Woodford backs one of these three winners
10th July 2018 14:13
by Graeme Evans from interactive investor
After a number of big performances on equity markets this session, Graeme Evans picks three of the best.
Investors seeking good news amid the Brexit gloom didn't have too far to look today after positive updates from MySale, Softcat and Photo-Me International.
MySale, which allows shoppers to buy left-over stock from leading brands, breathed life into its struggling share price by revealing that earnings for the year just ended will be at the top end of hopes.
Shares have fallen 45% in the year to date but N+1 Singer thinks this is unfair, given that the Australian company does not have the kind of UK exposure that has led to underperformance for many domestic retailers.
That was rectified today as MySale reported a significant year-on-year increase in profitability, driven by revenues growth of 10% and strong margin progress.
Source: interactive investor    Past performance is not a guide to future performance
N+1 Singer analyst Matthew McEachran said: "The potential for future growth remains very much intact driven by its proprietary online tech platform. The recent share price fall looks anomalous in this context and is due a correction."
He points out that MySale is trading with an enterprise value/earnings multiple below 10x, creating an opportunity for investors. His fair value estimate is 160p, compared with a price of 70p after today's 15% improvement.
The question for Softcat shareholders in recent weeks has concerned whether there's more to come from the IT services firm after a near doubling in the share price since last summer.
Today they got their answer after an unscheduled trading update revealed full-year operating profits will be materially ahead of previous expectations.
The company says it is trading "exceptionally well", which is another sign that GDPR has been good for business. Softcat works with clients in helping to clarify the impact of the regulation and create a tailored plan for compliance.
Marlow-based Softcat, whose backers include fund manager Neil Woodford, is on a remarkable run of unbroken revenues and profits growth going back more than 50 consecutive quarters.
Today's update prompted Credit Suisse to lift its price target from 740p to 834p, while Jefferies is now at 760p from 725p previously.
Source: interactive investor    Past performance is not a guide to future performance
Credit Suisse analyst Charles Brennan said: "While there will always be questions around the sustainability of such strong momentum, the broad-based nature of the growth suggests that current momentum will continue for the foreseeable future."
As recently as May, Brennan had been wary about taking his target beyond 740p due to the company's stretching 25x price earnings multiple.
Softcat has a similar market cap to Computacenter, even though its older rival is set to deliver profits much bigger than the £70 million forecast for Softcat.
The company joined the stock market in 2015, which compares with a 1962 debut for Photo-Me International.
The photo booth and laundry firm has had its fair share of ups and downs in that time, including May's profits warning caused by the slower-than-expected take up of the Japanese government's My Number ID card programme.
Today's full-year results were in line with that reduced guidance, although with the crucial reassurance for investors in relation to the company's prized 7.8% dividend yield.
Having pledged in 2016 to increase its dividend by 20% in 2017 and 2018, Photo-Me stuck by its promise today with an award of 8.44p. It said that it also hoped to pay the same figure in relation to trading in the current financial year.
Source: interactive investor    Past performance is not a guide to future performance
Canaccord Genuity analyst Simon Davies is encouraged that restructuring will improve profitability in Japan from 2019, while there's a strong performance in laundry after a 69% jump in revenues contributed 16% of all sales.
He said: "The group retains a strong net cash position. It will take time to rebuild investor confidence, but we see evidence of a turnaround in Japan as an obvious catalyst for shares."
Davies has a price target of 160p, pointing out that shares trade on a projected 2019 price earnings multiple of 10.9x.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.