Trustnet Direct publishes share-tips every weekday as part of its daily summary of financial news in the broadsheets. Click the icon below to sign up to free bite-size reports on what is moving and shaking the FTSE 100 at market open and close.
Here is this week's round-up.
Tuesday
Aberdeen Asset Management – Hold
Tempus recommended investors sit tight on Aberdeen Asset Management. Shares in the company soared on takeover rumours this week, but they are still down by almost a third since April as investors have deserted emerging markets, with a looming US rate hike doing little to allay fears. The column expects outflows to continue at least until the Federal Reserve gets the first rate hike through, but said the company can afford to ride this out. The Telegraph added that chief executive Martin Gilbert has successfully navigated the company through several cycles of the market in the past: as he said in the July trading update, “it’s not fun watching the money go out, but this is just the other side of a cyclical business”. Tempus added there is no debt and a healthy cash pile to boot, so with shares trading at a leisurely 12 times earnings and offering a 5.7 per cent dividend yield, there’s no need to jump ship.
Dechra Pharmaceuticals – Hold
Questor issued a “hold” recommendation on FTSE 250 animal drugs company Dechra Pharmaceuticals on Tuesday. The stock made a strong start to the year as it expanded into the European farming market via a number of acquisitions, while solid cash flows and confidence in revenues allowed it to raise dividends by 10 per cent. Shares are up 30 per cent on a year ago and now trade on 22 times forecast earnings – Questor said this is a quality company operating in an attractive niche.
Wednesday
BP – Hold
Questor said investors should hang on to BP due to its plan of maintaining the 6.8 per cent dividend until at least 2017 – and even increasing it if oil prices recover to at least $60 by then. To achieve this aim, it is cutting spending and plans to dispose of $5bn worth of assets – however, if this fails to proceed as planned – and prices continue to languish below $50/barrel – it may have to borrow money in the short term. Critically, however, it’s a case of making the dividend sustainable and although a line can now be drawn under the Gulf of Mexico disaster, other woes such as rouble deprecation are also affecting the company. The share price may have further to fall this year, but for those already invested, Questor recommends sitting tight.
Shoe Zone – Buy
In the first buy-recommendation of the week, Tempus tipped Shoe Zone. The AIM-listed discount shoe retailer floated last year and has more than 500 outlets across the country. So far – aside from what the column described as a blip of a profit warning back in April – the company has lived up to the hype in the prospectus. Last year’s mild winter affected some sales and shares do trade below the April high of 260p, which was before that profit warning was issued, but the stock pays a 6 per cent dividend. The company – which has no debt – is certainly worth a look.
Thursday
GlaxoSmithKline – Buy
Questor said investors should buy GlaxoSmithKline. Wednesday’s results came in above expectations, reassuring investors that healthy dividend payments will continue. ViiV Healthcare, the HIV drugs business that Glaxo owns a majority stake in, has performed well, but it’s not all good news, as the company is grappling with falling sales of profitable prescription drugs. On top of this, the patent of asthma drug Advir, which delivers £4.2bn worth of revenue out of a total of £23bn for the company, is close to expiring. However, the stock’s commitment to maintaining the 6.7 per cent dividend is sufficient for Questor to retain its positive outlook.
BT Group – Buy
Tempus tipped BT after the Competition and Markets Authority gave a provisional green light to its acquisition of EE, which would create the country’s largest broadband and mobile phone network. However, the fact that there were no “remedies” demanded by the regulator left Vodafone and Sky concerned that BT now has too much power at both the retail and wholesale level. Further lobbying from competitors should be expected and there is still the shadow that BT may be forced to split from its Openreach division, but the potential risks this carries for infrastructure investment are so great that the doomsday scenario now appears incredibly unlikely. The column admitted that some analysts are negative on the proposed takeover, suggesting that the convergence war will see margins eroded, but said with EE wrapped into the deal, BT Group looks stronger than ever.
Friday
Royal Dutch Shell – Hold
Questor said investors should hang on to Shell earlier this morning. The column asked if the 7 per cent dividend was safe, given the enormous Q3 loss reported by the company on Thursday, but came to a relatively upbeat conclusion about its outlook. It notes that the loss was more than covered by accounting write-downs on projects that hadn’t actually been producing oil to start with. Furthermore, existing projects are still generating cash and, given the company is one of Europe’s lowest-cost operators, again this bodes well. The column concluded there is the scope to increase debt to maintain dividends, while the acquisition of BG Group has opened up valuable gas fields in Brazil.
Shell’s dividends account for 11 per cent of all cash paid out from the FTSE 100, so sustaining this has significant implications for the likes of pension funds – to work out what role Shell or any other underlying holdings in the funds you own have on your portfolio, use Trustnet Direct’s Asset Allocation tool here.
IAG – Sell
Tempus said investors should take profits in IAG, despite the fact it has resumed dividend payments, returning 25 per cent of profits after tax to investors. The column pointed out this is a cyclical industry and said valuations are now at a peak. While more acquisitions are likely – the company already owns British Airways, Iberia and Aer Lingus – the share price is already up by more than 50 per cent over the last 12 months, so there are some doubts over how much upside is left.
