Investment research analyst at The Share Centre Ian Forrest outlines six companies tipped for success in 2017:
Prudential – a lower risk investment idea
“International insurance and investment product supplier Prudential has had a successful 2016 with the company raising its dividend, reporting an increase in profits whilst all the time continuing to benefit from favourable structural opportunities in its key markets, particularly in Asia. Investors should appreciate that although the group’s Asian exposure is a risk due to the volatility of Asian markets, the demographics of many Asian regions, and the rise of the middle class, should provide a good growth story for Prudential for some time to come.
“Prudential believes it has adequate capital surplus to withstand further significant deterioration in the European market, which should provide some reassurance to investors. Furthermore, the group’s asset management business M&G continues its expansion into Europe and its retail funds are registered for sale in 20 regions. Ultimately, this is a company which has a good mix of business across a number of regions, with a long-term Asia growth story underpinning the investment case.”
Diageo – a lower risk investment idea
“Whilst you may not be familiar with this global alcoholic beverages group, it’s almost certain that you are accustomed with its enviable portfolio of well-known brands which include Johnnie Walker, Guinness, Smirnoff, Baileys and Captain Morgan. The group has operations in 180 countries with exposure to large, developed markets such as the US, as well as fast-growing emerging markets in Asia and Africa. What’s worth noting is that Diageo has recently reported an improved performance in its important North American market and may benefit from the weak pound and any fiscal stimulus from the new US administration.
“Investors should recognise that trading remains good with the group citing growth in whisky, US spirits and India as reasons why. Moreover, it is confident of achieving mid-single digit sales growth and improving its profit margins over the next three years. Diageo has a strong product mix and geographical diversification so when you combine this with resilient sales in the US market, excellent long-term prospects for emerging markets, continued improvements in cost-cutting and a relatively good dividend yield, then this could be a company worth watching.”
Intertek – a medium risk investment idea
“Intertek is a multinational testing, inspection and certification services company which focuses primarily on consumer products (toys, textiles shoes) and commodities. It carries out assessments based on safety, regulatory, quality and performance standards at more than 1000 laboratories and offices worldwide. Through years of acquisitions and steady growth, the company has built itself into a £5bn giant in its sector with a high level of safety and quality standards in developed countries generating a good revenue source for the company.
“Despite slow global economic growth, the group has been experiencing increased demand for its inspection and testing services from many different sectors. Whilst investors should be aware that parts of the business have come under pressure in recent years due to the tough environment in the commodities sector, we consider the company’s activities as being relatively defensive. The continued global implementation of safety, quality and energy efficiency standards, regulatory requirements and legislation in 2017 can only be of benefit to Intertek.”
Inmarsat – a medium risk investment idea
“There’s no denying the inevitable difficult trading conditions this global communication satellite system operator has endured as a result of lower spending in the energy sector in recent months. However, the worst seems to be over and there remains the prospect of better times ahead as oil prices stabilise and we believe the longer term attractions still remain. Investors should acknowledge that orders from the Aviation division are ramping up and government spending is once again on the rise.
“SwiftBroadband services have been driven up by demand in business aviation and commercial airlines to support in-flight passenger connectivity services. In addition, the deployment of three Ka-band satellites, which aim to deliver seamless global coverage at speeds of up to 50MB/s for users in the government, maritime, energy, enterprise and aviation sectors should help Inmarsat maintain a competitive edge with faster broadband speeds, giving it promise in the medium to longer term.”
Photo-Me International – a higher risk investment idea
“Photo booth operator Photo-Me International is a cash-generative and increasingly innovative business which has concentrated on expanding into new geographic markets and new products, the latest being a trial of carwashes and smaller laundry machines. Results towards the end of 2016 increased expectations for the year ahead and investors should appreciate that the company aims to continue to diversify its operations next year.
“Photo-Me is confident that a significant proportion of future revenue will come from its futuristic photo booths, which will print pictures in 3D, allow card payment and enable digital photo printing. Another growth area, which Photo-Me International is well positioned to benefit from, could come from improving security and fraud prevention for the authorities. Investors should recognise that the company intends to increase the dividend by 20% for the next two years and there is also the potential for further special dividends.”
Wincanton – a higher risk investment idea
“Founded in 1925, customers of this logistics provider currently include many blue chip companies in defensive sectors which means revenues should be resilient even if economic growth falters. Investors should appreciate that there have been solid recent new contracts with B&Q and Halfords and growth in merchandise volumes is encouraging. Interestingly, the UK market for contract logistics is approximately £30bn and with Wincanton presently having only a 4% market share, there is plenty of scope for further growth in 2017.
“Thanks to the continued boom of online retailing, there is also potential for more web-based activity. Other positives for investors include a wide diversity of customers and the healthy dividends. Most recently, the company said it expected full year earnings to be marginally above expectations thanks to a 36% rise in first half profits.”