Sunday share tips: African Barrick Gold, Home Retail, Tarsus

28th Oct 2012 18:32

African Barrick Gold (ABG) issued yet another disappointing statement on Friday - which has become something of a habit. The negative news this time was a cut in full-year production guidance and a surge in costs, which caused third-quarter profits to fall by more than 70 per cent. This is the third consecutive year that the company has been forced to cut its production guidance. Barrick is still in talks with China National Gold Group about selling its 74 per cent stake in ABG to the state-owned company. The shares jumped substantially since the talks were revealed and, should an agreement fail to be reached, Questor sees significant downside. In fact, given Friday's gloomy news, there is potentially more downside in the event China walks away than upside should a deal be struck. This means the risks look skewed to the downside. Questor has recommended the shares as a buy as low as 317p and as high as 448p, so all investors who acted on the advice are sitting on a profit. Questor thinks it is time to bank these gains and the shares are a sell.Home Retail group, the owner of Argos, has unveiled plans to return to profit growth at the high-street chain and the market took the news very well. There is no doubt that the new direction is ambitious, but it is certainly achievable. The plans appear to imply like-for-like sales growth of about 3% at the Argos chain. However, trading is very tough at the moment. The interims released alongside the strategy review, saw like-for-like sales at Argos rise just 0.6% - and this was from a low base. Same-store sales in the equivalent period of 2011 fell by 9.1%. Total pre-tax profit at the group, which also owns Homebase, fell 37%, with Argos operating profit down 3%. The shares have surged by 60% in the run up to the strategic review and are now trading on a February 2013 earnings multiple of 18, falling to 16 in 2014. There is no doubt that Mr Duddy's plan is correct - that's why investors have propelled the shares to such a high rating. However, any missteps or deterioration in the consumer backdrop will be punished. On valuation grounds, avoid says Questor. Tarsus group said in 2010 that it planned to derive 50% of its turnover from emerging markets by 2013. Last week, it achieved that a year early, after buying a Turkish exhibition firm for £6m. The acquisition runs two major shows a year, one focusing on plants, flowers and landscaping, the other on construction materials. Both are growing as Turkey and surrounding countries change and develop. Exhibition firms are slightly unusual in that many shows take place only every other year, so profits tend to move in tandem. Eight of Tarsus Group's largest exhibitions occur in alternate years so profits reflect this. In 2012, profits are forecast to fall from £16.6m to about £13m but in 2013, they are expected to rise to £21m before decreasing to £15m the following year. Dividends, however, are likely to grow steadily from 6.3p last year to 6.6p this and 6.9p in 2013, providing a yield of more than 4%. Exhibition groups succeed if they attract enough buyers and sellers to make their events worthwhile. Tarsus has made a point of being in the right locations and the right sectors. At 179.5p, the shares should rise. Buy, says the Financial Mail on Sunday's Midas column.AB