Get in to Cineworld and short Majestic Wines: Research house Panmure Gordon releases its conviction list

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Cineworld entered Panmure's list of stocks to buy

After a summer full of surprises on the London Stock Exchange, Capita and Majestic Wines stock is out of favour with analysts.

Analysts at Panmure Gordon have released their top picks of what to buy, sell and short, with names such as Cineworld, Just Group and Virgin Money looking on-trend.

The quarterly updated “conviction list”, which has returned 278 per cent since its inception in 2010 compared to a small companies index return of 232 per cent, holds the view that in the fourth quarter, the UK equity market stands to benefit from a “coordinated upturn” in global growth.

The Conviction List

BUY

CareTech

The residential care home business is expected to benefit from “sector headwinds”, according to analyst Julie Simmonds, which are creating a challenging environment for smaller operators and prompting increased consolidation. CareTech has £50m set aside for acquisitions.

BUY

Cineworld (new entrant)

The cinema operator is one to keep an eye on, as it makes structural growth in developing markets and secular growth in mature markets. “The balance sheet is becoming inefficient and we envisage £250m of merger and acquisition firepower,” said analyst Mark Irvine-Fortescue.

BUY

Just Group (new entrant)

Retirement income business Just Group “is exceptionally well placed to grow both its top and bottom lines with structural growth in all three of its key product lines,” said analyst Barrie Cornes. The shares are trading at a “massive discount” which Cornes attributes to a “short-term stock overhang”.

 

BUY

Nostrum Oil & Gas

Nostrum's GTU3 gas plant is due to start up this quarter, paving the way for production to more than double by 2019.

BUY

RPC Group (new entrant)

The plastics design and engineering company has seen its share price slide recently due to concerns over the pace of mergers and acquisitions, the level of exceptional items and the level of cash conversion. But management has said it “does not anticipate making any significant acquisitions” in the current financial year.

BUY

Virgin Money (new entrant)

Despite reporting robust results this year, Virgin has been affected by consumer credit fears. But its lending is up, with mortgages seeing particularly good growth.

BUY

Xaar (new entrant)

Inkjet technology business Xaar leads its field, with digital revolution still at an early stage in the print and printed packaging market according to analyst Sanjay Jha. “We believe Xaar can invest capital at double- digit growth and deliver progressively higher returns on capital employed,” he said.

SELL / SHORT

Capita

The support services company, which suffered a disappointing summer, has no chief executive. “It has – at best – a deeply confusing strategy and at worst none at all,” said analyst Michael Donnelly.

SELL / SHORT

Majestic Wines

The glass looks half empty for Majestic, according to Panmure, as it has four separate businesses at different stages of their lifecycle, a disparate shareholder base and “an almost schizophrenic stock market reaction each time new news emerges about Naked Wines trading off long-term growth versus short-term profit delivery”, according to anlayst Peter Smedley.

Overall, Panmure Gordon said it would remain overweight for UK equities as any bearish sentiment for the country's economy was overplayed. It added that it favoured healthcare and consumer sectors.

What's off the list?    
Was BUY Aldermore Group The retail bank was removed due to strong performance bringing up the share price
Was BUY Avon

The make-up company may have been sitting pretty, but now there are renewed fears over the 2019 visibility

Was BUY

Hutchison China Meditech

Pharmaceutical company HCM has seen strong recent share price performance
Was BUY Informa The events company has outperformed recently, which has delivered re-ratings, and Panmure believes an organic growth plateau and the weakness of the dollae will constrain further near-term upside
Was BUY On The Beach On The Beach has also seen strong relative share price performance
Was BUY Polymetal Although Panmure concedes there is still "potential for ongoing operational outperformance", it removed the Russian precious metal producer "on a macro basis"
Was BUY SQS There is no news expected in the next quarter to warrant an increase in share price
Was BUY St James's Place Geopolitical risks have increased, adding short term uncertainty to equity markets for the wealth manager
Was SELL / SHORT GKN The components manufacturer could benefit from the US hurricanes, which have boosted hopes of an auto revival in the UK
Was SELL / SHORT Senior The engineering grop has seen consensus forecasts move up