Newspaper and magazine share tips

By This Is Money
Updated: 09:35 EDT, 3 December 2010

Each day we round up share tips from national newspapers and investing magazines. For the Mail on Sunday's stock picks, read the Midas column.

Round up: We round up the latest share tips from national newspapers and investment magazines

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FRIDAY

Investors Chronicle

Merchant bank Close Brothers appears to have emerged from the financial crisis in decent health. Its banking operation, which focuses on niche areas such as property and retail motor finance, is bounding ahead. In 2009-10, its loan book expanded 23% to £2.9bn, while the division's operating profit grew 47% to £79.5m and generated 55% of group profits.

Analysts think Close's securities business could be worth another 500p, using a 15 times multiple. Even the loss-making asset management arm could be worth another 90p a share. That yields a total of 1,090p – 33% above the current share price. Buy.

Shares in K3 Business Technology trade on a miserly rating, despite a strong pipeline of new business, robust recurring revenues and its fast-growing managed services, but that should change. Figures for the 18 months to June 30 were much better than expected, particularly the 17% growth in organic revenues, especially considering its customers (split 60/40 between retail and manufacturing) were under the cosh.

Analysts believe K3's shares should be 215p. If the price-to-earnings (PE) ratio rose to 10 – feasible given the software sector's average PE ratio of over 15 – that would see the shares hit 265p, close to an 80% profit. Buy.

The Independent

Soft drink group Britvic said yesterday that annual revenues have jumped 14.6% to £1.1bn from £878.5m, and pre-tax profits are up by almost a fifth from £86.1m in the 52 weeks to 27 September 2009, to £104.6m a year later.

Revenues at the international business as a whole rose 15.2%. This is a solid stock that trades on an undemanding ratio of 11.8 times price to earnings. The 4.3% dividend yield weighs in its favour too.

Analysts warned that Britvic may struggle to maintain these levels of profitability next year, with raw materials set to rise by up to 6% and concerns about consumer spending. Hold.

Global DIY group Kingfisher, owner of B&Q, crafted a 6% rise in retail profits to £240m for the three months to 2 December. Profits were up by 3.1% to £130m in its French division. Poland bounced back and contributed profits of £45m – nearly matching the £46m made in the UK and Ireland – and B&Q China expects to turn in a profit in the fourth quarter.

UK profits were flat in the last quarter and trading conditions are likely to remain tough over the next year but Kingfisher is not reliant on a consumer recovery in the UK. Shares trade on a reasonable earnings multiple of 11.5 for 2011-12. Hold.

Daily Telegraph

Balfour Beatty confirmed last week that it planned to sell off between £200m and £300m of its public-private partnership (PPP) assets over the next five years. This could create an extra £20m of profits a year, adding up to 3p to earnings per share.

The company's plans to launch a £500m to £1bn infrastructure fund, which will be managed separately, appears a good idea, as infrastructure across the world will need substantial investment over the next few decades.

The shares have a yield of 4.3%, which is likely to increase, and are trading on an earnings multiple of just 8.3 times in the current year. Balfour remains a buy.

This week's update from coalmine operator and energy services group Hargreaves Services was reassuring. The company expects to meet full-year forecasts, helped by strong markets for coke. It was also confident it would meet its year-end net debt and cash-generation targets.

The only slight negative was a delay by a few months of a planning decision for expansion at its Tower Colliery site. The shares are up 31% since their initial recommendation on February 22 last year, compared with a market up 47%.

They are now trading on a March 2011 earnings multiple of 6.8 times, falling to 6.3 in 2012, and yield 2.1%. Hargreaves remains a buy at this level.

The Times

Consort Medical makes niche medical products and yesterday unveiled a new low-cost video laryngoscope that it hopes will one day be the industry standard. Debt of little more than £30m suggests scope for an acquisition.

For now, earlier cost savings meant improved margins and pre-tax profits up 7% to £8.4m on sales 13% higher at £65.6m. With the interim dividend held at 7p, suggesting a yield of just above 4% this year, the market should view the shares as a growth stock.

On about 12 times this year's earnings, no more than a hold until that growth can be demonstrated. Hold.

Character Group buys the rights to the likes of Peppa Pig and Postman Pat and makes plastic toys based on them in the Far East.

The latest financial year saw a return to profits of £7.55m and a quadrupling of the dividend to 4p, after a £2.17m loss before tax in the year to end August 2009 due to the collapse of Woolworths and heavy discounting in the market.

This suggests a 2.5% yield for the current year. The negatives are rising raw materials and freight costs. The shares are on 7 times this year's earnings and there is a decent free float in them. A speculative buy.

