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Weekly share-tip roundup: Buy Halfords, sell Tesco

04 September 2015

Tempus advises investors to look past poor recent sales figures from Halfords, while Questor warns Tesco’s problems are far from over.

By Tony Cross,

Market Analyst, Trustnet Direct

The Bank Holiday means this week’s round-up of share tips from low-cost platform Trustnet Direct is shorter than usual.

Stocks and shares investors who are missing out on their weekly fix may wish to look at this interview with small cap maestro Harry Nimmo – although not a list of share-tips as such, it does show which former favourites the manager bought back into during the recent volatility.

 

Wednesday

Rentokil Initial – Sell

Tempus said investors should avoid Rentokil Initial, at least for now. The company recently bought Steritech in the US, a move that has been on the cards for a while. Although it is believed there are significant synergies to be had in terms of improving staff efficiency, the acquisition was pushed through at a hefty multiple. Tempus said that while there is nothing wrong with the reasoning behind the move, Rentokil’s share price has gone up a long way already and the good news has already been priced in.

 

Thursday

Halfords – Buy

Tempus tipped Halfords as a long-term buy yesterday. An unscheduled update on Wednesday revealed some disappointing sales figures, which sent the company’s share price tumbling. However, consensus appears to be this is merely a bump in the road and the new chief executive is simply using the opportunity to reveal some less than stellar news before setting out her new strategy for the business in November. Halfords blamed the figures on bad weather discouraging casual cyclists from buying kit, as well as a degree of discounting by rivals. Tempus said its problems are far from insurmountable.

Performance of stock year-to-date

Source: FE Analytics

 

Ashtead – Hold

Investors should hang on to Ashtead, according to Questor. Any concerns about a slowdown were dismissed on Wednesday when the tool and equipment-hire business posted a 23 per cent jump in pre-tax profits for the quarter. The shares had fallen after disappointing numbers from US peer United Rentals, so Wednesday’s 8 per cent surge should be considered in this context. Ashtead now trades on a conservative 12 times multiple, but much of the good news appears to have already been priced in.

 

 

Friday

Tesco – Sell

Sell Tesco, Questor advised earlier this morning, suggesting investors may have been a little too keen to buy into the turnaround plans of new chief executive Dave Lewis. The cost of insuring against the company’s debt has risen to higher levels than what was seen at the peak of the credit crisis and unsurprisingly the stock has given back all of the year’s gains as a result. There’s a debt mountain to shift – put at 280p per share – so although the sale of the South Korean business will help offset this a little, it still only accounts for a 20 per cent reduction. It also means the company will lose one of its most profitable trading divisions. The price wars continue in the supermarket sector and falling sales mean the stock now trades on a projected multiple of 22. Little surprise therefore that Questor is not keen.

 

Booker – Buy

Tempus has tipped Booker as a decent long term bet. The company’s recent acquisition of Londis and Budgens was approved by the competition authorities yesterday but the question now is whether the deal will add anything meaningful to the bottom line or whether it will act as an unwanted diversification for the company. The health of the existing business is good and it has turned the acquisition of Makro into a profitable venture – even if the lacklustre summer made for poor sales of ice cream and soft drinks. The stock’s 25-times multiple looks expensive, but this arguably reflects the benefits of expanding a footprint in the next step of the delivery chain.  

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