The major UK banks posted Q1 results this week and, unsurprisingly, the divergence of performance had a strong influence on the week’s share tip roundup from Trustnet Direct, accounting for three of the eight recommendations.
Tuesday
Vodafone – Buy
Questor kicked off this week’s round-up by recommending investors buy Vodafone. The company has found itself on the receiving end of criticism for both an uncovered dividend and a rather punchy rating of 40 times earnings, but results from its Project Spring infrastructure renewal are now coming through and its mobile payments network is also continuing to grow apace. There is the risk the dividend policy will be unsustainable, but with the potential for a takeover from US rivals and the improvements in underlying trading, this is a risk the column is happy to take.
Performance of stock over 5yrs
Source: FE Analytics
GVC Holdings – Buy
Buy GVC Holdings, was the message from Tempus. The company bought bwin.party earlier this year and has been making good headway, with a promised €125m worth of synergies set to be delivered by 2018. The dividend has been suspended, but this is expected to be a temporary measure and the 17 times multiple may also raise a few eyebrows, especially when one-third of the business is coming from unregulated markets. However, there’s still potential for the cost savings to be exceeded – this stock has long term potential.
Wednesday
Standard Chartered – Buy/hold
There were mixed views on Standard Chartered on Wednesday. Questor said existing investors should hang on to the bank, the shares of which soared on Tuesday after a return to profitability. The chief executive struck a cautious tone with investors, however, saying that despite the strong figures, he didn’t feel the bank was out of the woods yet. Delinquent loans may have fallen significantly from the previous quarter, but compared with a year ago, little has changed and continued improvement in metrics like this need to be seen. The company’s exposure to China is also troubling for some analysts, as the world’s second largest economy continues to slow. With this in mind, the column said now is not the time for the uninvested to load up on the stock.
Tempus was more optimistic, however, recommending investors buy the stock. Yes, there may be some merit in being cautious over the fact it’s early days for the recovery and there are questions over whether the bank is really in control of those bad debts, but stringent cost-cutting and valuable exposure to emerging markets warrant some confidence. Further improvements in bad debts are tipped to drive return on equity to levels that will look healthy compared with the rest of the sector – as the column concluded, this could be a great opportunity to get in at the early stages of the rebound.
Thursday
Barclays – Sell
Staying on banks, Tempus said investors should avoid Barclays. The shares may look cheap, but the column believes there could be more discounting to come, with cost worries and doubts over the strategy meaning there is still more risk to be had on the downside. Wednesday’s results certainly got a mixed reception too, with early gains for the stock being eroded as traders dug a little deeper into the numbers. As the column noted, of the four performance metrics the bank judges itself against, only one was unchanged – the other three were all worse.
Stagecoach – Sell
Questor recommended selling Stagecoach. Shares in the company stumbled at the end of last year with mounting fears of terrorist attacks in big cities denting demand for travel. Winter flooding also took a toll on the UK business, while lower fuel prices seem to be pushing more of the travelling public to use their own vehicles rather than public transport. With hints that the company doesn’t expect to see a pick-up in customers any time soon, the column is keen to give this stock a wide berth for now.
Friday
Howden Joinery – Buy
There were two tips from Tempus this morning – the first of which was a “buy” recommendation on Howden Joinery. Yesterday’s trading statement painted an upbeat picture for the company, with expansion plans continuing apace across the UK. House prices are easing off, leaving the column to conclude that fewer people will be looking to sell up, with DIY projects instead being seen as more favourable. The shares have strengthened immensely since 2008, but expectations are that there’s still more good news ahead.
Pendragon – Buy
Tempus also recommended buying car dealership Pendragon, seeing at as well-run and suitably diversified. Shares are down by around a third on the year, but the stock does come with a respectable 4 per cent dividend. Even if growth in new car sales slows, the company has useful exposure in both the second hand and repair markets. Competition in this sector may be tough, but Pendragon may just have the edge.
