We round up the Sunday newspaper share tips. This week, Midas considers three gold miners, the Sunday Times analyses the prospects of Pets at Home, and the Sunday Telegraph assesses Qinetiq.
MAIL ON SUNDAY
In times of geopolitical tension, not only the price of gold itself but also shares in gold miners tend to rise, says Midas in the Financial Mail on Sunday.
Gold exploration companies are notoriously risky, but Midas tips three that are significant producers, are delivering sales profits and dividends.
First up is Randgold Resources, which has an enviable reputation within the industry and is likely to see its value rise if gold gains more ground.
Midas suggests this for investors looking for a solid gold stock, even if the current price is hard to swallow.
Some investors are wary of putting their money into such companies due to worries about the country, which is the third largest producer of gold in the world.
However Midas suggests their reluctance is ironic, since most are happy to invest in African mining stocks, which have a far greater propensity to suffer from political about-turns.
Highland Gold is one of the lowest-cost producers, has a string of future projects and a dividend of 10p last year.
It has been hit by a recent strengthening in the Russian rouble – since its costs are largely in roubles and sales in dollars – but chief executive Denis Alexandrov said last week he was confident of meeting full-year guidance and returning cash to shareholders.
Meanwhile Polymetal is also focused on growth and while also suffering from the currency movements is seeing production grow and benefiting from the gold price rise.
‘Polymetal fans say the firm is well managed and has a strong track record,’ says Midas. ‘It is chaired by Bobby Godsell, a former head of Anglo-Gold Ashanti and a stalwart of the South African mining community.’
THE SUNDAY TELEGRAPH
Shares in the defence contractor have depreciated by nearly a third since touching an all-time high at the end of May, when it reported the first sales growth in five years.
Their decline has not hit the headlines in the way of other stock market fallers, but perhaps that’s just because the trajectory has been gradual rather than a sudden plunge, says Questor.
Orders have been slower than expected, and QinetiQ is being squeezed by increased scrutiny of all Ministry of Defence contracts procured without scrutiny.
Chief executive Steve Wadey would like to lessen the group’s reliance on the MoD, but two thirds of sales last year were still to the government department.
He is chasing global business, where margins are likely to be higher, and has returned the group to the acquisition trail, in a further demonstration of his ambition.
For all the uncertainty of any company so dependent on government spending, there is at least the comfort of the last Conservative manifesto, which pledged to increase defence budgets by at least 0.5 per cent above inflation every year until 2022.
So what next?
Barclays analysts say better revenues from the firm’s global arm can offset margin pressure at home – plus it has a strong balance sheet.
Furthermore, directors are buying shares – a good sign.
‘QinetiQ shares had run ahead of sector peers in May and have now slipped significantly behind,’ says Questor. ‘They trade on 13 times next year’s forecast earnings when the European defence sector is closer to 15 times.’
Shares are worth holding, it concludes.
THE SUNDAY TIMES
‘And how many more of its superstores can the high street tolerate before they start to cannibalise each other?’ he continues.
Pets at Home has been on a huge expansion drive since it was listed by private equity behemoth KKR in early 2014.
Its strategy is increase the number of superstores – from almost 450 across the UK from 431 a year ago. Then it adds services such as veterinary labs and grooming parlours on site.
The margins on products such as pet food are low, but higher on the services.
But it’s not that easy.
The pet products market is crowded, cut throat and Pets at Home is late to the party on internet sales, where it battles with heavyweights such as Amazon.
Higher wages could also take their toll, especially with warnings of a potential shortage of vets from the EU post-Brexit, which could drive them even higher.
Pets at Home floated during a frothy market in late 2013 / 2014 – other big players floated at this time have seen values fall.
‘I wouldn’t bet on Pets at Home bucking this trend,’ says Inside the City. ‘Sell.’