Sunday newspaper share tips
Each week we round up share tips from the Sunday newspapers.
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Sunday Telegraph
May Gurney, which maintains roads and street lighting, cleans parks and manages recycling programmes, generates more than 95% of its business from long-term contracts, giving it good earnings visibility. It also has a healthy order book, with £1.25bn worth of contracts in the bag.
Contracts tend to last up to six years and they are increasing in length. This creates a virtuous circle as May Gurney is in a position to invest in technology and other equipment in order to reduce costs for its clients. Happy clients then feasibly become clients for life.
The company is also increasingly selling additional services to existing clients. In the past, different departments of a local authority would have separate procurement processes. As these are made more efficient, companies that offer a portfolio of services are likely to benefit.
Shares, currently at 218p, are seen as a strong buy in troubled times.
Sunday Times
Shares in the retail sector have more than doubled since last autumn and now trade at an average of 12 times 2010 earnings, according to leading sector analysts.
Some racier stocks, largely where earnings are low and there is a big recovery multiple built in — like Currys owner DSGI— are priced at more than 20 times future earnings. Given the prospect of increased unemployment and tax rises in 2010, some question when the sector is going to blow up.
The theory goes that retailers have been one of the big beneficiaries of the recent equities rally — and these typically cyclical stocks have been chased too hard too soon.
Jonathan Pritchard at Oriel Securities has another theory. He is a bull on the sector — he points to mitigating factors such as cheaper property rents and wage freezes that will reduce pressure on retailers' underlying cost base. He also believes shoppers will probably spend more in 2010 than they did during 2009.
In the past few months, signs of economic recovery have given greater confidence to those still in work and they may be prepared to spend a bit more than last Christmas. This could trigger upgrades to analysts' 2010 earnings forecasts from a low base — which would make the current punchy earnings multiple for retail shares (still in line with the long-run average for the sector) appear a bit less crazy.
Mail on Sunday
Life insurer Chesnara was originally part of estate agency chain Countrywide, but it established an independent identity in 2004 when the rest of the Countrywide group was sold to US private equity firm Apollo Management.
It swiftly bought another UK life insurer and by 2005 had about 180,000 policyholders and more than £1bn of assets under management. As Chesnara is closed to new policyholders, the company is much cheaper to run as money does not have to be spent on finding new customers.
However, it is looking for acquisitions and in July added Swedish life business Moderna from an Icelandic bank. Chesnara is conservatively managed and has benefited from the stock market's strong run over the past three months.
There has also been a raft of takeover activity in the life insurance sector and Chesnara is a classic bid target for a larger player. Shares, at 170p, are a buy.
Coal of Africa, which operates principally from South Africa, focuses on two types of coal - thermal coal, used for power generation, and coking coal, used to make steel. Last month, leading brokers JPMorgan Cazenove and Morgan Stanley began looking at the company, both suggesting the shares were a buy.
The shares have performed so well that it was forced to put out an announcement, refuting speculation that it was in bid talks. Its first coking coal mine will be given a licence to operate within weeks and its second should be licensed next year.
The firm is still loss-making, in common with many early-stage miners, but it should move into profit in 2010 and earnings are expected to surge from 2011. Thermal coal prices have moved steadily ahead over the past few months, but coking coal, which is in shorter supply, has surged in price, reflecting ongoing demand for steel.
Coal is trading at 108p, so it has risen in value by 56% over the past five months, but it is still worth considering a few shares at current levels.
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