Sunday share tips: Aviva, Staffline, G4S

11th Nov 2012 16:34

Shares in Aviva, the UK's largest insurer, have underperformed as investors demanded more action to get the business back on track. This long-awaited process now appears to have arrived. The group's third-quarter results were in line with market expectations. The company is currently without a chief executive, as the scalp of former chief executive Andrew Moss was taken during the so-called Shareholder Spring. Aviva's chairman, John MacFarlane, is believed to be close to appointing a successor. The lead internal candidate is Pat Regan, Aviva's well-respected finance director, although external candidates are also being considered and they are in the interview process. Analysts expect that Aviva's dividend will be trimmed next year. The prospective yield in the current year is 7.9 per cent, falling to 7.77 per cent in 2013. Even if a cut is deeper than currently expected, the yield is attractive. Disposals are likely to strengthen the group's balance sheet and the shares trade at a discount to the sector. As a new broom takes the helm and the restructuring is delivered, the shares look likely to rerate. This is despite a potential hit to the top line from the sale of non-core assets. The current year earnings multiple is 10.7, falling to just 6 next year. The shares have recovered sharply since Mr. Moss's departure and they are now a buy - and an income and recovery play, The Sunday Telegraph´s Questor team says. Staffline Group puts unskilled or semi-skilled workers into temporary jobs, ranging from salad washing to lorry driving. The firm is reaping benefits as big employers use more temporary staff and chief executive Andy Hogarth is full of plans for the future. The company steers clear of high-end recruitment, focusing instead on jobs that are essential to everyday life but require little more than basic training. Initially, Staffline operated primarily from High Street shops. Over the past few years, however, it has moved increasingly in to customers' premises, such as warehouses, distribution centres and factories. This enables it to forge longer-term relationships with customers and keeps its costs low. Staffline is one of the biggest operators in its field but it still has a market share of just 5%, so there is plenty of room for expansion, particularly as smaller rivals are increasingly willing to sell out. The group has made three acquisitions this year and will probably continue in this vein, while also developing organically. This year, for example, it moved into call centre recruitment, supplying workers for an existing customer. This has proved successful and will almost certainly be replicated. Staffline is doing well despite continued economic uncertainty, increasing customer numbers and doing more business with each. Hogarth has just finished drafting his plans for the future and is confident about prospects. At 239 1/2p, the shares are a buy, says The Financial Mail on Sunday´s Midas column. After the Olympics fiasco, it is hardly surprising that G4S was unsuccessful in its bids to win any of the eight new outsourced prisons put to tender by the Government, but is all the gloom now priced in? "The point of maximum pessimism is the best time to buy" is an old investment adage. It's basically a contrarian point of view that says that, when the herd completely loses faith, an analysis of the facts can uncover real value. UK government revenue makes up about 10% of the group's total. This proportion was already shrinking, as the company continues to be acquisitive in new markets. It is now present in 125 countries. At the moment, G4S is the market leader in the provision of security services worldwide, with around 8% of the market. The shares trade at a discount to peers in the business process outsourcing (BPO) sector. The 2013 prospective multiple is 9.9 times, compared with Serco trading on 12.5 times. G4S's yield next year is forecast at 3.7%. Questor last said hold in September when the shares were at 268.6p. Despite the fact that the shares look cheap, there are probably better prospects elsewhere. Hold, says The Sunday Telegraph´s Questor team.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.