Sunday newspaper share tips

By This Is Money
Updated: 09:18 EDT, 6 March 2011

We round up the key stock picks from the Sunday newspaper business sections: this week, Hummingbird, Centrica and WPP.

MAIL ON SUNDAY

Mineral exploration company Hummingbird Resources has a licence from the Liberian government to explore and mine for gold in an area half the size of Wales...

›› Read the full Midas column

SUNDAY TELEGRAPH

There is some political risk in buying shares in Centrica, as the British Government is yet to publish its planned reform of the country's electricity market, which could have crucial consequences for the potential returns of utility investors.

The regulator, Ofgem, is yet to decide whether to refer the UK's 'big six' suppliers to the Competition Commission over concerns they are taking advantage of a rising wholesale price environment to raise consumer bills excessively.

Despite these two big unknowns, Centrica is a buy.

The company recently unveiled record profits of £2.8bn. Its residential arm British Gas also did well, with profits up 24% to £742m.

Although energy usage is falling in the UK, Centrica's strategy is to offset this with providing energy efficiency services, which has not been going badly so far.

Centrica will play a sizeable role in the massive £200 bn investment needed to improve Britain's energy market and make it fit for purpose.

It is especially well positioned as a minority investor in new nuclear, with a 20% stake in British Energy as it starts to build the first two atomic power stations in a generation. Shares are currently 336.7p.

WPP last week likened the UK to a League One football club, ranking it at the third tier of the world economies. But this certainly does not mean the UK-listed marketing giant is a third-rate company.

WPP's exposure to the volatile UK advertising market is not huge, with £1bn of revenues in 2010, 12% of the total. It is the emerging markets which have been driving growth for the group in recent years.

In WPP's Premier League are the BRICs - Brazil, Russia, India and China - and the Next 11 - Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey and Vietnam.

A significant boost last year also came from the US, where the group has seen an element of 'dead-cat bounce', with advertising as a proportion of US GDP reaching a low in 2009 not seen since the mid-1970s.

There are risks. There are concerns around euro contagion and the lack of willingness, at least in front of an American presidential election in 2012, to tackle US deficit reduction.

Worries have also developed in recent weeks over developments in Tunisia, Egypt, Bahrain and Libya, and the implications for other countries such as Jordan and Saudi Arabia - although the Middle East only accounts for about 1.7%, or $300m (£185m) of $16bn of revenues forecast by analysts.

Overall, the outlook for WPP, with shares currently at 814.5p, is a positive one. BUY.

SUNDAY TIMES

Strong trading figures from a crop of manufacturers last week proved that the sector is in fine fettle.

Melrose, set up as a cash shell eight years ago, promises to be even more lucrative for its veteran management team — and their loyal backers — than Wassall, an earlier stock-market success.

This week Melrose is forecast to deliver a 42% increase in pre-tax profits to £168m.

Not only has it benefited from improving export orders but the individual businesses perform at different points in the economic cycle.

Analysts at Evolution Securities predict that by 2012, profit margins will have improved by a third in three years to 15.3%. That brackets Melrose with sector peers such as Weir and IMI.

Its shares have had a strong run, but trading at 11 times this year's expected earnings, they are under-rated in comparison with those if its rivals.

Backers also expect clever deals.