THURSDAY

Shares

A 21% one-month fall in Spanish bank Banco Santander (BNC) has created a compelling buying opportunity as fears the euro will collapse look overdone. Analyst Arturo De Frias estimates French, German and UK banks could lose €360bn in aggregate if the continent was to return national currencies, so Governments and central banks are likely to work hard to maintain monetary union. As the situation stabilises, Santander's shares are expected to rally. The Spanish banking system is in much better shape than Ireland's and Spanish banks' reliance on European Central Bank (ECB) is falling. Santander also offers diversification with a large UK division and rapidly expanding Brazilian arm. Buy.

HMV shares are to be avoided. The retailer's long-term future is being undermined by increased competition from both the internet and supermarkets. HMV's last trading update on Sep 9 showed like-for-like sales declined 13.9% in the UK and 9.4% in Canada. HMV has sought to diversify into the live music market, but it is considered unlikely that the £195m cap can grow its earnings sufficiently quickly from this area to offset the continued decline in the high street business. Christmas is now key as the company seeks to meet full-year market expectations of a 7% decline in pre-tax income to £64m. Sell.

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The Independent

BG Group yesterday announced a gas discovery at its Chewa-1 exploration well, the second of three prospects to be drilled off southern Tanzania, following a similar gas discovery at the first well last month. It is too early to speculate about the size of the reserves, but BG chief executive Frank Chapman is upbeat. Last month's third-quarter results showing pre-tax profits of $1.39bn (£892m) were published alongside a higher estimate of the group's Brazilian reserves. BG shareholders have seen total returns of nearly 420% since Mr Chapman took over as chief executive in 2000. There are more to come so keep buying. Buy.

Financial services group Brewin Dolphin posted a healthy 43% rise in pre-tax profits, which jumped from £21.9m to £31.4m. Funds under management were 13% higher at over £23bn, while revenues jumped by 18% to £250.9m. The gains came despite growth in red tape, with Brewin bemoaning a 'material rise in the costs' of dealing with regulators. Arden Partners puts the shares on less than 10 times forward earnings for next year, which is hardly demanding, especially in light of a forecast yield of more than 5%. Brewin deserves credit for the strong performance, particularly in light of the weak valuation. Buy.

Daily Telegraph

The market did not seem very impressed with figures from Thomas Cook but there is still a compelling reason to buy. With the euro weaker than it was last year, European package holidays are likely to be more attractive. In the year to September 30, revenues fell by 4% to £8.9bn, with pre-tax profits down 7.5% to £41.7m, due to the Icelandic volcano crisis. Profits are expected to rebound next year. The company unveiled a 50.1% stake in Russian travel group Intourist giving it exposure to emerging markets. The shares remain a yield play but there could be capital appreciation. Buy.

May Gurnery maintains roads and schools, as well as infrastructure for utility groups. Its dividend cover is almost 4 times, but its peers generally pay dividends that are about three times covered by earnings – so investors can pretty much bank on increasing payments in the future. In the six-month period to September 30, revenues rose to £288.9m from £239.1m and pre-tax profits jumped 31% to £11.1m. Gross cash stood at £50.7m and net cash was £33.2m. With earnings underpinned by a solid order book worth £1.4bn, strong balance sheet and progressive dividend policy, the shares remain a buy at this level.

The Times

For the year to September 30, organic revenue growth at software group Sage was entirely flat, though this accelerated as the year progressed, up 3% in the second half. Operational efficiencies drove up underlying pre-tax profit by 5% to £356m. Sage has £600m of firepower in reserve for acquisitions, but there are no signs of any obvious transformational deal to justify the rating of 14 times this year's earnings. The total dividend payment for the year is up by 5% and suggests a yield of 3% for the current financial year. Still not enough to justify a buy. Avoid.

May Gurney's underlying pre-tax profits rose by 19% to £12m on revenues 21% higher at £289m. Another reason for the 6% share price rise yesterday was a rebasing of the dividend. The shares are on just short of ten times this year's earnings. Attractive given the strength of the forward order book and potential for further contract wins. Buy.

WEDNESDAY

The Independent

Business travel company Hogg Robinson yesterday produced a sparkling set of interim numbers with sales up 9% at £169.2m, but pre-tax profits quadrupling to £13.3m. There was also a 25% dividend rise to 0.5p a share, which is four-times covered by earnings, and there could be a similar rise at the full year. The company has coped with a good increase in sales volumes with very little increase in costs, but is it sustainable in the throes of a sovereign debt crisis in Europe given this where the majority of earnings come from? On the plus side, the global economy is recovering, driven by emerging markets. Not without risks but we retain our buy.

Since March 2009, safety equipment maker Halma's share price has more than doubled. The company put out interims yesterday, showing pre-tax profits up 29% in the first half to £49.3m, with sales up 12% to £249.1m and strength across all three main divisions. Management also highlighted particularly strong growth in Asia and plans are in hand to expand further in China. The stock looks strong, and is certainly worth having in a portfolio. But at 16.8 times estimated full-year earnings runs at a 25% premium to the electronic and electrical equipment sector. Pricey, but still worth holding. Hold.

