The FTSE underwent a degree of consolidation over the past five working days and it looks likely to end the week broadly around the level it started at. With results season in full swing, however, there was no shortage of activity at the stock-specific level.
Tuesday
Abcam – Buy
Buy Abcam, was the message from Tempus on Tuesday. The company makes antibodies and research tools for the pharmaceuticals industry, and while this can be a difficult business to understand, with no real comparators on the stock market, it is tipped to see strong growth in the future. Although the 30 times multiple looks toppy for a stock trading in London, such a valuation for a company like this would raise few eyebrows on Wall Street – there should be promise here in the long term.
Wednesday
Foxtons – Sell
On Wednesday, Questor said investors should sell Foxtons. Shares fell 2.6 per cent on Tuesday on the back of full year results, but the column said this doesn’t represent a buying opportunity. A slowing London property market and an increase in low-cost competitors is making for a difficult backdrop – the company may be looking to push out into the suburbs where the pace of sales hasn’t fallen by quite as much, but the bottom line is the London market remains overcooked. In addition, competitive pressures on fees can only increase from here as the late stages of the housing bubble continue to unfold.
Grafton Group – Buy
Tempus tipped central heating and shower company Grafton Group. Full year results impressed, with a notable improvement in margins – and it’s believed that there’s still more in the tank here – while sales growth continues apace, too. These tailwinds served to push profits up 17 per cent despite the fact the company is struggling with some of its overseas ventures. With the shares trading on 14 times earnings – and a reassuring note from the board that the company has no worries over how the Brexit vote goes – there is a lot to like about this stock.
Thursday
Prudential – Buy
Buy Prudential, was the message from Tempus yesterday morning. The column is impressed by the healthy capital solvency ratio that insurers are now required to publish, as this highlights the surplus capital over possible liabilities. There is a degree of speculation as to just why such a large cash pile is being amassed, but it has the potential to leave the company well positioned against its peers. The weak point in the results was M&G, heavily invested in fixed income, which has fallen from favour of late, but this is just part of the story. The stock pays a steady 3 per cent yield, but the strong capital position and Asian prospects are what make it attractive.
G4S – Sell
Questor recommended getting out of G4S. The company’s stock took a beating in the wake of Wednesday’s results, falling 12 per cent in response to that 40 per cent slide in pre-tax profits – and the column warns that bargain hunters should steer clear. Loss-making contracts are difficult to exit, the company is facing a mounting debt problem and with a sale programme now underway, it is difficult to see what the company will look like when it emerges from the other side. Shares trade on 15 times earnings and offer a 4.4 per cent yield, but the column said this doesn’t accurately reflect the risks involved.
Performance of stock over 1yr
Source: FE Analytics
Friday
Aviva – Hold
Questor said investors should hang onto Aviva earlier this morning. Yesterday’s results were cheered by investors with the news of a dividend increase adding further support. The Friends Life deal is evidently playing out well and the capital solvency ratio was a solid 180 per cent. The column, however, noted the business remains exposed to a market downturn – this is arguably accounted for with the fact the shares trade on a modest nine times multiple, although a 5 per cent yield is worth highlighting, too.
Amec Foster Wheeler – Sell
Avoid Amec Foster Wheeler, was the message from Tempus. Results from the company weren’t all that upbeat, but this should come as no surprise to anyone who has been following the story, with the warning bells ringing back at the end of 2014. Revenues fell 7 per cent and margins remain under pressure. The dividend has been cut and write-downs have been thrown into the mix, too. On the plus side, a successful refinancing took place last week, and although the share price is ticking higher with a reasonable 4.5 per cent forward yield, the column questioned whether there is much further for the stock to run.
