Markets continued to recover from their awful start to 2016 this week, and this new optimism was reflected in the share-tip roundup from Trustnet Direct – there were seven “buy” recommendations and just one sell tip.
Tuesday
Buy – British Land and Land Securities
On Tuesday, Questor recommended buying commercial property developers. Shares in British Land and Land Securities have declined steadily over the past year, reflecting a more cautious approach in the sector, but this has made them cheap compared with net asset values and could make for a buying opportunity. There are some jitters over what could happen in the event of a Brexit, but low interest rates and concerted attempts to shore up positions ahead of the next downturn make these two dominant sector players look attractive.
Bunzl – Buy
Buy Bunzl, was the message from Tempus. The company has been an incredibly reliable performer in recent years, with shareholder returns averaging 17 per cent over the last decade. Organic growth has historically been strong, although sales have on the face of it slowed as the commodity price slump has meant price deflation is on the cards in the world of paper napkins and plastic cutlery, as much as it is for food retailers. This is a temporary change of pace, however – the pipeline of acquisitions remains intact, helping justify that punchy 20 times multiple the shares trade on.
Wednesday
Ashtead – Buy
Tempus recommended buying Ashtead on Wednesday. The plant hire company saw its shares fall significantly during Tuesday’s session, leaving the stock some 26 per cent down from December’s highs.
Performance of stock year to date
Source: FE Analytics
The column said such a decline can’t be justified unless you take a very pessimistic view of the US economy – the market seems to be reacting to a cutting back of planned capital spend, but this has come at the end of a hefty fleet replacement programme, so there should be no surprise in this. With reduced spending paving the way for a dividend hike and the stock trading on a 10 times multiple, there is plenty to like here.
Trinity Mirror – Buy
Buy Trinity Mirror, was the message from Questor. Despite the ever-evolving media market, this stock has been a solid performer in recent years and this week’s launch of the first UK national newspaper in three decades is testament to the evolution that is being shown. The last set of results may make for grim reading, but the company appears to be on a solid footing for the year ahead and with a P/E ratio of just over five times, the column said this makes for a speculative buy.
Thursday
Virgin Money – Buy/sell
There were mixed views on Virgin Money after the challenger bank released upbeat results this week.
Questor recommended investors buy it, pointing out that while the wider banking index is down 16 per cent on the year, reflecting concerns about the general economic outlook, the likes of Virgin Money are charging ahead. It is unencumbered by legacy issues such as PPI claims which are still affecting competitors, is running a slick modern IT system and has a low overhead with just 75 branches. Other challengers such as Aldermore and Shawbrook are noted as being on the same trajectory, trading at a premium to book value. Big banks may continue to struggle, but Questor said this doesn’t appear to be the case for the new band.
Tempus took the opposite view, recommending investors avoid Virgin Money. The column admitted all the metrics are heading in the right direction, and a tier one capital ratio of 17.5 per cent is as good as it gets. Virgin has a tiny share of the mortgage market at present, so this can only grow, and the bank’s popular name is also seen as a great asset. Tempus sees two potential pitfalls, however – ongoing low interest rates and the idea that Virgin Money may try to buy Williams & Glyn when RBS is eventually required to sell it. The bank may be well placed, but risks remain.
Friday
Carillion – Buy
Buy Carillion, was the message from Tempus this morning. Around 20 per cent of the stock is currently out on loan, making it the most shorted stock in the London market as hedge funds believe the company doesn’t have the financial firepower to meet day-to-day requirements. Balfour Beatty floundered in a similar scenario, but Tempus has a more bullish take – there’s a strong credit line in place at the bank and 2015 numbers have been reassuring. Domestic public sector contracts may have been a cause for concern in the immediate wake of the election, but delays to projects have been temporary. With a dividend yield of 6.6 per cent and trading on a multiple of just 8.5 times, unless you think there’s a disaster looming on the balance sheet, then this is a solid buy.
Travis Perkins – Buy
Questor said investors should buy Travis Perkins. It is said that 80 per cent of spending on DIY products is done by homeowners in the first two years after buying a property. This leaves the company vulnerable to blips in the housing market, but with the current wave of confidence in the sector, there’s little to fear. On top of this, the company is already working through a self-improvement programme of cost cutting, while the UK-centric nature of the business offers a degree of insulation against the risks posed by the Brexit vote. Shares now trade on a 13 times multiple, which is well below that of its peers and the optimistic note struck by management yesterday is enough to have the column call this a “buy”.
