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Weekly Shares Tips

In association with Shares Magazine.


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23 March 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.

Capital Drilling (CAPD) 54.7p

Gain to date: 43.9%

Daniel Coatsworth

Don’t be put off by Capital Drilling’s (CAPD) latest full year results. Resurgence in activity across the mining sector might have suggested its results would show booming profit. That wasn’t the case.

Not only did the company remain loss making, it also saw average revenue per operational drill rig fall 5.9% to $177,000. Closer analysis of the numbers shows that Capital Drilling is making good progress and the market backdrop continues to be more favourable.

A lot of the new business in the year came from a revival in exploration drilling for gold miners which is currently less profitable for the group.

‘Pricing for exploration drilling is still low relative to historical levels,’ explains executive chairman Jamie Boyton. ‘We’ve started work on two-to-three month jobs. They’ve been single shifts not double shifts we see with production drilling. As the mining cycle improves, we will see double shifts and higher rates with exploration.’

Boyton says most of the contract opportunities for exploration drilling lie in gold, although he believes there could soon be more work in base metals in light of recent commodity price gains.

Importantly, Capital Drilling saw a return to revenue growth in 2016 when looking at all its drilling work. Its rig utilisation rate increased from 34% at the start of the year to 58% at the end of the year.

The company is now making plans to offer a broader range of services than drilling. It will invest up to $3.8m in a private laboratory testing business called A2 in a bid to get more money from its existing clients.

‘If you look at historical mining cycles, the best margins among mining service companies are found with lab businesses,’ says Boyton. ‘One of the biggest complaints from miners is the slow pace at which they get lab results back. It holds up their decision making.’ He hopes A2 will be able to provide a more efficient service.



Shares says:
"FinnCap has a 95p price target and forecasts a return to profit in 2017. We remain big fans of the stock, which is also one of our top picks of the year. Keep buying at 54.7p."
Buy Capital Drilling

Argos saves the day for Sainsbury’s

‘So far, so good’ from acquired catalogue brand

James Crux

A mixed fourth quarter trading statement from Sainsbury’s (SBRY) was saved by a forecast-beating performance from recently-acquired Argos.

Like-for-like retail sales softened 0.5% in the core supermarkets business; in contrast Argos achieved 4.3% growth.

Argos’ online strength and delivery skills could boost Sainsbury’s general merchandise sales and help it battle Amazon and others.

Chief executive Mike Coupe, who has staked his reputation on buying Argos, has been quoted as saying the integration is a case of ‘so far, so good’. A further update on progress is expected with Sainsbury’s full year results on 3 May.

The market is positive on Sainsbury’s despite its mixed performance and tough competitive landscape. Its shares are up 10% so far this year.

Our view is that competitive pressures will remain a key challenge for the business.

The performance of Tesco (TSCO) is strengthening; WM Morrison Supermarkets (MRW) has returned to like-for-like growth; Aldi and Lidl aren’t going away and Asda is picking itself up off the floor.



Shares says:
Buy Sainsbury

Forterra looks great now debt is under control

Shares look undervalued now that balance sheet fears have subsided

Tom Sieber

The UK’s second-biggest brick maker Forterra (FORT) looks undervalued as its debt reduction plans progress ahead of schedule and demand from the housebuilding sector remains robust.

We recently added its peer Ibstock (IBST) to our Great Ideas portfolio and Forterra trades at a significant discount to its larger rival. While Ibstock is on a 2017 price-to earnings (PE) ratio of 11.3 times, Forterra trades on a 2017 PE of 8.7.

Robust full year results added to the recent momentum behind the shares and we think Forterra can close the valuation gap over time.

The size of the company’s borrowings had been a drag on performance but strong cash generation has helped reduced net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) from 2.2 times at its stock market debut in April 2016 to now sit at 1.3 times which is below its targeted ratio of 1.5 times.

Demand for Forterra’s bricks in the first two months of 2017 was ahead year-on-year. The company is guiding for a strong first half, with slightly more limited visibility in the second half period. Numis expects volume growth of 2% in 2017 and 3% in 2018.

Chief executive Stephen Harrison tells Shares he is confident on demand from the housebuilding sector given the solid dynamics underpinning the industry.

He is more uncertain about the RMI (repair, maintenance and improvement) space given current pressures on consumer spending. Encouragingly, historically more than half of the company’s business has come from new build homes.

DESTOCKING PROCESS ‘LARGELY COMPLETE’

After a period in which the market became oversupplied, Government statistics show brick stocks are now down 14% on their most recent peak in May 2016 at 544m.

Forterra says that ‘destocking in the builders merchants’ supply chain is now largely complete’. In a demonstration of its confidence, the company plans to bring its Claughton plant back on stream by mid-year.

The facility was mothballed last summer in the wake of the Brexit vote and Harrison says the ability to bring it back online in the wake of more robust demand reflects a flexibility to respond to market conditions.

With debt largely under control, the company has the firepower to consider bolt-on acquisitions to add to its range of products and services.



Shares says:
"Debt is no longer an issue and at 209p cash-generative Forterra looks undervalued on a single-digit PE."
Buy Forterra

Best and worst performers

Week change to: 22/03/2017

Source: SharePad



FTSE 350 best performers
% change
Softcat
+9.9
Berkeley
+9.3
Evraz
+9.0
Polymetal International
+8.8
Ferrexpo
+8.6
Fresnillo
+8.0
Hastings
+7.1
Hochschild Mining
+6.0
Anglo Amercian
+5.9
John Laing
+5.5

FTSE 350 worst performers
% change
Computacenter
-6.0
Berendsen
-6.1
AO World
-6.3
Euromoney Institutional Investor
-6.8
Balfour Beatty
-7.3
RPC
-7.6
Allied Minds
-8.8
Hikma Pharmaceuticals
-9.8
Nostrum Oil & Gas
-12.0
Tullow Oil
-14.0

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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.