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Weekly Share Tips

In association with Shares Magazine.

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8 December 2016

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This webpage contains information, supplied by Shares Magazine, which may be of general interest to investors. It is not intended to cater for your particular requirements and is not intended to be relied upon for the purposes of making or not making any investment decisions. It is not investment advice. You must make your own decision as to the suitability of an investment for you and if you require advice you should consult a properly qualified financial adviser.

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.

Cambian’s dividend cheer

Transformational deal enables social care provider to reinstate payouts

James Crux

Behavioural health service provider Cambian (CMBN) is selling its adult business for £377m to American hospital management company Universal Health Services (UHS:NYSE)

This deal should return the business to rude health. Significantly, the proceeds will repay Cambian’s £293m of debt in full and still leave it with £40m to fund a 22p special payout and put it in a position to resume ordinary dividends.

The social care provider has agreed (5 Dec) to sell its adult services unit to Cygnet Health Care, part of Universal Health Services, for what looks like a good price.

Reflecting high levels of interest in the business, the proceeds represent an earnings multiple of 15.6 times. Crucially, the deal leaves Cambian, which previously ran into difficulties following some overly ambitious expansion, in ruder financial health and free to focus on rolling out its Children’s Services Business.

This offers significant opportunities for growth, development and the creation of shareholder value against a backdrop of growing demand for the critical services Cambian provides.

In addition to the special dividend, one implying a 16.1% yield at 136.75p, Cambian plans to resume its progressive dividend policy, with a payout likely to be declared around the time of the half year results in 2017.

Canaccord Genuity has upgraded its rating from ‘speculative buy’ to ‘buy’ and price target from 118p to 150p following the sale.

Shares says:

"With operational issues behind it and this deal transforming the balance sheet, Cambian looks interesting again at 136.75p."
Buy Cambian

Northgate (NTG)

Gain to date: 13.1%

Tom Sieber

A management shake-up at Northgate (NTG) has been well received by the market. Investors are clearly hoping new leadership will reinvigorate the van hire business.

Chief executive Bob Contreras is set to step down in January 2017 after more than six years in charge. His replacement is the former UK managing director of car rental firm Avis Europe, Kevin Bradshaw.

We recently flagged Northgate as a potential takeover target, citing the involvement of activist investor Crystal Amber on the shareholder register as someone which could push for a sale of the business.

The change of CEO was announced alongside half year results on 6 December. Underlying pre-tax profit was down 12% year-on-year at £40.4m and net debt was higher at £355m. Spain is doing well but the UK is struggling.

A 12% increase in the first half dividend to 5.7p per share would suggest the company is confident it can improve earnings.

Shares says:

"It needs to have a strong second half period to hit earnings forecasts. We remain buyers."
Buy Northgate

Jersey milking North Sea opportunity

Partner has committed to drill in 2017

Tom Sieber

Play momentum in £12.4m small cap oil explorer Jersey Oil & Gas (JOG:AIM) at 147.2p ahead of drilling at the Verbier well on its P2170 licence in the North Sea.

The drilling effort is backed by Norway’s Statoil (STLO:STO) after a farm-out (Jersey retains an 18% working interest). The licence operator has formally communicated to the UK Oil & Gas Authority its intention to drill in 2017. A £1.6m placing (30 Nov) means Jersey’s share of the costs are now fully covered.

Asset manager Toscafund, known for its activist investing, has a position through Toscafund Micro Cap (IE00B68Z1V62) and noted in October that Verbier has a unrisked value to Jersey of £10 per share. The fact Statoil is choosing to drill this prospect in the near-term, despite restrictions on capital spending, implies confidence in its potential.

Jersey is also sitting on tax losses of £24m. It plans to take advantage of the majors scaling back their portfolios and financially distressed peers being forced to sell to pick up producing assets against which it can offset these losses.

Shares says:

"There could be further upside to come as we move towards the drilling of this key well. Buy at 147.2p."
Buy Jersey

Best and worst performers

Week change to : 7/12/2016

FTSE 350 best performers
% change
Royal Bank of Scotland
KAZ Minerals
Vedanta Resources
Wizz Air
DFS Furniture

FTSE 350 worst performers
% change
CMC Markets

Source: SharePad

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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.