Sunday newspaper tips: Ocado, Satellite Solutions, BHP Billiton, Rio Tinto
By Digital Look
Date: Sunday 31 Jan 2016
(ShareCast News) - Sell shares in Ocado, said the Sunday Times' Inside the City column, as it has failed to deliver its long-promised deal to license out its online grocery technology to an overseas supermarket. Of course such a deal could still appear and help stop the shares' decline. However, it would require more than one in the long-run as, after falling to 264.1p on Friday, Ocado is trading at around 19 times earnings, considerably more than double the grocery sector average.
With its robot-operated warehouses and slick website, Ocado was supposed to leave the supermarkets in its wake since it floated in 2010. But after years of jam-tomorrow it seems investors' are pinning their hopes of a bumper return on a takeover by the likes of Wal-Mart or Amazon. Rumours about an Amazon bid put a flame under the shares earlier this month but the story makes little sense as Ocado has only 1% share of the UK grocery market, while the Amazon Pantry food delivery service has launched effectively with the US giant's current technology. Amazon doesn't need Ocado. And it also seems no one else does either.
Shares in Satellite Solutions Worldwide (SSW) are worth buying, said Midas in the Mail on Sunday. For most people the internet is now an essential facet of daily life, but for 15% of people in Europe, or 0.3m in the UK, cable broadband is an impossibility due to living in inaccessible or uneconomic locations. Mobile phones offer one, expensive solution, while satellite broadband has historically been almost as slow as dial-up but too expensive. However, speeds have doubled in the past year and a half and many EU governments, including the UK, are subsidising the service for people in remote areas.
This should help 2015 AIM newcomer SSW bump up its customer numbers from the current 7,500 in the UK towards is 2017 target of 100,000 across the continent. Since its May IPO, five acquisitions have been completed in Ireland, France and Poland, where governments have pledged to subsidise satellite broadband, with others planned to speed expansion. The internet services SSW provides are via renting capacity from satellite companies like Avanti Communications, Viasat and Gilat, with customers supplied with a satellite dish and other necessary kit in exchange for a monthly payment, which customers in remote areas can apply to be subsidised. SSW is forecast to make a small loss for the last full year, moving to break-even in 2016.
The mining sector is generally best avoided, wrote Questor in the Sunday Telegraph. Although commodities excavators like BHP Billiton, Rio Tinto, Glencore and Anglo American are as cheap as they've been for a dozen years and offering highly attractive dividend yields, it's not necessarily a time to be "greedy when others are fearful" as much danger still lurks. Demand for commodities is falling from China while many miners have embarked on major expansion plans, leveraging themselves up to their eyeballs.
But, as lower commodities still need to feed through to the company's results and bring balance sheet write-downs, it will not be possible to calculate their true valuations. This could temps some investors to walk into a classic 'value trap' when they should keep watching and waiting. As waves of debt refinancing sweep through the industry, so will dividend cuts, cut-price fundraises and some debt-for-equity swaps - as has been seen as some big payers already. Once some business collapse by the wayside production will fall to a manageable level, but investors need to be patient as this cycle is nowhere near completion yet.
Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.
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