The Share Centre - Share tips 2017

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Share tips
2017

Our expert Ian Forrest, outlines six companies that our team of expert analysts believe could have share success in 2017.

Prudential

low risk
International insurance and investment product supplier Prudential has had a successful 2016 with the company raising its dividend, reporting an increase in profits whilst all the time continuing to benefit from favourable structural opportunities in its key markets, particularly in Asia. Investors should appreciate that although the group’s Asian exposure is a risk due to the volatility of Asian markets, the demographics of many Asian regions, and the rise of the middle class, should provide a good growth story for Prudential for some time to come.

Prudential believes it has adequate capital surplus to withstand further significant deterioration in the European market, which should provide some reassurance to investors. Furthermore, the group’s asset management business M&G continues its expansion into Europe and its retail funds are registered for sale in 20 regions. Ultimately, this is a company which has a good mix of business across a number of regions, with a long-term Asia growth story underpinning the investment case.

Update on 25 April 2017: Results in March reported record operating profits of £4.26bn, up by 7%, driven by double-digit growth in the Asian market. This is a reflection of the faster growth in the region that is supported by good demographics and rising wealth levels. There were also good performances in the US where operating profits rose by 8% and in the UK. The share price is up by around 5% and we continue to recommend the shares.

price on 28 December 2016: 1600.5p
price on 25 April 2017: 1689p

Diageo

low risk
Whilst you may not be familiar with this global alcoholic beverages group, it’s almost certain that you are accustomed with its enviable portfolio of well-known brands which include Johnnie Walker, Guinness, Smirnoff, Baileys and Captain Morgan. The group has operations in 180 countries with exposure to large, developed markets such as the US, as well as fast-growing emerging markets in Asia and Africa. What’s worth noting is that Diageo has recently reported an improved performance in its important North American market and may benefit from the weak pound and any fiscal stimulus from the new US administration.

Investors should recognise that trading remains good with the group citing growth in whisky, US spirits and India as reasons why. Moreover, it is confident of achieving mid-single digit sales growth and improving its profit margins over the next three years. Diageo has a strong product mix and geographical diversification so when you combine this with resilient sales in the US market, excellent long-term prospects for emerging markets, continued improvements in cost-cutting and a relatively good dividend yield, then this could be a company worth watching.

Update on 25 April 2017: Interim results in January pleased the market as they showed a strong uptick in growth across all the company's main regions. We continue to recommend a 'buy' on Diageo because of the strength of its brands, resilient sales in the US market and excellent long-term prospects for emerging markets. Year to date the shares are up by 7%.

price on 28 December 2016: 2097p
price on 25 April 2017: 2261p

cocktails

Intertek

medium risk
Intertek is a multinational testing, inspection and certification services company which focuses primarily on consumer products (toys, textiles shoes) and commodities. It carries out assessments based on safety, regulatory, quality and performance standards at more than 1000 laboratories and offices worldwide. Through years of acquisitions and steady growth, the company has built itself into a £5bn giant in its sector with a high level of safety and quality standards in developed countries generating a good revenue source for the company.

Despite slow global economic growth, the group has been experiencing increased demand for its inspection and testing services from many different sectors. Whilst investors should be aware that parts of the business have come under pressure in recent years due to the tough environment in the commodities sector, we consider the company's activities as being relatively defensive. The continued global implementation of safety, quality and energy efficiency standards, regulatory requirements and legislation in 2017 can only be of benefit to Intertek.

Update on 25 April 2017: A stonking 19% increase in the share price so far. Results in March saw revenues rise by 18.5% boosted by foreign exchange gains and acquisitions. They did well on improving margins, drove pre-tax profits up by 21% and raised the full year dividend by 19.3%. We maintain a buy recommendation but following the strong performance suggest new investors drip feed.

price on 28 December 2016: 3396p
price on 25 April 2017: 4046p

Inmarsat

medium risk
There’s no denying the inevitable difficult trading conditions this global communication satellite system operator has endured as a result of lower spending in the energy sector in recent months. However, the worst seems to be over and there remains the prospect of better times ahead as oil prices stabilise and we believe the longer term attractions still remain. Investors should acknowledge that orders from the Aviation division are ramping up and government spending is once again on the rise.

SwiftBroadband services have been driven up by demand in business aviation and commercial airlines to support in-flight passenger connectivity services. In addition, the deployment of three Ka-band satellites, which aim to deliver seamless global coverage at speeds of up to 50MB/s for users in the government, maritime, energy, enterprise and aviation sectors should help Inmarsat maintain a competitive edge with faster broadband speeds, giving it promise in the medium to longer term.

Update on 25 April 2017: Inmarsat has had a bit of a rollercoaster ride so far this year, with the shares up by around 10%. The fourth quarter results were well received and helped restore some confidence in the group, as has airlines signing up for its in-flight broadband services. We continue to recommend Inmarsat as a ‘buy' for investors seeking a balanced return and willing to accept a medium level of risk. The dividend yield above 5% remains attractive.

price on 28 December 2016: 752.5p
price on 25 April 2017: 829p

photo-me

Photo-Me International

high risk
Photo booth operator Photo-Me International is a cash-generative and increasingly innovative business which has concentrated on expanding into new geographic markets and new products, the latest being a trial of carwashes and smaller laundry machines. Results towards the end of 2016 increased expectations for the year ahead and investors should appreciate that the company aims to continue to diversify its operations next year.

Photo-Me is confident that a significant proportion of future revenue will come from its futuristic photo booths, which will print pictures in 3D, allow card payment and enable digital photo printing. Another growth area, which Photo-Me International is well positioned to benefit from, could come from improving security and fraud prevention for the authorities. Investors should recognise that the company intends to increase the dividend by 20% for the next two years and there is also the potential for further special dividends.

Update on 25 April 2017: In January the share price fell following comments in the media about ID regulations in the UK. The company responded by stating that trading was in-line with expectations and that it remains in discussion with the Passport Office regarding its photo booths. The share price is now showing a small positive and remains a high risk buy.

price on 28 December 2016: 163.5p
price on 25 April 2017: 164p

Wincanton

high risk
Founded in 1925, customers of this logistics provider currently include many blue chip companies in defensive sectors which means revenues should be resilient even if economic growth falters. Investors should appreciate that there have been solid recent new contracts with B&Q and Halfords and growth in merchandise volumes is encouraging. Interestingly, the UK market for contract logistics is approximately £30bn and with Wincanton presently having only a 4% market share, there is plenty of scope for further growth in 2017.

Thanks to the continued boom of online retailing, there is also potential for more web-based activity. Other positives for investors include a wide diversity of customers and the healthy dividends. Most recently, the company said it expected full year earnings to be marginally above expectations thanks to a 36% rise in first half profits.

Update on 25 April 2017: So far so good, with a 15% rise in the share price. In March a trading update from the company confirmed that the full year performance was in line with expectations. The full year results are expected on 17 May 2017.

price on 28 December 2016: 240.5p
price on 25 April 2017: 276.75p

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Originally published: 28/12/2016

All information given including prices, yields and our opinion is correct at the time of publication.  Our opinions on investments can change at any time and for our latest view please go to www.share.com.  To understand how our Advice team arrive at their views please read our Investment Research Policy.

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