It may surprise anyone subjected to BT’s appalling customer service that its broadband and TV subscriptions are on the increase. Nevertheless, Questor’s recommendation that investors hang on to the stock forms part of Trustnet Direct’s share-tip roundup this week.
Tuesday
Cranswick – Hold
Hang on to Cranswick, was the message from Questor on Monday. The country’s largest sausage maker has expanded into poultry recently and this has had a meaningful impact on the bottom line. Chickens are proving more profitable than pigs, which is boosting margins – although it is worth noting, rather than owning the entire supply chain as it does with pigs, the company only smokes, cures and cooks the chickens. Cash generation is strong, net debt has fallen significantly and management increased the dividend as a result. However, with shares up 27 per cent since the start of the year, they now trade on a 17 times multiple, limiting upside potential even if the 2015 report card looks like a good one.
Aberdeen Asset Management – Hold
Aberdeen Asset Management also received a “hold” recommendation, this time from Tempus. Last year may have been bad for outflows, but improved profitability has allowed the company to raise its dividend and it now offers a yield of more than 6 per cent. Aberdeen is flush with cash so this should be sustainable, although there are concerns that more bad news could be on the cards from emerging markets – and this could well last some time. Diversification into other areas offers a degree of protection and the income makes this worth holding, but upside potential could be limited.
Wednesday
Gulf Keystone – Sell
Questor recommended investors get out of Gulf Keystone. Shares fell 12.66 per cent on Tuesday due to concerns that payments for oil produced by the company had not been forthcoming from the Kurdistan Regional Government. This is a complex situation and the money is supposedly in transit, but even then Gulf Keystone is only working on a basis where the income just meets costs – there’s no profit to be had. Shares are off 72 per cent on the year, while bonds due for redemption in two years’ time are selling at a 66 per cent discount. The column sees no reason to hang around, even if you are selling at a heavy loss.
Performance of stock over one day
Source: FE Analytics
Merlin – Buy
Tempus said investors should buy Merlin for the long term, saying the stock has recovered well from the accident at the Alton Towers theme park. Although the event contributed to flat profits over the past year, diversification is proving advantageous and international expansion continues apace. Longer term, the column said the outlook is for maybe 10 per cent growth in profits next year and even though the stock trades on a weighty multiple of 21 times, this isn’t seen as excessive – it’s the long term outlook that’s important.
Thursday
Sage Group – Sell
Tempus said investors should avoid Sage Group. Markets reacted curiously to Wednesday’s earnings from the online accountancy firm, with shares tumbling almost 5 per cent at the open before closing the day little changed. The column explained this away as a case of the City needing to digest the impressive results in the context of accounting changes, but looking ahead, the idea remains to keep moving more customers on to the subscription model of pricing. The concern is shares are heading into the bubble territory seen before the dotcom crash and with the company trading on a 22 times multiple, the future growth already seems priced in.
BT – Hold
Hold BT, was the message from Questor yesterday. Shares in the legacy telecoms operator took a hit earlier in the week as the regulator’s tone toughened ahead of the outcome of its review into Openreach, but the column said that the concerns are overdone and investors should instead look at the strong position the company finds itself in – along with the ability to keep hiking dividends. Openreach is admittedly a cash cow for BT, but the change would be manageable and with good growth in both broadband and TV subscriptions (despite woeful customer service), along with the return to the mobile market with the acquisition of EE, there’s plenty to cheer about the outlook here.
Friday
DS Smith – Buy
Tempus said investors should buy DS Smith earlier this morning. The maker of recycled packaging had been making a habit of beating targets, but the latest results threw out some anomalies with a weaker euro leading the way, while exceptional restructuring costs also took a toll. However, the company will continue to grow through acquisitions and the column concluded that the sell-off in response to the earnings news has left the shares attractively priced for entry.
AG Barr – Hold
Questor said investors should hang on to AG Barr. A wet summer and fears of a sugar tax have been weighing on the stock of late but earnings have shown that sales growth is once again back on the cards. The company is pushing a zero-sugar Irn-Bru and expanding its bottled water offering as it braces itself for some regulatory action, but has a strong balance sheet and the dividends look well covered by free cash. The concern is that the stock is trading at a 19 times multiple and this seems to reflect past glories of steady profit growth, rather than the highly competitive landscape that we see today.
