Thursday newspaper share tips: Galliford Try, Pure Gym
By Alexander Bueso
Date: Thursday 15 Sep 2016
(ShareCast News) - Galliford Try is perhaps best-placed to weather the downturn from Brexit, The Daily Telegraph's Questor column said, pointing to the company's diversified business model.
The builder has many strings to its bow, being active in residential housing, affordable housing and government infrastructure projects.
That means it is not as vulnerable to the ups and downs of the residential property market as some of its peers.
Customer interest at its residential building unit, Linden Homes, has remained solid, which is encouraging, Questor said.
Nevertheless, the company's boss is realistic, even while "cautiously optimistic" on the outlook.
Such prudence should be reassuring for investors, the tipster added.
Furthermore, dirt cheap mortgages and a chronic shortage of housing should continue to underpin demand.
Infrastructure spending also appears to be set to benefit from an increase in government funding.
The shares' valuation is also at a discount in terms of its forward price-to-earnings - which is below its five-year average - and price-to-book value relative to its peers.
On the downside, a weaker economy would inevitably hit the housing market and sentiment towards the sector.
The dividend policy is also set to come under review from 2018.
With a 8.6% dividend yield on offer the stock is beginning to bounce back.
"So investors would do well to jump in now before it's too late, Buy," Questor said.
Pure Gym may be on to something, sporting dizzying rates of growth since starting up, alongside bumper profits, the Financial Times's Lex column said.
The budget gym operator strips out all luxuries and uses technology to keep overhead costs low; hence its operating margins in terms of earnings before interest, taxes, depreciation and amortisation of 47%.
Sales nearly tripled from 2013 to 2015 and are up by nearly 50% on year since, with slightly more than half of its growth coming from those new to pumping iron, rather than those switching from rivals.
It now plans to float, with the aim of raising £190m.
Management will be hoping it can fetch as attractve a valuation as its slightly smaller peer Pure Gym, which came to market last November, and whose shares now trade at a ratio of enterprise value to earnings before interest, tax, depreciation and amortisation of 14.
In the company's favour, its luxury-free model may allow it to avoid the high debt which got chains such as Fitness First into trouble in the last recession.
"Luxuries are cut first when times are tough, so make sure your product does not feel luxurious," Lex concluded.
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