In a week in which the FTSE barely budged as traders waited for clues as to what the next move from the Federal Reserve would be, airliner Ryanair was up 10 per cent after a surge in revenues and profits. However, some analysts believe there may be better opportunities elsewhere now after the rise in its share price.
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Tuesday
Hikma – Sell
Tempus said investors should avoid Hikma. The company issued a mild profit warning on Monday surrounding its gout treatment drug after delays in getting the product to market were predicted to cost it as much as $60m. Given the market’s dislike for profit warnings, the company could be seen to have got off lightly, but it must be said that the rest of the update was generally positive. The company has been acquiring competitors to grow its range of generic drugs, but deals may be close to running out. Despite the fall in its share price, the stock still trades on an estimated 23 times earnings, suggesting upside could be limited, so despite the mild nature of the profit warning, this is best avoided for now.
Ryanair – Hold
Questor said investors should hang on to Ryanair. Revenues and profits have soared, thanks to a flood of UK holidaymakers fleeing the bad weather over the summer, but overcapacity is now proving to be a cause for concern among European low-cost carriers. Over the six months to the end of September, Ryanair increased capacity by 13 per cent and despite fears to the contrary, this hasn’t resulted in prices falling back – they were up 7 per cent over the summer. The weather could however have made this summer a one-off, and the airline said pricing was looking softer over the winter. The outlook may be good, helped by low oil prices and the fact the low cost carriers have a far more nimble approach than we see with legacy peers, but the column worries that most of the good news is already priced in, so it is downgrading its stance from a buy to a hold.
Performance of stock over 1yr
Source: FE Analytics
Wednesday
Weir – Hold
Questor said investors should hang on to Weir. Shares in the industrial pump manufacturer have taken a beating off the back of the slowdown in demand from energy companies, but Tuesday’s quarterly update avoided a profit warning and investors found reason to prop up the shares as a result. The company’s work for miners has proved more resilient than the oil and gas business, while costs are being cut wherever possible to help manage the change. The 4 per cent dividend also looks safe, covered twice over by earnings. Shares have fallen by 50 per cent over the past year and trade on a 13 times multiple, but given commodity prices are set to dwell for a while longer yet, this isn’t the time to jump in.
Thursday
Tracsis – Buy
Questor tipped traffic and transport analysis group Tracsis on Thursday. The company reported what were described as "solid, if slightly uninspiring" results on Wednesday, but healthy cash generation means the long-term prospects are good. Revenues are up 14 per cent, and the nature of the software contracts also provides some valuable certainty for investors. This goes some way to justifying the high rating on the stock, trading at a 19 times multiple, but the outlook certainly seems upbeat.
Persimmon – Hold
Tempus said investors should continue to hold Persimmon. Shares in the housebuilder have stalled since the summer as more analysts cotton on to the fact the market cannot keep going higher forever. On the plus side, land prices remain comparatively low, so the company has been building up stock here, but elsewhere the backdrop seems set to change sooner or later. Planning requirements will only get more onerous and smaller builders will creep into the fold. Dividends look set to remain healthy through to the end of the decade, offering a 6 per cent yield, but there seems to be little more to be added to the share price.
Friday
AstraZeneca – Buy
Tempus said investors should buy AstraZeneca. Some experts may say the company should have accepted the offer tabled by Pfizer last year, with AstraZeneca continuing to push towards its patent cliff. However, the company continues to work on a stable of new drugs and the column notes that although some will fall at the first hurdle, there should be a champion or two in there too. R&D spending was up 18 per cent in Q3, but there’s no concern this will hit dividends, with a 1.5 times cover ratio in place. The 4.3 per cent dividend looks reliable and is a good enough reason to buy.
Amec Foster Wheeler – Sell
Investors should get out of Amec Foster Wheeler, according to Questor. Cheap oil and falling shale gas operations in North America are hitting the company hard, raising concerns that it seriously overpaid for Foster Wheeler, which it bought at the start of the year. The dividend is being cut and although cost savings are being found, margins are under pressure and customers may well delay work that is already in the order book. With no signs of a recovery in the underlying market, the column is adamant this is one to avoid.
