Sunday share tips: Weir Group, Paragon, William Hill

24th Feb 2013 15:18

Spare a moment for the 'short-sellers', those dastardly investors who make hay when a company's shares tank. They are having a bad run at Weir Group. The 4.7bn pound supplier of kit to miners and oil drillers is the most "shorted" stock in the FTSE 100. About 15 per cent of its shares are out on loan. Nevertheless, since dropping to 14.40 pounds last June the stock has stormed back, closing on Friday at 21.56 pounds. The surge over the past two years is even more impressive: Weir's market value has nearly tripled. Its success can be explained in part by its strategy of not just selling the kit, but providing maintenance and repair. It is important to bear in mind, though, that shale equipment is a small, albeit lucrative, part of Weir's empire. It is a division of a division of a division. It accounts for about a tenth of the oil and gas arm's business, which, in turn, makes up about 40 per cent of group profits. That is a good part of the explanation why the company´s share price hasn´t taken a hit - as expected by the shorts - from the fall in natural gas prices. Expect a strong showing on Wednesday when Keith Cochrane, the chief executive, reveals annual results. City scribblers expect 408m pounds in pre-tax profit, a 4 per cent increase over last year's performance. "The short-sellers won't be pleased," says The Sunday Times´s Danny Fortson.Paragon has benefited from the mainstream banks trying to reduce their loan portfolios and from the fact that many would-be homeowners are finding it hard to get on the property ladder, so spending longer in rented accommodation. Those fundamentals look unlikely to change in the near future. The company is also well funded with £450m in facilities available from banks for more mortgage lending to customers. The risk remains of a big downturn in the housing market, though that has so far not materialised, and Paragon has made great play of its high-quality lending. Its arrears rate (the percentage of mortgage holders behind in their payments by three months or more) was 0.48% compared with a sector average of 1.5%. If you bought Paragon shares at Midas´s tip price of 206 1/2p in September you are sitting on a very healthy capital gain. On top of that the dividend represents a yield of 3% - a respectable sum in the current climate - so hold. At today's price of 312 3/4p, and given a forecast dividend of 7p this year, the shares will deliver a 2% yield with a realistic chance of some capital growth on top. It is not such an attractive proposition as it was in September and at this price it is clearly riskier, but for those prepared for a little risk the shares are still a buy, says The Financial Mail on Sunday´s Midas column.One down, one to go. Last week the first hurdle in its efforts to buy Sportingbet were comfortably cleared. This week William Hill, Britain's biggest bookmaker, returns its attention to its other main target: buying out Playtech from the pair's online gambling joint venture. In the next few days, the tricky business of putting a value on the operation will be finalised, after which, William Hill must decide whether the price is sufficiently attractive that it wants to exercise its option to buy out its partner.Chances are that Ralph Topping, William Hill's Chief Executive, will press ahead and could announce his intention to do so at full-year results on Friday. Investors could balk at the eventual asking price ? bullish estimates suggest it is worth just shy of £500m ? but they should bear in mind two things. One, the joint venture has been a big financial success. When Topping took the reins, William Hill's internet strategy was in disarray. Today it is among the industry's winners. Two, can Topping afford not to buy it now? It will be some time before he is entitled to another attempt to acquire the joint venture outright, and if it continues to perform it will only get more expensive, says The Sunday Times´s Danny Fortson.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