Friday tips round-up: Rolls Royce, Debenhams, DS Smith

28th Jun 2013 06:42

Rolls-Royce scored orders worth more than 4.7bn pounds at last week's Paris Air Show, putting the company in a good position, The Telegraph's Questor column reported. The orders, interestingly, came more from low-cost airlines than the full-service airlines. The week before the show, the Airbus A350 made a successful maiden test flight with engines provided by Rolls Royce. The airliner is designed to be more fuel-efficient, something which is going to became increasingly important as fuel costs are expected to continue to rise over the medium term. "This will be a key driver of Rolls-Royce's earnings," Questor said. However, the company has not been without its problems as its engines for Airbus A380 exploded on a Qantas jet three years ago. Nevertheless, the group's net cash balance stands at £1.3bn and is expected to rise as high as £2.0bn by the end of next year. "Questor keeps a 'buy' on the great British company."Debenhams on Thursday showed that sales fell by more than 20% at its stores year-on-year. The retailer blamed the weather and poor outlook for consumer spending for a disappointing third quarter trading update, while there was also disruption from refurbishment at its flagship Oxford Street store. On the flip side, margins were flat, after a small first-half decline which means the company is keeping control of expenses, with cost inflation expected to come in at the lower end of earlier expectations, according to The Times' Tempus column. The other positives were that online sales grew by 40% in the quarter and that Debenhams is growing market share so investment in its ranges and stores is paying off. "The shares have the support of a 3.5% yield and a continuing £40m share buy-back programme and sell on less than ten times' earnings, after the sell-off last autumn. But in today's retail climate they look no more than fair value," Tempus said.Investors who backed DS Smith's takeover of the packaging operations of Sweden's SCA can only feel pleased so far, according the Financial Times' Lex column. Smith's shares, up 5.0% after Thursday's annual results, have risen more than 70% since the acquisition closed a year ago, trouncing the packaging sector. "The deal gives the UK group more scale and a better footprint in Europe's €30bn cardboard packaging market," Lex said. The balance sheet seems under control as fresh cash flow is sold. However, the end market looks less encouraging with Smith's corrugated box volumes growing 0.6% last year and the pro forma return on sales flat. While the group has a good record of managing energy and raw material costs, the European backdrop is anything but kind. More deals can be expected as self-help continues. Smith's shares are on 11 times 2014 earnings estimates - not pricey so long as the deal music continues.RDPlease note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.