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Weekly Shares Tips

In association with Shares Magazine.


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16 February 2017

To help you maximise investment opportunities, we have teamed up with Shares Magazine to provide you with timely insight into current market trends.

Below you will find their top tips and the week's Best and Worst Performers.


Important information

This webpage contains information supplied by Shares Magazine that is intended for general information only and therefore specific needs, investment objectives, risk appetite or financial situation of any person have not been taken into consideration. It does not constitute advice or an invitation to invest.

Please remember the value of your investments and any income from them can go down as well as up and you may get back less than the amount you originally invested.

Past performance is not a guide to future performance.

New fund will take stakes in depressed oil stocks

Investment trust is pinning its hopes on a sustained re-rating in the commodities sector

Tom Sieber

A new investment trust is being launched which will allow you to gain diversified exposure to the small cap oil and gas space.

Guinness Oil & Gas Exploration Trust is set to commence trading on the Main Market on 27 February. It hopes to raise between £30m and £100m.

The funds will be used to take advantage of an opportunity to invest in ‘depressed junior oil and gas equities’.

The expectation is that these shares will recover as larger companies return to invest in pre-cash flow projects, noting in the last two significant ‘up cycles’ the FTSE AIM Oil & Gas Index saw significant gains. In particular, the index increased by 250% between January 2001 and April 2006 and by 200% between February 2009 and January 2011.

A repeat of this kind of performance on a five-year horizon would result in a gross annualised return of around 25%, according to parent Guinness Asset Management.

The fund will be managed by two former energy sector analysts from M&G Investments, Stephen Williams and Sachin Oza. No dividends are planned as the emphasis is firmly on capital growth. Total costs and expenses are guided not to exceed 2% of net asset value and there is a performance fee of 20% of the excess return above 8% a year.



Shares says:
Buy

Wait for return of China panic to buy miners

Resources analyst says mining stocks far too expensive at the moment

Daniel Coatsworth

The best time to buy mining stocks is when the market is worried about China, according to Haitong Securities analyst Andrew Keen. And that is not now.

The analyst believes the mining sector is broadly 20% overvalued at present and ‘vulnerable to deterioration in news flow from commodity markets in China’.

The market currently favours the sector, as evident by a strong rally at the start of this week from miners on the back of rising iron ore and copper prices. The much-hyped infrastructure splurge promised by Donald Trump in the US has also lifted metals producers.

Keen believes Chinese demand for metals is going to soften over the coming months. He also notes that Chinese demand is seven times higher for steel and four times higher for copper versus the US. Therefore, China really matters when it comes to influencing commodity prices.

The analyst has ‘sell’ ratings on BHP Billiton (BLT), Glencore (GLEN) and Antofagasta (ANTO), together with a ‘neutral’ rating on Rio Tinto (RIO). He criticises Rio for cutting dividends at the start of 2016, only to then use spare cash to buy back stock 12 months later when the equity had doubled in price. He thinks special dividends would be a better use of the money.

In contrast, UBS believes Rio Tinto could be one of the highest returning stocks in the FTSE 100 this year. It believes the miner will boost shareholder returns by a material level in a year’s time.

Shoe Zone keeps going in a tough market

Retailer takes action to mitigate difficult trading conditions

James Crux

We are keeping the faith with budget footwear purveyor Shoe Zone (SHOE:AIM) despite the uncertain sector outlook.

The company pays an attractive dividend which we think is sustainable and its new large store format is letting the company trade in previously-inaccessible towns.

The ‘big box’ format is more modern than its existing 500+ high street stores and sees Shoe Zone stock third party brands such as Skechers and Rieker alongside its own-label products, thereby widening the appeal of its offering.

Stockbroker Numis forecasts scope for £5m-plus of operating profit from the new format in six years’ time, if successfully expanded to a 60 store target. Three trial stores are currently open, while another six stores are planned for 2017.

The ‘big box’ format represents an exciting new source of growth to accompany the early-stage-yet-profitable online operation, where growth is accelerating from a low base.

SHOE ZONE IS FIGHTING BACK

The company’s full year results (reported on 11 January) were below market expectations as a result of tough trading conditions, store closures and currency headwinds.

We are encouraged by the way Shoe Zone is coping with these challenges. It is negotiating rents downwards, exiting unprofitable outlets and growing the proportion of Grade 1 stores – by bearing down on costs and increasing direct sourcing from China.

Its products have an average retail price of just £10. That should resonate with shoppers should inflation crimp disposable income in 2017 and beyond. Moreover, its price-sensitive customer demographic should benefit from higher minimum wage levels.

SPECIAL DIVIDEND RETHINK?

Numis forecasts improved pre-tax profit of £10.5m (2016: £10.3m) for the financial year to September 2017, while a forecast dividend of 10.4p implies a yield of 5.8%.

Stockbroker FinnCap warns that investment in future ‘big box’ stores and multichannel sales initiatives, together with additional pension contributions, could mean that Shoe Zone rethinks paying special dividends. It has previously rewarded shareholders with extra cash rewards on top of the normal dividends.



Shares says:
"At 178p, Shoe Zone is attractive for its generous distributions and the upside from the Big Box initiative. "
Buy Shoe Zone

Best and worst performers

Week change to: 15/02/2017

Source: SharePad



FTSE 350 best performers
% change
Acacia Mining
+12.0
Ashmore
+11.5
Ferrexpo
+11.5
Elementis
+11.1
Lancashire Holdings
+9.4
OneSavings Bank
+8.4
Royal Bank of Scotland
+8.2
Nostrum Oil & Gas
+7.9
Rio Tinto
+7.9
KAZ Minerals
+7.9

FTSE 350 worst performers
% change
Imperial Brands
-4.4
Tullow Oil
-4.7
Reckitt Benckiser
-5.4
Greene King
-5.4
Pets at Home
-5.7
TUI AG
-6.0
RPC
-7.6
Just Eat
-7.6
Dairy Crest
-8.8
Cobham
-18.3

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Alliance Trust Savings Limited is a subsidiary of Alliance Trust PLC and is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings gives no financial or investment advice.