Newspaper and magazine share tips

By This Is Money
Updated: 11:26 EDT, 29 June 2007

Each day we round up share tips from the newspapers and from weekly investment magazines. For the Mail on Sunday's stock picks read the Midas archive and see the latest Daily Mail Investment Extra share tips. And don't miss: Sunday newspaper share tips...

FRIDAY

Independent

Spirits giant Diageo's outstanding record of delivering on its promises and organic growth should give it a place in the engine room of any portfolio.

Valued at just under 17 times forecast 2008 earnings, the shares are probably fairly priced - but reliability is worth a premium. Not one for quick buck punters, but for everyone else Diageo remains a quality buy.

Given the huge amount riding on Harry Potter 7, it is hardly surprisi g that publisher Bloomsbury declined to give guidance for the coming year. As such there is a wide spread of forecasts among analysts.

For investors hanging on after December's warning, now is not the time to sell. The odds are on the company surprising to the upside, so for now the shares are worth hanging on to even if too many question marks remain to advise buying says the Independent.

Aim-listed Accsys Technologies has pioneered a chemical process that turns softwood into hardwood in a fraction of the time, normally 70 years or so, that hardwoods take to grow naturally. The process results in a hardwood called Accoya.

Accsys expects to become profitable in the current financial year, has no debt and cash reserves of approximately €37.5m. The potential for Accoya is vast, and for investors who are unafraid of high risk the shares are still worth buying.

The Times

Yesterday's full-year figures from packaging group DS Smith were persuasive. Earnings per share were up an above-forecast 30%, helped by a rise in operating margins from 3.6% to 4.4%. A new management team is targeting 5% operating margins within two years, up from today's 2%. However, at 240p, or 16 times 2008 earnings, DS Smith's near-term prospects are already priced in. Hold.

THURSDAY

Daily Telegraph

Investors with an appetite for risk might buy SMG, but watch for disappointment on disposals. Avoid, and wait for a more attractive entry price, says the Times. On 37 times this year's earnings, falling to 23 for next year, SMG shares aren't cheap either. Hold.

Northern Rock's biggest threat is a sustained period of rising interest rates. But it's a risk investors should take. With the shares now on 9.6 times earnings, and offering a 5.2pc yield, yesterday's fall is an obvious buying opportunity.

Independent

Given the uninspiring returns from large-cap pharmaceuticals, Hikma looks like a quality growth play, generating excellent cash flow with low debt and an undemanding valuation. Fill your boots.

WEDNESDAY

Daily Telegraph

Although he would not admit it, WS Atkins chief executive Keith Clarke must wish the public private partnership on the Tube had never been invented.

Yesterday consulting engineer Atkins issued a cracking set of full-year results, bar the £121m hit for Metronet. Worse, that's unlikely to be the final bad news from Metronet. In the few years since it started its Tube PPP, Metronet is already facing a £1bn-plus cost ove run. Atkins could face having to put in more equity or walking away from Metronet altogether.

Atkins shares sit on a multiple of 17 times. Until the uncertainty over Metronet clears, that's a bit too pricey. Avoid.

As the market leader in IVAs, Debt Free Direct is not expected to overly suffer from the likely changes, which could in fact force some smaller players out of the market, presenting further opportunities for industry consolidation. But it's advisable to sit tight for now says the Telegraph. Hold.

The Times

Yesterday's update from bus and rail group Go-Ahead triggered upgrades to profit forecasts, helping the shares up 68p to £25.02 to trade at 14 times next year's earnings and offering a dividend yield of 3%. That puts them up with events, and no more than a hold.

TUESDAY

The Independent

Unlike the houses it sells, Persimmon shares are now 20% cheaper than at the beginning of the year. However, first-half sales were better than expected at £1.5bn and it also revealed a significant improvement in margins, to 20.5% from 19.9% a year ago, following synergies from the purchase of the rival builder Westbury. The falling share price is down to one factor alone - investors have assumed a rising interest rate environment can only mean bad news for housebuilders. But given the imbalance of demand and supply, Persimmon's strong position in the housebuilding market and its cheap valuation - 7.7 times forward earnings looks attractive - the shares would be worth a look, even without the generous yield of 4.4%.
Verdict: Buy

It has been a red-letter year for investors in the support services group Amec - the shares have almost doubled from an August 2006 low of 271p, buoyed by operational improvements, non-core asset sales and the usual slug of bid speculation. Amec is involved in a wide range of projects, but is concentrating its efforts in natural resources and energy, and the company is set to move into the oil services sector. In spite of yesterday's bullish update, the stock trades on a demanding forward multiple of 24.1 times 2007 earnings, according to the broker Citigroup. Although a move into the oil services sector could mean that Amec gets a re-rating, its current valuation makes it among the most expensive in that sector.
Verdict: Hold

