Tuesday tips round-up: Bovis Homes, Kier, Seagate

9th Jul 2013 06:49

Bovis Homes Group's shares are at the highest level since mid-2007 as the company delivered an upbeat trading update on Monday. The group said its sales have been supported by the government's Help to Buy scheme, an improving housing market and the firm's strategy. The Telegraph's Questor column noted that while the update was better than the market expected and the shares soared to new multi-year highs, there have been some concerns recently about rising longer-term interest rates, which could be a negative for the sector. However, new Bank of England Governor Mark Carney eased the concerns last week by implying that rates will be low for some time which is positive for the sector. Trading on a current-year earning multiple of 20 times, falling to 15, and yielding a prospective 1.5 per cent, Questor thinks that the shares are up with events and the rating is now 'hold'.Kier Group's acquisition of AIM-listed May Gurney was seen as a bargain buy by City analysts, The Times' Tempus column mused. May Gurney in October revealed two large loss-making contracts which accounted for just 4.0% of its total revenues. The mishap made the group vulnerable to an approach by Kier. The merged group will be the biggest provider to the public sector in many categories of work including road maintenance and housing. Kier said in a trading update that, for the construction division in particular, the worst may be over. "Although margins have declined to about 2.0%, and this inevitably will have an impact in the figures for the year just gone, they are not declining further and work is coming through, with more than £1.4bn secured for the current financial year," said Tempus.Investors should be scared of Seagate as it is a company in a cyclical industry, the Financial Times advised. While it has gross margins and a share price sitting near historical highs, it is a risk to assume those margins will stay high. Seagate, which makes disc drives, has a 10-year average gross margin of 23%. In its fiscal 2012 year (ended last June) the margin hit a peak above 30%. So far this year it is in the high 20s - exactly where analysts are expecting it to stay through fiscal 2015. But if one assumes that 10-year average margins are maintained for 2015, there is the potential of a shift that will cause the stock to fall. Worth keeping in mind also is that Seagate sells two-thirds of its unit volume to struggling personal computer makers. Tablets and phones use solid-state memory, not disc drives. The stock is one of the 20 best performers in the S&P 500 in the second quarter and the centralised data centres that make distributed computing possible need lots of storage, supporting disc drive demand in the long term. But investors should be scared all the same, Tempus stressed.RDPlease 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.