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Weekly share-tip roundup: Buy BAE Systems, hold Royal Mail

22 July 2016

Trustnet Direct looks back at the share-tips listed in the national newspapers since Monday.

By Tony Cross,

Market Analyst, Trustnet Direct

The FTSE appears to be settling down after the referendum on the UK’s membership of the EU, with the falling pound and adjusted growth data now priced into the index. This is reflected in Trustnet Direct’s round-up of share tips in the national newspapers – whereas over the past few weeks it was filled with recommendations to buy stocks that could take advantage of the falling pound, this time around there is more advice for investors to hold their horses.   

 

Tuesday

BAE Systems – Buy

Questor got things underway on Tuesday by recommending investors buy BAE Systems. The column admits that investing in this stock – the world’s third-largest arms company – is a clear play on whether you believe global hostilities will increase or not. As the only company in the UK capable of building the Successor-class submarines which will replace Trident – and national security concerns meaning this work can only be carried out in the UK – the project is as good as assured in the wake of Monday’s vote in Parliament. There are risks in terms of cost-overrun and project delays, but the company is hopefully learning from past mistakes. The 4 per cent dividend yield is also attractive, while the 13.8 times multiple looks far from excessive, either.

British Land – Buy

Over in The Times, Tempus tipped British Land. The EU referendum – and its result – may have been unsettling for the UK property market, but a quarterly trading update from British Land suggests there is no real cause for concern. Retail lettings and renewals are still coming through at the same pace they were before the vote, while other highlights include the successful sale of a property on Oxford Street and fully letting the Cheesegrater building in London. With shares trading at close to a one-third discount to NAV, this gap looks too wide and with a high proportion of the portfolio in retail, the company is deemed to be as well placed as any in the sector.

 

Wednesday

Royal Mail – Hold

Hold Royal Mail, was the message from Questor on Wednesday. Tuesday’s results update may have been rather lacklustre but, as the column points out, the company still has around 50 per cent of the UK parcel market – which is the area primed for the best growth. Yes, there’s concern over falling demand for sending traditional letters as we become ever more reliant on the internet, but Ofcom’s decision not to impose price controls on the carrier has certainly thrown investors some crumbs of comfort. The argument is that any bad news is already priced in – shares trade at a little over 12 times earnings and offer a 4.7 per cent dividend yield. This should be a constant player.

Performance of equity since IPO

Source: FE Analytics

Dairy Crest Group – Buy

Tempus recommended buying Dairy Crest Group. The company continues to cycle into processed products with the baby milk powder operation in Cornwall set to report its first profits this year. The upside potential here appears to be something of an unknown quantity, but there are high hopes that demand in China will prove to be the proverbial silver bullet. The company’s exposure to UK consumer demand has, however, left the stock exposed in the wake of the recent market turmoil, but Tempus said the fact it now trades on a multiple of just 16 makes this look like a bit of a bargain.

 

Thursday

Johnson Matthey – Sell

Tempus said investors should avoid Johnson Matthey. The company has been repositioning itself in recent years, disposing of non-core assets and focusing instead on emission controls and a range of industrial applications. The former is seen as likely to have a brief hiatus in terms of growth as the next raft of legislation isn’t due until 2018, while the latter element is heavily reliant on the strength of the global economy. With the shares currently trading on around 16 times earnings, the concern is they are fairly priced and even if we do see more special dividends coming down the pipe, these will be some time away.

However, The Telegraph took another point of view, reporting that Johnson Matthey is set to benefit from a £40m boost to the bottom line, in part as a result of the falling pound. Rules introduced in the wake of last year’s VW emissions scandal have boosted sales, while the falling price of commodities used in catalytic converters is benefiting input costs. The company has also said it doesn’t see any long-term impact to business off the back of the referendum verdict.

Unite – Hold

Questor recommended hanging on to Unite. Student accommodation is seen as being at the more resilient end of the spectrum of property investments, with the UK’s high quality of further education set to be a draw, even in times of slower global growth. Occupancy rates for the next academic year are a shade higher than they were at this time in 2015, rents are also increasing by around 3 to 4 per cent per annum and although the Brexit vote may have introduced some uncertainty into the equation, this is likely to be short-lived. Analysts see around 15 per cent upside from current levels – Questor said there are clearly worse investments out there…

 

Friday

Land Securities – Sell

Earlier this morning, Questor said investors should sell Land Securities. There was always a belief that commercial property was sitting close to the top of the cycle, but with the company’s management warning of subdued demand for the sector in the wake of the Brexit vote, investors should review any exposure here. In addition to the 6.2 million square feet it owns in the capital, there’s a further 500,000 square feet in the pipeline – which is currently unlet. The stock may be settling down after a challenging few weeks, but the column can’t see a return to the October highs any time soon.

 

Unilever – Hold

Tempus said investors should hang on to Unilever. The consumer goods giant updated the market yesterday and the chief executive painted a gloomy picture. The global economic outlook is showing no signs of improvement, while uncertainties thrown off by Brexit and the recent Turkish coup attempt add further cause for concern. Currency headwinds cast another shadow too, although the column said the assessment should come with a little more optimism. In the second half of the year, foreign exchange impact should be more supportive and the company is working hard to improve some underperformers in its stable of brands. This is a safe-haven stock even if the 22 times valuation looks a bit punchy.

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