Catching up on news from 11 of our Great Ideas
The Great Ideas section of the digital magazine represents our best ideas each week. We try to publish updates as soon as there has been relevant news, but sometimes all the news comes at once and we don’t have space to feature everything.
In an effort to catch up on the latest events, we’re running the Great Ideas Update section in a slightly different format this week as we have 11 stocks to squeeze in.
Identity checker and fraud prevention technology specialist GB Group (GBG:AIM) is the best performing Great Idea among the ones which have issued news in the past few weeks. The shares have risen by 41.9% since we said to buy last December.
A recent trading update suggests organic revenue and adjusted operating profit are in line with expectation, while management are also continuing to extract value benefits from recent acquisitions.
LARGE CAP GAINS
Shares in Diageo (DGE) last week cheapened after the world’s biggest spirits company reported full year organic sales growth of 6.1%, slightly below expectations of 6.2%. However, 9% organic operating profit growth beat consensus forecasts of 8.7%.
Investment bank UBS says investors may be disappointed by guidance for £4.5bn cash returns over the 2020 to 2022 financial years.
Despite these issues, anyone who bought the shares following our article last summer which outlined the investment case would have subsequently made 23.2% gain, excluding dividends.
Also in the large cap space, pharmaceutical giant AstraZeneca (AZN) has performed well since we said to buy last November, up 13.9% compared with a gain of 9.4% for the FTSE 100 index.
Second quarter results reported on 22 July showed strong progress from oncology, which saw a 57% rise in sales to $2.17bn.
The company now expects full year sales to increase in low double digits, up from previous guidance of high single digits. Total product sales topped analysts’ expectations by 5% to reach $5.72bn.
Chief executive Pascal Soriot believes five of the company’s new medicines will become blockbuster drugs this year.
A RECENT SUCCESS
Pushing through operational efficiencies and keeping its own sales teams on the ball has helped Judges Scientific (JDG:AIM) to perform well, feeding through to a rising share price.
It’s been tough for UK manufacturers but Judges provides niche product lines where margins can be protected when volumes fade. Its underlying first half order book is worth 13.2 weeks of annualised sales and the company says it is confident that full year market expectations will be achieved.
A PAIR OF INVESTMENT TRUSTS
We outlined the investment case for Fidelity European Values (FEV) at the start of 2019 and in the six months to 30 June the investment trust has increased its net asset value (NAV) by 19.9% and its share price has risen by 24.5%, both well ahead of the benchmark.
Manager Sam Morse remains cautious on the outlook for European equities and the portfolio remains focused on ‘defensive growth’ stocks which can be bought at reasonable prices. The fund is overweight healthcare and technology stocks and underweight consumer and utility stocks.
The discount to NAV has shrunk from 11.4% in January to just 6%, and the board is committed to keeping it in single digits, with the option to buy back shares if necessary.
Our 21 March 2019 ‘buy’ call on Law Debenture (LWDB) is modestly in the money. Half year results (24 Jul) revealed a good start to 2019 for the investment trust which looks for quality companies with the potential for long-term growth and which have been mispriced by the market.
FTSE 250-listed Law Debenture, which in addition to a portfolio of stocks managed by Janus Henderson provides services to corporate trust and pension trustees, generated a creditable NAV total return of 10.3% and upped the interim dividend by 10% to 6.6p. A £10,000 investment in Law Debenture a decade years ago would be worth £36,050 as at 30 June 2019.
SLOW START FOR TWO PUB COS
Shares in pubs, lodging and brewing group Marston’s (MARS) are roughly where we said to buy in June.
The shares were weak following the 24 July trading update, which showed like-for-like sales growth slowing to 0.5% from 2% at the half year stage, impacted by tough comparatives.
However, the company announced an acceleration of its debt reduction plans, proposing to defer £70m of new build investment in order to reallocate £20m to £30m into organic capital expenditure, which is expected to get a higher return.
This will allow the company to generate an additional £40m to £50m of cash flow over the next three years.
Fuller, Smith & Turner (FSTA) has also been quiet in terms of share price movement.
There has been a lot of operational change for investors to digest, including the sale of the brewery business.
Once the new finance director Adam Councell takes up his new role in August, investors are expecting the company to articulate the new strategic direction of the company as well as announce the return of £50m to £69m of cash to shareholders.
Specialist recruiter SThree (STHR) reported a 10% increase in net fee income and a 21% jump in operating profit in the first half to 31 May.
The firm continues to benefit from strong growth in its core science, technology, engineering and mathematics (STEM) markets, particularly the US and Europe, as well as a rising proportion of contract revenue which have higher profit margins.
IT skills supplier and consultant FDM (FDM) always seems to get caught up in Brexit talk yet investors don’t seem to give it credit as a broad-based business operating all over the world.
Half year results showed revenue up 14%. ‘The group is seeing good growth in most areas, but is being held back by UK Government sector and North American financial services weakness,’ note analysts at Shore Capital.
Elsewhere, innovation platform supplier Sopheon (SPE:AIM) has taken a battering after warning of licence delays that will wipe out growth this year. That’s a blow after three years of rapid growth and something that’s caused analysts to downgrade their earnings expectations.
‘The momentum in the strong pipeline remains unchecked; however, client behaviour has moved more rapidly than expected towards cloud consumption rather than perpetual licences,’ says FinnCap analyst Andrew Darley. ‘Revenue recognition is therefore protracted – even as client commitment and multi-year contracted revenue visibility are improved.’