This week’s round-up of share tips has a distinctly pessimistic feel, with five stocks given sell status and only one classed as a buy.
As always, these share tips were originally published as part of a daily summary of early morning financial news stories. You can find these, as well as opening and closing market reports, on Trustnet Direct’s equities home page.
Tuesday
Lloyds – Hold
Tempus said investors should hang onto Lloyds Banking Group, due to its healthy dividend potential. The bank has historically paid back half its profits in dividends, which could mean a yield of between 4 and 8 per cent by 2017. Incentives are also set to be tabled for retail investors to get involved with the government’s sale of its remaining stake. However, the risk is a sector-wide CMA investigation into current accounts and the possibility of more PPI fines, following on from yesterday's one of £117m, meaning upside from here could be limited.
Performance of Lloyds shares over 3yrs
Source: FE Analytics
Plus500 – Sell
Questor said investors should get out of Plus500. The CFD and spread-betting firm has been on a rollercoaster ride of late after a run-in with the regulator left it having to suspend UK customer accounts. Playtech has offered 400p per share to buy the company and Questor sees this as a good deal, given that more problems could be around the corner and the firm’s CFD licence is under threat.
Wednesday
Amec Foster Wheeler – Sell
Sell Amec Foster Wheeler, was the message from Questor on Wednesday. The oil services company is showing signs of strain following the 50 per cent fall in crude oil prices over the past year and revenue and profit margins are also down. Businesses such as this one rely on spending decisions being made elsewhere in the energy sector – the likes of Shell and Total call the shots, and right now they are preserving cash rather than investing in new projects. The shares are reasonably priced at an 11.7 times multiple and are yielding a reasonable 4.6 per cent, but this is only covered 1.1 times by free cash.
AO World – Sell
Tempus recommended that investors avoid AO World. There seems to be little respite for the online white goods retailer, with Tuesday’s results highlighting some disturbing weakness in the fourth quarter. Overseas expansion is being championed as a success but the firm continues to burn through the cash generated by the float and the more bearish assessments highlight the prospect of a rights issue. With the stock trading at a multiple of 52 times earnings, this is dressed up to look like a high-tech champion but it could come with a sting in the tail.
Thursday
Dixons Carphone – Hold/sell
There were mixed views on Dixons Carphone yesterday, with Tempus recommending investors sell out, while Questor said they should stay put. There has been a 13 per cent growth in sales over the past 12 months – Questor said the company’s valuation does not reflect this acceleration and also pointed out profits are tipped to increase by a further 20 per cent over the next two years
Tempus took a more pessimistic view, highlighting the fact these figures were skewed by the collapse of competitor Phones4u and said the 16 times forward multiple for shares was high for the sector.
Performance of Dixons Carphone shares since merger
Source: FE Analytics
Friday
Johnson Matthey – Sell
Earlier this morning, Tempus said investors should avoid Johnson Matthey. The maker of catalytic converters for vehicle exhaust systems posted strong results yesterday, but investors focused more on the rising debt pile and took profits. The results also carried news that diesel’s share of the European car market is set to decline, which will affect sales. Tempus said the company is complex and that the shift in the underlying market makeup could prove problematic.
Wincanton – Buy
Questor recommended investors buy small cap haulier Wincanton, saying that although the firm may not stand to benefit from falling fuel prices, it is doing well from the strengthening UK economy. Yesterday’s results revealed a string of contract renewals and some healthy new business, while the margins are creeping up slowly as well. Net debt is falling, forecast earnings put the business on a PE ratio of just nine, and there is also the prospect of a return to dividends.