Majestic Wine is making retail look easy, developing a strong brand name and reliable business model, despite stiff competition from food retail giants. Full-year results came in just ahead of forecasts, with the company reporting £16.2m of pre-tax profits, up 14.1%. Revenue rose 11% to £191m. Consumers are spending more than ever on quality wines, where sales grew 25%. Customers at Majestic are now spending a whopping £123 per visit. Majestic deservedly trades at a premium - the stock is on a forward multiple of 22 times earnings. However, it could buy back up to 10% of its own stock this year and the dividend, while still not enough to make the stock attractive on its own, is up by 24%.
Verdict: Buy

The Times

Filtrona, a cigarette filter maker, has finally got its money out of Brazil where, in the early 1970s, it was forced to plough back profits into its local subsidiary. Filtrona sold it yesterday for £28m, because it didn't fit its focus on high-margin niche plastics. The company said currency moves would check its reported rise in first-half sales to 6% and wipe £2m from earnings. An 18% rise in Filtrona's shares two years after it was spun off from Bunzl comes against a 46% gain in its sector - the City was too bullish in its initial estimation of Filtrona's two key technical innovations: FractureCode, a 'track and trace' system for cigarette and pharmaceutical packaging to help eliminate counterfeiting; and carbon filters to take more pollutants out of cigarettes. FractureCode is not expected to contribute to earnings until 2009. That has left the shares on a 7% discount to the sector, good value given Filtrona's cash generation, promise of annual earnings growth of at least 12% and low gearing. It could also be a private equity target.
Verdict: Buy

During the first half, Persimmon, the UK's biggest housebuilder, completed on 8,000 units, a decline blamed on delays in obtaining detailed planning permission. It is on track to sell about 17,500 homes this year, a 5.4% rise on 2006. This future sales potential explains why Persimmon need not gatecrash the tie-up of Taylor and Wimpey. Persimmon continues to profit from spending money on land that it can turn profitably into homes without needing acquisitions. Operating margins have risen to 20.5% against 15% for Taylor and Wimpey. Over the past six months, it has also increased its land bank to 82,000 plots and 'converted' 5,000 into ready-to-build sites, a process that ensures that margins stay higher when the homes are sold. Last week's OFT inquiry may have hurt sentiment, but if it speeds the planning process it can only help. At £11.90, a low for the year, or 7.4 times 2008 forecasts, the shares look oversold.
Verdict: Hold

> Persimmon puts brakes on
> Housebuilder merger to create £5bn giant
> Massive probe into housebuilders

Pendragon bought Reg Vardy last year promising reduced costs and improved margins. But that deal raised its exposure to the used car market, the weakness of which triggered yesterday's profit warning. After the slide, the shares are now 20% below their pre-acquisition price. It is fortunate that it failed in last year's attempt to buy Lookers as well. New and used car sales are forecast to fall 4% in 2008. Margins, which range from £694 on low-end cars to £1,796 on high-end models, will on average be £50 lower, it believes. A commitment to a 4p dividend, giving a 5% yield, and break-up speculation may provide short-term support for the shares. But poor visibility and forecast net debt of £286m mean that, even at 10.6 times 2008 earnings, they are best avoided.
Verdict: Avoid

Form guide

Shares tipped 12 weeks ago...
Best tip: Uniq in the Daily Telegraph, up 19.66% to 229¾p
Worst tip: BPP in the Mail on Sunday, down 9.68% to 624p
Source: The Week

The Daily Telegraph

The car dealer warned yesterday that customers are less likely to buy cars in the face of rising interest rates. It remains cagey as to when things will improve, saying only that margin pressure is expected to continue in 2008, and it is adamant this weakness is not the result of any difficulties stemming from its £506m acquisition of Reg Vardy in 2005. Now on just 10 times earnings, having dropped by 50% since April, the shares should not fall much further. Upside should come from the £400m of property that it is in the process of selling off, with news of further disposals likely at interim results in August.
Verdict: Hold

The OFT probe could be good an opportunity for Persimmon. As it demonstrated with yesterday's bullish trading statement, more land will help it produce better results. On the other hand, if land continues to be held back by councils and the builders are ordered to improve design while reducing their carbon footprint, its margins will tumble. As the recognised market leader, Persimmon is best placed to benefit. Current trading is strong too. Questor last recommended buying Persimmon at £15.01 in December. The shares have since dropped back on concerns about the market. With capacity to buy a rival and strip away cost while trading on 8.4 times earnings with a 4.2% yield, Persimmon remains a buy.
Verdict: Buy

A lack of hurricanes last year helped insurer Hiscox report record results, but there is more to the company than just catastrophe cover. Hiscox is diversifying by buying a US livestock insurer for $55m (£27.5m.) It will use the business, and the state insurance licences it holds, to roll out its existing US business. The market welcomed the upbeat trading statement although Hiscox did sound a note of caution about the weak dollar. Questor last tipped Hiscox in September when the shares were at 227p. Now trading on eight times earnings with a prospective yield of 4.2%, the shares are worth hanging on to.
Verdict: Hold