Sunday share tips: Assura, Rio Tinto, Smiths News

2nd Dec 2012 13:05

Porperty Group Assura has made mistakes in the past, such as an interest rate swap that went bad, the associated charges of which left a rather large crater in its interim income statement a year ago. That debacle also forced the outfit to carry out a rights issue. Yet that is now behind us, writes the Sunday Telegraph´s Questor team. Possibly validating the above, Simon Laffin, Chairman of property group Assura, spent more than 300,000 pounds on shares in the group last week. The business model is similar to Primary Health Properties, but the group is smaller. It plans to convert to a real estate investment trust in April next year. In the past six months, Assura's rent roll was 36.2m pounds compared with 34.9m pounds. Furthermore, its property rose 3.7 per cent in value over the past six months. The prospective yield is 3.2 per cent, rising to 3.6 per cent next year, which is not astoundingly high, but the company has a progressive dividend policy and the average lease length on core portfolio of 15.5 years. The shares are trading on a discount to its net asset value of almost 10 per cent. Furthermore, the Questor team likes the long-term dividend stream; Buy they say.Miners heavily invested in new projects when basic material prices went through the roof, but prices have plunged as investors worried about a slowdown in China and supplies increased. Against that backdrop Rio Tinto last week said it has targeted £3.1bn of cost savings by the end of 2014, while also cutting spending on exploration and evaluation projects. Rio however plans to simultaneously boost production at its iron ore, copper and aluminium operations with a focus on iron ore, which now makes up almost 70% of operating profit. The market for iron ore is heavily exposed to Chinese infrastructure spending. Nevertheless, iron ore prices are off lows and unlikely to fall back as Chinese stocks are close to year lows and there are signs of an economic improvement. As well, global demand for aluminium is expected to double by 2025. In any case, an increase can be expected in the company´s free cash flow, Questor says. That means more share buybacks are likely and investors will be asking for special dividends. The shares are trading on a 2012 earnings multiple of 9.7, falling to 8.6. Buy.Smiths News proves that companies can transform themselves, provided they are nimble on their feet, forward thinking and led by strong managers. The price increase reflects a decision by chief executive Mark Cashmore to reduce Smiths' dependence on its core business of newspaper and magazine distribution and expand into other, more profitable areas. In 2010, Smiths bought Bertrams, a wholesaler specialising in academic and older books that are still in demand but are no longer best sellers. Particularly outstanding is the innovation introduced by Bertrams in the travel segment, where it has replaced the screens on the back of plane seats with tablets, as they are both cheaper and lighter than the former. The company had also streamlined its news distribution business to make it more effective and was a key supplier of newspapers and magazines to the airline and rail industries. Cashmore has also added another business to the group, spending £44m on The Consortium, which supplies thousands of everyday products to schools and nurseries, offices and care homes. In the year to August 31st, profits rose 23% to £47.5m and the dividend rose eight per cent to 8.6p. Analysts expect profits to increase to around £53m next year and £58m in 2014, accompanied by a steady rise in the dividend. Cashmore aims to derive 50% of Smiths' profits from books, travel and educational supplies by 2016 and he is on track. Shareholders have been well rewarded, not least because the group pays a generous dividend and should continue to do so. Existing investors should hold. New investors wanting income could also pick up a few of shares, says the Financial Mail on Sunday´s Midas column. ABPlease 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.