The big news in UK markets this week was the Autumn Statement and the chancellor’s aim for 400,000 new homes to be built in the UK before the end of the decade.
This doesn’t make stocks in the sector an automatic buy, however – differing views on project management consultant WS Atkins in this week’s share tip roundup from Trustnet Direct highlight some of the other considerations investors need to take into account.
Tuesday
Lloyds Bank – Sell
Avoid Lloyds, was the message from Questor on Tuesday. Shares drifted lower on Monday as Morgan Stanley questioned the ability of the bank to return to being a big dividend payer, citing concerns that lending instability spurred through growth of buy-to-let mortgages could see further capital increases being required by the banks. Having to retain cash to meet these obligations would stifle the ability to pay out dividends – something that had looked appealing to many investors. The shares trade on a 20 times multiple and this prospect of lacklustre dividend growth doesn’t make the proposition quite as appealing.
Performance of stock year-to-date
Source: FE Analytics
Mitie – Buy
Tempus said investors should buy Mitie. The company is reliant on a large number of low-paid staff, meaning that changes to the minimum wage were always going to be costly. The shares fell again on Monday as interims revealed a first-half loss, although this is being pinned on the exiting of less profitable work rather than anything more concerning. The dividend has also been increased and now yields 4 per cent, while the stock trades on a modest 12 times multiple. The column said margins are holding up and the bears may be overly cautious here.
Wednesday
AO World – Sell
Sell AO World, said Questor on Wednesday. The company slumped to a first-half loss on Tuesday, with shares falling 15 per cent as a result. Sales projections are working for the company and the lack of physical stores keeps costs down, but expansion is proving costly and margins remain wafer thin. Shares peaked above 410p on day-one of trading and are now down at 140p. Even though sales are accelerating, turning this into a cash cow seems a long shot.
Babcock – Buy
Tempus said investors should buy Babcock. There was some negativity on the company earlier in the year due to concerns it had overpaid for a helicopter operator that services North Sea oil rigs, but its interims show no signs of a flagging workload. The order book is 7.5 per cent stronger than it was a year ago and with a contract retention rate of 90 per cent, the firm is certainly doing something right. With this backdrop – and shares trading on a multiple of just 14 – Tempus said this doesn’t look expensive, especially given the prospects for growth in defence spending.
Thursday
RPC Group – Buy
Buy RPC Group, said Tempus. Over the last year, the packaging company has apparently looked at 100 acquisitions, but only proceeded on six. Given the cost pressures big clients such as supermarkets are under, it seems likely more consolidation will be on the table, which will in turn deliver more cost efficiencies. Earnings beat expectations and Tempus said that with the company’s proven ability to get the most out of acquisitions, more good news could well be in the pipeline.
WS Atkins – Buy
Questor said investors should buy WS Atkins. Wednesday's Autumn Statement delivered some significant benefits for the construction industry as the chancellor committed to a raft of infrastructure investments. Although it will take a few years for a number of beneficiaries to see the upside from this, as detailed plans are needed before ground can be broken on these projects, the news is likely to bolster the pipeline of work at WS Atkins.
Friday
WS Atkins – Hold
Questor was less enthusiastic on WS Atkins. The likely upturn in work in the UK following the Autumn Statement is timely as it comes at a time when contracts in oil producing nations are not looking quite as prolific. Shares trade on a 15 times multiple and pay a 2.5 per cent dividend yield, meaning the stock is no bargain, but it could find itself being a bid target.
Severn Trent – Hold
Tempus said investors should hang on to Severn Trent. The regulator said the company must find efficiency savings, which it has delivered ahead of schedule, as well as identifying additional savings that can be made. This means the dividend is nailed on – albeit fully priced into the shares – but there is also the outside possibility of a takeover bid to consider.
