Sunday share tips: Bovis Homes, Aviva, Carphone Warehouse

20th Jan 2013 16:55

Dairy Crest supplies a third of the country's milk, including all that sold by Waitrose and Marks & Spencer. Sainsbury's and Morrison - but not Tesco - are key customers, too, as well as corner shops, hospitals and restaurants. But milk is a commodity and profit margins are low, so the company has to work hard to deliver returns to investors and keep customers and suppliers happy. The firm has made tangible progress towards that end and Chief Executive Mark Allen intends to lift the milk division's profits from about 10m pounds to about 30m pounds over two to three years. Dairies are being merged, new machines have been acquired that process milk faster and more efficiently and the business has invested heavily in software that will ensure it transports milk more cost-effectively. Furthermore, the firm is doing much better with dairy products. Last year, Allen sold French spreads firm St Hubert for 344m pounds, since when he has been looking for acquisitions. For the year to this March, brokers expect profits of 50m pounds rising to nearly 60m pounds in 2014. The dividend is forecast at 22p in 2013, rising to 23p in 2014, so the stock is on a yield of more than 5%. Lastly, milk prices have at least started to rise recently and the outlook is better than it has been for years. At 4001/2p, the shares offer good, long-term value. The shares should increase. Buy, says The Financial Mail on Sunday's Midas column. Analysts expect Europe's biggest independent mobile retailer, Carphone Warehouse, to have had a good Christmas. They will know for sure on Thursday, when it unveils third-quarter trading, which includes the crucial holiday period. The City expects the firm to report a 4% increase in like-for-like sales, with one of the principal reasons for that being its big push into tablets. Betting on a whizzy new gadget isn't rocket science, but nor is it a given. After all, online music didn't exactly sneak up on HMV ? the first music-sharing website, Napster, was launched in 1999. But the company never came up with a strategy to deal with the stampede online.Carphone is not without risks. UBS rates its stock a "buy", but its Friday closing price of 217p is already beyond the 210p target set by the investment bank. The shares have surged by a third in the past three months, benefiting from the run-up to Christmas and the ebullience of rivals such as Dixons, which has seen personal electronics flying off the shelves. The stock may have got a bit ahead of the news. Also, the question mark over Carphone's ill-fated joint venture with the American retailing giant Best Buy remains unresolved, writes The Sunday Times's Danny Fortson. They say it's better to travel than to arrive - and that's probably why shares in house builder Bovis Homes moved lower on Friday, despite a cracking update. The shares have more than doubled since June last year, so there was plenty of profit to bank. As with all sector players, earnings growth is mainly a margins story. Companies are selling homes built on cheaper land that was bought after markets imploded in 2007 and 2008. This helped margins to surge to 13.5% from 10% in 2011. The 2013 price earnings multiple is 15.8, falling to 12.8 in 2014. This does not look too overstretched, given the margin story. Once mortgage lending improves - which it should with the help of projects such as Funding for Lending - profits should get another leg-up. The Sunday Telegraph's Questor team keeps a buy rating.Worries over a potential rebasing of Aviva's dividend are overcooked. The prospective yield in 2013 is 6.8%, rising to 6.9% next year, so it remains attractive even if there is a small reduction. On balance, Questor suspects that the dividend will not be cut and this will lead to a rally in the shares. We will find out what management has decided on March 7th. Decisive action over the past six months has led to a re-rating of the shares, but there is likely to be more to come as its markets in Europe recover and as the next stage of the turnaround plan is completed. Buy, Questor says. 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.