Much of the progress made by markets this year since their February lows has been wiped out over the past couple of weeks. It has been a near relentless downward spiral since Monday, with the FTSE not helped by numerous experts, including Mark Carney and Christine Lagarde, warning of the threat to the UK economy if it votes to leave the EU, while support from overseas also came up short as data from China and the US proved underwhelming.
This pessimism was reflected in this week’s share-tip roundup from Trustnet Direct, with only two “buy” recommendations out of the eight.
Tuesday
G4S – Sell
Tempus kicked off this week’s share tip roundup by recommending investors sell out of G4S. The company remains saddled with debt and the turnaround plan is proving to be incredibly painful to execute. A debt ratings downgrade may have been avoided but the column notes a rights issue shouldn’t be discounted, even if a series of planned disposals can be made at good prices. In its defence, the company is showing good signs of organic growth, but even if the stock is trading on a relatively cheap multiple of 12 times earnings, there’s no shortage of downside risk.
Dignity – Hold
Questor said investors should hold Dignity. The column said this is a sound business model, offering the benefits of scale to the independent undertakers it buys, while also allowing these units to provide a high quality of service. The stark reality is that there’s a steady stream of business, so the banks are happy to keep lending money for expansion – and with the company only covering around one quarter of the UK market at present, there’s still scope for significant growth. This is unlikely to match the 1,000 per cent return since IPO in 2004, but the stock trades on a punchy 22 times multiple. For long-term defensive investors, this may be a sound investment, but downside risk to the valuation can’t be overlooked.
Wednesday
easyJet – Sell
Sell easyJet, was the message from Questor on Wednesday. Investors shouldn’t panic just yet, but Tuesday’s results showed that the scramble to increase capacity is proving costly. If consumer demand can’t keep up with the new seats that are going on sale, then prices have to fall. There’s hope that the summer season will be a good one for the company – early indicators are positive and an extended run of low fuel prices should help, too. However, long term investors may want to think about stepping aside – the shares have made little progress over the last two years and that big step-up in average seat prices from £45 in 2011 to £55 isn’t sustainable, either. The stock may trade on a mere 10 times earnings, but it’s difficult to see where the improvement will come from.
Performance of stock over 2yrs
Source: FE Analytics
Hiscox – Buy
Tempus said investors should buy Hiscox. The company is actively hunting out those niche areas of the insurance market where there’s a profit to be made, steering clear of the more competitive catastrophe business. Written premiums are up 10 per cent on the year, with some particularly strong growth being seen in the US market, while the UK business is performing well too, despite headwinds from issues such as increased insurance premium tax and the need to contribute to the Flood Re levy. Shares are around 10 per cent below the February highs, which also gives some viable upside potential.
Thursday
Compass – Hold
Questor recommended hanging on to Compass. The world’s largest catering firm put in a solid set of results on Wednesday with the resilience of the US economy seen as instrumental, given the territory delivers well over half of the company’s revenues. There’s a predictable stream of income off the back of long term contracts and although the dividend yield of 2.5 per cent may not look attractive, it is growing at an inflation-busting 8 per cent a year. The oil and gas industries continue to drag on the business and with headwinds like these, the current rating of 21 times looks a bit too rich to be climbing on board now. For the long term investor who is already in, however, stick with it for the dividend growth.
Experian – Sell
Sell out of Experian, was the message from Tempus. Twenty per cent of the company’s business comes from Brazil, a country where the political and economic situation is looking increasingly strained. What’s more, the Brazilian real is depreciating in the wake of this turmoil and with that much exposure, this translates to a meaningful impact on the bottom line. There is a flip-side though – as a credit checker, the deteriorating economy is fuelling demand for its services, while on a global scale the company continues to grow by acquisition. A buy-back programme will continue to support the share price, but with the stock trading on a 20 times multiple, upside from here may be limited.
Friday
British Land and Land Securities – Hold
Earlier this morning, Questor recommended holding on to British Land and Land Securities. These are two heavyweights of the UK property sector and have a track record of reliability, even weathering the last recession well. There may be indications of slowing activity in the sector, with confidence among commercial property developers falling in April as Brexit fears rattle the market, but the column is suggesting investors dig in. They have very little exposure to residential property and low interest rates should keep shoppers on the high street. UK REITs may be looking toppy, but for these two blue chips, the risk seems weighted on the upside post 23 June.
Mondi – Buy
Tempus tipped Mondi as a “buy”. This low-profile constituent of the FTSE 100 continues to make progress and this week’s results have certainly impressed. Operating profits were up by 14 per cent for the quarter and those concerns regarding an over-supplied market for its Kraftliner product appear overblown. Shares have been marked back of late – the column said now is a good time to get involved.
