Sunday newspaper share tips
Each week we round up share tips from the Sunday newspapers. This week Tesco, Hochschild Mining and CSR.
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- Midas
Mail on Sunday
Logistics group Wincanton, whose transport and distribution services are used by blue-chip groups including Procter & Gamble, Tesco, Sainsbury's, Renault and Argos, could offer an attractive balance between a defensive investment and a possible play on any economic recovery.
It has long-standing relationships and secure future contracts with its customers, with analysts at stockbroker Charles Stanley estimating that 90% of its forecast turnover in the UK and Ireland for 2010 is absolutely secure.
Group sales rose by 9% in the year to March to £2.36bn and profits were flat at just over £41m. Analysts forecast a slight drop in profits in 2010 to £35m due to the cost of restructuring some of its operations on the Continent, but this hardly constitutes a serious setback in the current economic conditions.
Its dividend is just over 15p, which at Friday's closing price of 215p represents an excellent yield of 7%.
Wincanton is not without risks. Profit margins at its Continental arm, which accounts for about a third of its business, are very low and it has faced much tougher trading than the UK side. The other issue is its pension fund, which has a deficit of more than £100m.
Wincanton is not a screaming buy, but its core business provides the basis for secure future income and profitability. Dividends also offer a significant cushion for investors. If it can overhaul its Continental operations and benefit from recovery in those economies it could enjoy a marked revaluation. Buy.
Sunday Telegraph
News that Britain is experiencing a baby boom is good news for stores like Mothercare (568p), which also owns the Early Learning Centre. The company also has an international expansion strategy, which offers great opportunities for the company over the next few years.
In 2008, international sales rose 6% on a like-for-like basis, with total retail sales including new store openings up 40.9%. The group had 1,014 stores operating in 51 countries at the end of the last financial year. Mothercare's balance sheet is strong - it is debt free and had £24.8m of cash when it last updated the market.
The shares are trading on a March 2010 earnings multiple of 16.8 times, which is not extremely cheap, but this falls to 15.2 in 2011 and 13.7 in 2012. This does not seem overstretched considering that the store is operating in an obvious bull market and underscored by the fundamental rise in the birth rate. The prospective yield is now 2.8%.
Shares have risen 29% since they were tipped as a buy at 439.75p on May 27. Buy.
Sunday Times
All eyes will be on DSG International, the owner of Currys and PC World, when it updates the City on trading this week.
Morgan Stanley expects DSGI to come out with another dismal trading update at its annual meeting with sales down by between 9% and 12%.
While people are still spending on new laptops, flat-screen TVs and netbooks, shoppers want a bargain and competition will be ferocious in the run-up to Christmas.
The City expects DSGI to warn that it expects the high single-digit sales decline to carry on throughout the festive quarter. Longer term, the picture is more rosy. Under the leadership of John Browett, the electricals retailer is upgrading and refitting stores much faster following a successful rights issue.
Analysts reckon that more than 100 stores have been converted to one of its four new formats — up from 63 at year-end. The aim is for between 50% and 60% of stores to be refitted by Christmas 2010. The revamps have allowed DSGI to showcase a bigger range of products — and proved hugely successful so far — with sales up 11% to 65%.
Browett is also working hard to improve customer service, with faster and more focused internet delivery and quicker turnround times at its TV repair service.
DSGI insiders feel confident they can compete. The company boasts a strong leadership team with Browett — a former Tesco director — and new chairman John Allan, a former finance boss at Deutsche Post.
Unfortunately, it will be a long, hard slog in the face of recession, the prospect of tax rises next year, a Christmas Vat rise and a weak pound. Plus Bestbuy, the US electricals giant, is opening in Britain next year.
Profits have already fallen 84% from their peak and the dividend was scrapped in 2008-9. The shares may be just one sixth of their 2007 peak, but at 24 times earnings they look pricey when set against the average PE for the stock market, which is 12 times. Recovery may emerge, but with the 2010 consumer environment looking exceptionally tough, avoid for now.
Recession has a funny way of bringing sleepy sectors to life. Nothing much happened in the bus and rail industry for years as it enjoyed the rising passenger numbers generated by a buoyant economy. Then came the crunch.
National Express had to hand back its east coast franchise, lost its chief executive, and was immediately in play with two takeover offers in quick succession — one from rival First Group and the other from its biggest shareholder, Spain's Cosmen family. Stagecoach is in a nasty spat with the Department for Transport over its rail business and might yet come in for National Express itself.
Sitting quietly on the sidelines (so far) is Go Ahead, which has had as much success as any in winning rail business. Most recently it held on to the Southern franchise and is running the first high-speed commuter service from St Pancras into Kent.
It is not immune from the downturn, however. Go Ahead reports full-year results this week and shareholders will be fixated by growth in rail. During the boom, the company enjoyed 12% to 13% jumps in revenue each year. Now it is likely to be down to about 5% to 6%. The market has been wary. The shares, which closed last week at £13.55, are down 30% in the past 12 months, but have perked up recently, outperforming the FTSE All-Share in the past month by 5.2%.
If you believe the worst of the recession is over, buy the shares — if not, hold off a while.
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