Sunday share tips: Sirius Minerals, Mothercare, Aviva

25th Nov 2012 18:55

Potash is an agricultural fertiliser and demand is expected to rise over the next 50 years as the global population rises and the amount of arable land shrinks. Sirius Minerals is expected to be loss-making for some time, but is an interesting speculative play on global demand for food. Last week, the company said that its drilling programme means that it could increase its "inferred" resource by 70 per cent to 2.2bn tonnes of polyhalide. Polyhalide is a source of potassium containing compounds such as sulphate of potash and muriate of potash.The company will hopefully be able to transfer a significant proportion of the resources into the firmer category by drilling in the first quarter of next year, according to Chris Fraser, its managing director. The market was initially disappointed that conversion of the resource category could not happen at this update, but the Sunday Telegraph´s Questor team is unconcerned. This investment will take time for value to be realised and should be regarded as highly speculative. Last tipped at 18p in September, Questor keeps a speculative buy because the theme of future food demand remains compelling.Mothercare failed to react quickly enough to competition from supermarkets and online retailers. However, management´s new strategy seems to be working; hence, it would seem, the 80% rise in its share price year-to-date. Last week's interim results showed half-year losses were slashed to £600,000 from £4.4m. In parallel, same-store fell by 3.4%, but this is at half the rate sales were falling last year. The website has been re-launched and international like-for-like sales rose 4.4% and total international sales were up 15.2%. In fact, were the crisis-hit Eurozone to be excluded then sales grew by 20% in the key foreign markets. Continued expansion here should return the group to profit. The company´s Chief Executive Officer, Simon Calver, is correct in his vision and appears to be making all the right moves. The company is thus expected to post a small profit this year of £6.8m, but this depends on the Christmas trading period, which looks likely to be challenging for all retailers. The shares are trading on a current year earnings multiple of 51.5 times, falling to 16.9 next year. Although Questor thinks the strategy is right, it thinks the valuation looks full ahead of Christmas. For now, they must be an avoid it says.Something does not quite stack up about Aviva's decision to hire Mark Wilson, former chief executive of the Asian insurance giant AIA, as its chief executive, writes the Sunday Times´s Iain Dey. Sources in Hong Kong ? who know and like Wilson ? point to two obvious flaws. First, he has made his name operating in markets where the top line grows almost of its own accord. Running Aviva for the next few years is all about cutting and gutting a big, slow business that has no obvious growth prospects. Wilson has experience of corporate pruning, but again that was in Asia. The second doubt is even more personal. In Wilson's previous jobs he has had a free rein. He has been his own boss. Now he has to work for Aviva's extremely hands-on chairman, John McFarlane. Another factor to take into account is whether Pat Regan, the Finance Director, will stay. He has been running the business ? extremely competently ? ever since Andrew Moss left after a row over his pay, three years ago. Being passed over is one thing, but being publicly humiliated is quite another. That leaves Dey a little concerned about who will be running Aviva while Wilson finds his feet. The key challenge for him and McFarlane is to hold on to Aviva's juicy dividend. One slip on the divestment strategy, or a reversal of fortunes in the Eurozone, and a share-sapping reduction in the payout will be on the cards. On that basis, the shares are best avoided for a while until the picture clears. 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.