Tuesday tips round-up: Wolseley, Imperial Energy, Sports Direct
That Wolseley's management now sounds so bearish - more than it did just three months ago - may be construed as a classic indicator that the bottom is within sight, suggests the Times.
Yet the company's debt load - about £2.5bn - and the risk that Europe has considerable scope to get worse suggest that at 689½p, or 11 times next year's earnings, the shares are still best avoided.
Wolseley has broad international reach and the ability to snatch market share when times are bad. At these share prices the yield is 4.5%, not huge compared with the 9% yields enjoyed by housebuilding shares - but lower risk. Building is a cyclical business and investors must take a long-term view. Hold says the Telegraph.
Imperial Energy's new output targets are credible and, just as important, the company has ridden out a period of political uncertainty with the Russian authorities. Drilling arm RIG, earmarked for disposal, currently has no value attributed to it. If $300m were raised from its disposal, it would unlock between 200p and 300p a share. Imperial remains an interesting prospect says the FT.
Sports Direct once again failed to produce the industry standard metric of like-for-like sales. It also failed to give comparable sales figures to set the £280m in context. What is clear is that the strategy of boosting gross margin - much vaunted before last year's initial public offering - appears to have failed and is in retreat. The implied margin of 45% is below that of last year and the promised great leap forward in profitability looks highly questionable. A forward p/e multiple of 10 is a modest discount to the sector - too modest, in fact says the FT.
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Workspace, provider of commercial space for small and medium-sized enterprises, has taken a beating over the past 12 months, the shares having lost about half their value from the 500p they traded at last spring. But the market appears to believe such stocks may have turned a corner. The company also has a number of good development opportunities, which should increase further given the current market uncertainties. Risky, but worth looking at says the Telegraph.
Corin and Smith & Nephew are the only providers of metal hip implants in the United States and, with rivals years from a launch of similar products, there is plenty of scope for growth. At 490p, or 19 times 2008 forecasts, Corin shares are reasonably valued, given an expected fourfold rise in earnings over the next two years and the medium-term prospect of a bid from Stryker. Hold says the Times.
Filtronic boasts more than £117m of cash, only a little less than its opening stock market value of £125m. In that context, the performance of Filtronic's two remaining businesses - at £3.3m, the first-half operating profits of the larger were the same as the interest Filtronic received on its cash - is a sideshow. Assuming that these are worth at least 50p a share on their own, Filtronic appears underpinned at 166¼p. Hold says the Times.
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