Stocks to watch in November
Associated British Foods
Associated British Foods deserves a place in any low-risk portfolio of shares. The business, still 50% owned by Garfield Weston’s founding family, has been a great growth story in the past few years of recession. Revenues have almost doubled in six years while profits - £500 million back in 2007 - are expected to reach £973 million for the year just ended.
Currently analysts are targeting profits of £1.1 billion for this year. The business sprawls across the globe in sugar, agriculture, groceries and retailing and includes brand names such as Ovaltine, Ryvita and fast-growing Primark clothing stores chain.
Latest trading returns confirm the market’s optimism about upcoming results. The shares are up 25% this year and sell on about 14 times expected earnings for the current year. Not cheap but high quality and consistency never is.
Budget airline easyJet is another family business with great growth potential but higher risk with a much more controversial reputation both in the City and among its customers. Founded less than 20 years ago by Sir Stelios Haji-Ioannou, it is expected to have revenues of more than £4 billion this year. Sir Stelios remains a major shareholder and owner of the brand but is no longer on the board.
Controversy over the company is receding as profits improve and dividends have started to be paid, and for customers there has been the recent decision to abandon the seating "free-for-all".
Profits for the year just ended are expected to reach £282 million (£248 million last time) and for the current year the consensus forecast is for £322 million. Much of the outlook, though, hinges on oil fuel prices, which at the moment look likely to remain high. The shares sell on 8.6 times expected earnings for this year.
Bowleven listed on the Alternative Investment Market eight years ago and has built a £200 million market value on oil and gas exploration success in its chosen region of Cameroon. The track record for the drilling programme to date has been very successful and there are now inevitable rumours that the group could be the bid target of a larger group or at least go into partnership with a major company.
The shares are clearly speculative as there are no signs as yet of profitability. They have virtually halved from their peak earlier this year on so far unfounded fears of weakness in oil prices. They now seem to be swinging back into favour.
Fenner has been a consistent performer in that least glamorous of industries - reinforced polymer technology. Supplying a wide range of industries, it continues to grow its share of the global market and revenues continued to climb through the recession.
Profits for the year just ended are expected to rise from £69.6 million to £101 million while for the current year they could reach £110 million. The shares sell on 9.4 times prospective earnings for the current year and yield a useful 3.1%. The dividend record has been progressive and the payment remains covered by nearly four times earnings.
Intriguing building sector minnow Renew Holdings is very much in favour in the market these days. It concentrates on doing essential maintenance work for weighty clients such as London Underground, Northumbrian Water, Network Rail and Sellafield.
That makes it look resistant to whatever shocks that the recession may have in store. Profits for the year just ended could reach a record £9.4 million compared with just £2.46 million last time. They are expected to top £10 million this year. The shares yield 3.6% and sell on 6.8 times expected earnings for this year.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
A property chain is a line of buyers and sellers (the “links”) who are all simultaneously involved in linked property transactions. When one transaction falls through – for instance, someone can’t get a mortgage or simply withdraws their property from sale, the entire chain breaks and all the transactions are held up or even fail entirely.
Alternative Investment Market
AIM is the London Stock Exchange’s international market for smaller companies. Since its launch in 1995, 2,200 companies have raised almost £24 billion listing on AIM. The market has a more flexible regulatory system than the main market and can offer tax advantages to investors but its constituents are a riskier investment than bigger companies listed on the main market.