Sunday share tips: ASOS, AB Foods, Archipelago Resources

28th Apr 2013 17:22

Internet fashion retailer ASOS is in fashion and will continue to be so for some time to come. Yes, the company´s latest trading statement - due out on Tuesday - is likely to show that gross margins suffered this past fall and winter as the outfit "invested" in more customer traffic via price reductions. Yet that is likely to turn out to have been "a pause to refresh," and it worked. Sales have shot up by a third over the last half-year. Thus, some analysts see the shares rising towards 40 pounds over the next couple of years as investments in its on-line presence in Russia and China pay off. As well, the shift towards its own-label products has proved to be a hit with customers. Further, ASOS has stregthened its management team with Kate Bostock, who´s coming on board from Marks&Spencer. "The outfit is on the right side of the online revolution. Buy," says The Sunday Times´s Danny Fortson. Fashion-to-food conglomerate AB Foods´ Primark unit is doing splendidly, last week´s interim update showed. Like-for-like sales rose at a 7% clip, alongside a 240 basis point improvement in margins. Although a slow-down in the addition of new floor space is expected during the next half, continued growth seems to lie ahead. In fact, some argue that Primark is undervalued by markets due to its inclusion within the conglomerate. Groceries, likewise, saw blistering growth of 29% in its operating profits, although this was skewed by lower charges than last year related to restructuring. Similarly, pre-tax profits at the group level grew by 25% once exceptionals are stripped out. Even so, trading at 17.8 times next year´s earnings the valuation seems a little stretched, The Sunday Telegraph´s Questor team says. My word is my bond. While some might snicker at the validity of such a statement nowadays, it continues to be true (and highly profitable) at the best outfits, whatever their industry category. Hence, Archipelago Resources´s shares have taken a beating lately as the price of gold plunged. However, its management team is well respected by City brokers as they have a reputation for delivering what they say. That means that company guidance for production to rise towards 200,000 ounces of gold a year by 2015 (up from 139,000 ounces in 2012), as per its latest resource update, is as reliable as can be expected. Just as important, at $900 per ounce its so-called "all-in" production costs are far below the $1,300 average for London-listed miners, thus providing a cushion against fluctuations in the price of the "yellow metal." In fact, it has embarked on a dividend policy. "Even if the gold price slips, this firm's low costs provide a comfortable cushion. If the price gains, Archipelago's shares should rise too. Investors will also benefit from growing production. Buy," says The Financial Mail on Sunday´s Midas column. Please 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.AB