There was no shortage of earnings news this week and, as a result, there was no shortage of share tips on Trustnet Direct either.
Wednesday
GKN – Buy
Automotive and aerospace components company GKN was caught up in the surge of M&A activity that has engulfed UK markets in the past couple of days. Tempus said its acquisition of Dutch aerospace firm Fokker Technologies for an 8.4 times earnings multiple evoked memories of GKN’s purchase of another historic name in European engineering almost three years ago. The Fokker purchase will bolster GKN’s aerospace business, around which there have been concerns after recent profit warnings from the likes of Rolls Royce. Tempus said these concerns look overdone and that GKN’s 11 times earnings multiple makes it look like good value.
Melrose – Hold
Going back in time is not generally regarded as positive for businesses, which are always required by investors to keep moving forward. However, after Melrose completes its deal to sell its Elster Metering business to Honeywell, probably at the start of next year, it will have the same £500m market capitalisation it had 10 years ago. Tempus said the success of the Elster deal, which took years to complete, and Melrose’s “buy, improve, sell” strategy will be hard to replicate, such is the progress that corporates have made over the intervening period. However, it said a proven management team and an expected cash distribution of 230p to come from the Honeywell deal mean investors shouldn’t give up on Melrose.
Thursday
Capita – Sell
While services firms such as Serco and G4S have been dogged by scandals in recent years, Capita has largely kept its slate clean. This is one reason why it is the market's preferred bidder and its shares are trading on a P/E ratio of 18.2 times, just off their all-time high. With its stock held in such high regard, however, evidence of disappointing organic growth in its results on Wednesday caused it to fall, despite strong results overall. Although this sounds like nit-picking, stakeholders expect only the best from Capita and that is why Tempus recommended traders take profits for now. However, it said Capita’s good record of winning big, complex outsourcing work and avoiding the pitfalls that have hit rivals mean it could be a good bet over the long term.
Performance of stock over 1 week
Source: FE Analytics
Renishaw – Buy
Tempus also questioned whether the long run on Renishaw shares has come to an end. The engineer makes high-tech measuring equipment which is vital for companies such as Apple and Samsung when putting together new products. The firm’s shares tripled in value between 2010 and the start of 2015, topping out at around £26.50, but they have recently fallen back to £21.00, where they finished on Wednesday. There doesn't seem to be any justification for the fall and its full-year figures presented no obvious stumbling block for investors, so Tempus said now could be an attractive entry point.
Friday
Schroders – Sell
Diversity has helped shelter Schroders from the pitfalls that have hit other asset managers. As a result there is a premium on its head – the shares are trading on nearly 18 times earnings, yet the dividend yield is only 2.8 per cent. Tempus said Schroders is likely to do well over the long term but added there is better value and a better yield elsewhere in the sector and advised investors to take profits.
Laird – Buy
Laird provides high-performance products that shield electronic equipment from heat and other interference. Sales in this area were up by 39 per cent in the first half – ask the energy firms and they would bite your arm off for that sort of growth. The firm is also lessening its reliance on Apple and Samsung, the two big smartphone manufacturers. Tempus said that on 20 times earnings, however, the shares look expensive and nervous investors may wish to consider locking in some profits. However, it also said they have further to go in the long term though and therefore recommended buying them.
