Portfolio

Sunday share tips: Ibstock, Forterra, Asda, Tesco, Sainsbury

By Alexander Bueso

Date: Sunday 10 Jul 2016

Sunday share tips: Ibstock, Forterra, Asda, Tesco, Sainsbury

(ShareCast News) - Don´t try to catch a falling brick was the view of The Sunday Times´s Danny Fortson regarding shares in Ibstock and Forterra.
Stock in both brick-markers had tanked by almost 40% since the Brexit vote and in the case of the latter analysts at Deutsche Bank believed they had been 'oversold', he pointed out.

Indeed, the broker upped its target price on Ibstock because the fifth part of its sales which were derived from the States would be worth more now that the pound had weakened.

Furthermore, during the last downturn, in 2008, when the housing industry nearly collapsed, Ibstock didn´t lose money and the sector now had the support of various government schemes with firms´ finances also on a much firmer footing.

Between them those two companies accounted for the lion´s share of the UK´s production of bricks, Fortson said.

Nonetheless, as housebuilder Persimmon said last week, it was "still too early" to judge whether a severe housing slowdown would take hold.

Should that happen, then the pain for the two brick-makers had likely just begun,the tipster said.

Hence, perhaps, the decision by Forterra to mothball two plants.

On the flip-side, changing hands on 5.3 times´ next year´s earnings both shares were the cheapest in the sector.

"But I can't shake the feeling that the housing market is in for a harder landing than the experts expect. Catching a falling knife is dangerous. But so is a falling brick," Fortson concluded.

"Sell."


Asda owner Walmart recently signaled that the uneasy truce among UK food retailers might be about to end, so those holding shares in its rivals should be wary, the Financial Times´s Lex column said.

Faced with the prospect of sales erosion and hence lower margins, analysts at HSBC and elsewhere believe Asda decided to get ahead of the situation and join in the price war.

Competition from discounters Aldi and Lidl had driven Asda´s market share from 18% in 2012 to 16%.

Under a full-blown price war scenario, HSBC estimated Asda might be willing to lower its margins from 5% to 2%, which would tip Tesco and Sainsbury into losses, Lex said.

To take note of too, capital from its US parent would now also go further, following the depreciation in sterling, Lex pointed out.

"Conditions for a summer offensive are favourable," Lex said.

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