-tip round-up: Move out of Zoopla, dig into South32

22 May 2015

Trustnet Direct’s round-up of share tips from the nationals this week finds competition is increasing in the online property market, while miner South32 has numerous factors working in its favour.

By Anthony Luzio,

Editor, Trustnet Magazine

In addition to publishing a market report every time the FTSE opens and closes, Trustnet Direct rounds up the major financial news from the broadsheets on a daily basis, including share tips from the likes of Questor and Tempus.

Here are the stocks they were tipping this week.

 

Tuesday

South32 – Buy

Tempus said BHP Billiton spin-off South32 has strong long-term prospects. The new company has a number of factors working in its favour, ranging from the prospect of a buy-out which should offer a degree of support, through to the fact its highly regarded executive team can micromanage its resources and optimise output.

The Times was more cautious, however, pointing out it came to market at around one-third less than the most optimistic forecasts and referred to it as a “speculative trade”.

 

Wednesday

Homeserve – Buy

Tempus tipped emergency repairs insurer Homeserve on Wednesday after it put an expensive mis-selling scandal behind it by rewarding shareholders with a 30p special dividend. The company has built on affinity deals with big UK utility firms but it is now expanding overseas and has almost as many customers in the US as it does in the UK. It is ready to tap other foreign markets as well, suggesting that after a brief wobble, it is ready to move higher.

 

Thursday

Penon – Buy

Questor tipped water utility and recycling firm Penon on Thursday, pointing out the five-year deal that has been struck with regulator Ofwat will allow it to pay inflation-proof dividends over this time. The water business also offers a degree of stability, although not everything is rosy – its landfill operations are struggling against green taxes, while the price of recycled material has plummeted as the Chinese economy slows. However, its dividend is 4 per cent and is set to rise at 4 per cent above inflation.

Zoopla – Sell

Tempus recommended investors sell out of Zoopla. The online property sales market is becoming more competitive after rival estate agents launched OnTheMarket earlier in the year. In addition, its move into price-comparison tools following its acquisition of uSwitch offers something of an unknown – yes there’s the scope for cross-selling, but the company seems to be struggling to fly. The 26-times multiple doesn’t seem outrageous for an online business, but the column is wary and the 1.6 per cent dividend yield doesn’t hold much attraction either.

 

 

Friday

Royal Mail – hold

Questor said investors should hang on to Royal Mail. Thursday’s results showed some weakness, but it is cutting costs and increasing prices, suggesting that it can continue to deliver a return to shareholders. The column said this is a viable combination, especially considering its dominant market position, but acknowledged there is a risk that postage for letters may become too expensive.

Performance of Royal Mail shares since launch

Source: FE Analytics

 

Just Eat – Sell

Tempus recommended investors avoid Just Eat. The online takeaway company is raising close to £500m to cover the acquisition of Australia’s Menulog, which should lead to a sticky customer base. However, the price is accordingly quite punchy. The stock has already had a strong run, with the valuation almost doubling since the float a year ago, but none of the big pre-IPO shareholders or prominent directors are buying into the new issue.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.