Sunday share tips: Wincanton, Royal Mail, Petropavlovsk

20th Jul 2014 22:42

Markets are underestimating the turnaround story at small-capitalisation haulage firm Wincanton. The current consensus of analysts' estimates is calling for pre-tax profits to come in at about £25m this year, followed by a small increase to £26m next year, on the back of largely flat revenues. However, after renegotiating its financing and with plans to exit costly leases the well-diversified firm can easily beat those forecasts. Not surprisingly, Chief Executive Eric Born thinks he can grow profits and cash flows even without the benefit of mergers and acquisitions or an economic recovery. At just eight times expected earnings the shares are cheap and worth buying, writes The Telegraph's Questor column. The decision by French competition authorities to launch an investigation into the practices of Royal Mail's European parcel service operation, GLS, could see the company face a fine of as much as £160m, according to analysts at Espirito Santo. The stock has fallen considerably this year, as competition grows and parcel volumes slowdown. Nonetheless, free cash flow is expected to come in at about £250m in this fiscal year, expanding to £300m two years later. Hence, the 500-year old outfit has the financial werewithal to withstand any such fine. As well, this year's forecast dividend of 22p per share provides a yield of 4.6% and is seen growing by 15% on average over the next two years. Lastly, the UK Parcel, International and Letters (UKPIL) - which generates about 86% of revenues and three quarters of its operating profits - has a dominant market position. At a price-to-earnings multiple of 13 the stock is cheaper than German rival Deutsche Post DHL, on 15. Long term the stock remains a hold, says The Telegraph's Questor column. Russia-focused gold miner Petropavlovsk generated £190m in earnings before expenses last year and is on track to dig a record amount of the "yellow metal" out of the ground this year. Financial markets, however, now place a negative value on the company's stock, to the tune of -£33m. That compares to the £98m valuation assigned just to its 40% stake in Hong Kong listed iron ore miner IRC. The problem is the company's debt load. When combined with the sharp fall in the price of gold the outfit will not be able to pay back its lenders even under the rosiest of scenarios. Making matters worse, the start of production at IRC's iron ore mine next to the Chinese border has fallen behind schedule. Furthermore, two of IRC's Chinese partners fell into arrears, as of April, on $68m of debt. Petropavlovsk is thus now negotiating a haircut with creditors on a $310m bond due in February. Everything now hangs on Chief Executive Peter Hambro's ability to win a reprieve from creditors, writes Danny Fortson in The Sunday Times' Inside the City column.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