Daily Telegraph

The shares of rigid plastic packaging manufacturer RPC Group have been weak of late, as the price of the polymer raw materials it uses hit new highs – but investor need not have fretted. The interim results released yesterday were very good, with revenues rising 9% to £381.9m and pre-tax profits up 52% to £18m. Adjusted operating profits rose more modestly, to £21.8m from £19.1m. A cost-cutting programme has seen costs fall by about £21m and the balance sheet is also strong, with net debt coming in at £74.2m, below some analysts' expectations. RPC was first recommended at 211p on July 26 last year and the shares are now 37% higher. They remain a buy.

Cluff Gold said yesterday its drilling had found new areas of gold mineralisation at its 78% owned Kalsaka mine in Burkina Faso, west Africa. The group recently raised $15m (£9.7m) from Macquarie Bank to fund the next stage of drilling at the site and accelerate all its exploration plans. The shares were first recommended at 62.3p on February 14 and they are up 77% compared with a FTSE 100 up 8% over the same period. Trading on a December 2010 earnings multiple of 13.8 times, falling to just 9.4 next year, the shares remain a buy as a way to play the high gold price, although investors should note that all exploration programmes can suffer setbacks. Buy.

The Times

Halma's exposure to relatively resilient markets has meant the shares command a premium to equivalent stocks. Although profit-taking yesterday, after a strong run, sent the price almost 5% lower, the shares still sell on almost 16 times this year's earnings. A long-term hold, but up with events.

Northumbrian Water Group ended the reporting round for the quoted water companies on a subdued note. The company is one of the purer plays in the sector, with about 94% of revenues come from its regulated activities. Northumbrian has indicated it will be raising dividends by the rate of inflation plus 3% during the current five year regulatory regime, suggesting a 4.3% yield during the current financial year. There are better returns on offer among regulated utilities, especially given Northumbrian's exposure to mounting bad debts if public sector job cuts in the North East heartland are as swingeing as some have feared. Avoid.

TUESDAY

The Independent

African Barrick Gold proved itself to be one of the most resilient blue-chip stocks last night. This was due to more good news from drilling at its Nyanzaga project in Tanzania, which has shown higher grades of the yellow metal than previously thought. This is clearly good news and bolsters the case for long-term growth. But potential investors should also remain mindful of whether the gold price, currently at well above $1,300 per ounce, will hold up or whether investors will feel the itch to take profits. ABG is more than pricing in any risk of a short-term fall and, added to its growth prospects, this is a buy.

Phoenix IT Group offers its business clients outsourcing IT services that means companies do not need to maintain their own servers; instead all the data is hosted on the internet. The Northampton-based company released solid first-half results yesterday, which showed growth across its operations. Revenues rose 13.4% to £138.4m, although pre-tax profits were up just 2% to £15.1m. Net debt was reduced from £78m to £63.5m. While its public sector clients have been affected by cuts, Phoenix says the trend for outsourcing "remains positive" elsewhere. The price-to-earnings rating of the stock is an undemanding 7.7 times estimated earnings in 2011. Buy.

Daily Telegraph

BT Group has released an excellent set of operating figures; debt continues to fall; there has been good news on its pension deficit; and there is a chance the dividend could now offer real growth. Things are not all rosy though. BT's multi-million pound advertising campaign to grab sports viewers from Sky appears to have got off to a slow start, with just 50,000 subscribers signed up. Despite a recent run, shares are still yielding a respectable 4.4%, rising to 4.8% next year. As debt is reduced, the pension hole managed and its credit rating improves, the company should be able to increase the dividend further. Buy.

Is oil going to hit $100 a barrel again next year? Traders and investment banks seem to think so. According to data compiled by Bloomberg, crude oil's return to $100 next year has become the 'biggest bet in the crude options market'. If the price hits this level it will obviously be very good for Royal Dutch Shell's cash flows, underpinning its dividend payments and providing fire power to invest in growth. The shares are trading on a December 2010 earnings multiple of 9.8 times, falling to 8.1 next year. The shares are a buy for income, with a prospective yield of 5.5%.

The Times

Acal is a distributor of electronic and other high-tech components to industries such as defence, aerospace and medicine. The company made a significant purchase about a year ago of BFi Optilas, and expects annualised cost savings of at least £4.4m from synergies such as combining IT systems. The halfway figures to the end of September show sales were up 25% on a like-for-like basis and the group swung back into an underlying operating profit of £2.8m, from a £1.8m loss. Much of this is already in the share price of 240p, putting shares on about 18 times this year's earnings. Hold; not worth chasing at this level.

Phoenix IT Group shares have always been poorly rated by the market because of overhanging debt. But with its borrowings now down to a more comfortable £63.5m, the company has stepped up the dividend and they now yield approaching 5%. Buy for an eventual re-rating.