Stocks to watch in October
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Wolseley, the giant heating and plumbing equipment supplier, is back on track, after enduring a torrid time in the recession on both sides of the Atlantic.
April's half-year bulletin showed the group swinging sharply back into the black, and full-year profits should top the £500 million mark, compared with losses of £328 million last time. Brokers hope for pre-tax returns of £634 million this year.
Dividend payments have resumed after a three-year hiatus. But Wolseley is not going to easily re-establish its blue-chip status with investors in today's tough climate for the building trade. The shares peaked at nearly £60 back in 2007 and then went into a sharp decline.
A recovery in the share price to more than £20 last year has not been sustained this year. But recent weakness in the shares has prompted broker UBS to put them on its list of 'buys'.
Department store group Debenhams has also resumed paying dividends this year, after a two-year layoff. The forecast full-year payment of just over 3p a share implies a usefully supportive yield of 4.6% for the share. April's half-year bulletin produced another steady rise in profits.
Full-year results of £158.4 million (£140 million last time) vindicate the recovery strategy of chief executive Rob Templeman. This year, brokers hope for profits of £170 million and a dividend rise that will boost the prospective yield to 5%. City broker Matrix recently rated Debenhams a 'buy' and set a target price of 90p.
St Ives is close to completing its transformation from printer to marketing services business through a series of acquisitions and disposals. But the market has been unmoved by the efforts of chief executive Patrick Martell and his team, and the share has failed to progress this year.
According to Numis Securities analyst Mike Murphy, profits for the year just ended should reach £21 million. Profits of £22 million and £25 million are projected for the next two years. He foresees growing dividends pushing up the prospective yield on the shares, at 88p, to 7%.
Murphy retains a target price of 132p after Martell recently confirmed results would be in line with market expectations.
Nautical Petroleum now has a record of considerable success in finding new oil fields in the North Sea. Its joint discovery of the Catcher field in February - the biggest North Sea find for more than a decade - sent its share price soaring.
However, shareholders have been on a rollercoaster ride over the past 18 months. The share price rose from less than 50p to a peak of 547p after Catcher delivered on its promise. But since then the profit-takers have dominated, bringing the share price tumbling down.
Nevertheless, the prospects for Nautical remain exciting. It now looks capable of becoming a significant oil producer, if it does not receive an offer from one of its larger rivals. All seven brokers who follow the shares are enthusiastic about the company's prospects.
Gemfields, a small AIM-listed mining company, owns 75% of the Kagem mine in northern Zambia, the world's largest emerald mine. Lately, the company has achieved a rapid improvement in output, profitability and gem auction results.
Half-year returns in March showed revenues up 140% while profits almost trebled. The shares have responded by rising from less than 4p a year ago to a recent peak of 27.75p. Full-year profits are expected to reach £10.6 million, compared with just £1 million last time.
That pace of growth cannot be maintained, but profits of £12.8 million have been forecast for the current year. The shares sell on only about seven times earnings.
One hopes Punch Taverns eventually has as much success in demerging its pubs operation as WHSmith did demerging its non-retail businesses.
But the initial market reaction to the splitting of the debt-ridden group into two separate quoted companies has not been favourable. Punch shares quickly fell away to 13p - having been as high as 90p earlier in the year.
The new spin-off, Spirit Pub Company, drifted back from an early price of 55p to 37.5p as traders struggled to value the two businesses. While Punch continues to retain its 5,000 tenanted pubs, analysts will struggle to value the business, as it will find it difficult to service its debts.
Spirit Pub, it is hoped, will rise phoenix-like from the ashes, because its 800 managed pubs and 549 leased pubs have the potential to improve performance or can easily be sold.
If market forecasts are right, Spirit will make a £50 million-plus profit this year and pay dividends, to give the shares a prospective 5% yield.
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.