Two stocks with something to cheer

Two stocks whose fortunes are shaped by the UK economy managed to surprise today, helping their shares end a run of uncertainty. Graeme Evans reports.

While the half-year results from Polypipe Group and pawnbroker H&T Group were hardly cause for wild celebration, there was more than enough in today's updates to breathe life into their respective share prices.

Polypipe, which is a specialist in plastic piping systems, jumped 7% higher at 378p after its solid interim results included some encouraging signs from its recently struggling commercial and infrastructure division.

While this is only based on signs of improved momentum in recent weeks, Deutsche Bank said it still gave "investors some glimmer of hope that this recently lagging division may at last be reaching a trough".

Recent share price weakness, partly due to cold weather earlier in the year, has meant Polypipe is trading on a projected price earnings multiple of 11.7x, which is towards the lower end of UK construction peers.

As today's results have shown that there is no imminent risk of downgrades, analysts at Deutsche maintain a "buy" recommendation and target price of 455p for the FTSE 250 Index stock.

They added:

"This is a company with many structural advantages - market outperformance underpinned by a strong focus on innovation and rolling out new products, as well as exposure to diverse end-markets."

Numis has a price target of 450p and said there was good to reason to think Polypipe could achieve double-digit compound annual growth in shareholder returns out to 2022, based on a flat construction backdrop.

Polypipe's underlying profits were 4.6% lower at £32.9 million in the six months to June 30, driven by the estimated £8 million impact of adverse weather in February and March. UK revenues growth of 0.9% would have been more like 5% without the interruptions.

Growth has been driven by UK residential, with strong demand from the housebuilding sector offsetting a challenging repair and maintenance market.

Project delays meant revenues in commercial and infrastructure systems were down 6.6%, although there were signs of improvement towards the end of the period amid a pick up in road programmes activity.

CEO Martin Payne said: "Against a backdrop of mixed market conditions and adverse weather the group has performed well in the first half." Polypipe, which has a projected yield of 3.4%, increased its interim dividend by 2.8% to 3.7p.

At H&T, a solid interim result was boosted by an increase in the number of pawnbroking customers, as well as continued growth in its personal loans book. Shares were 3% higher at 319p, having fallen 16% since mid-June.

Numis Securities said the half year had been complicated by the transition from accounting standard IAS39 to IFRS9, without which profits would have been flat at £6 million.

The shares now trade on about 10x forecast earnings for 2018. Numis analyst Andrew Wade said: "With the pledge book continuing to show stability and growth coming through from the personal loans book, we see more to go for." Numis has a target price of 360p.