Sunday share tips: Auto Trader Group, Lloyds Banking Group, Aviva
Auto Trader Group shares were a 'buy' for the Sunday Times' Inside the City column. Although to purchase the stock investors need to pay 30 times forecast earnings for the year to 31 March, the company dominates the market for used car sales, enabling it to make profit margins north of 60%. The new car market seems to have hit a major roadblock after years of cheap finance-fueled growth, with a decline in new sales predicted for 2017, which has put a dent in Auto Trader's valuation.
But the company's website is the go-to place for second-hand car dealerships and private owners alike who pay not far off £50 a pop but are lured by visitor numbers to the site that are around four times those of its nearest competitor. While investors worry the dip in the new car market will force dealership closures and prevent Auto Trader from protecting its margins, there will still be used cars that need to be sold, with the website also adding new series that include an online chat facility and part-exchanges.
Lloyds Banking Group was a buy for Midas in the Mail on Sunday, with the shares offering better opportunity for capital growth than the bank's own savings products, "provided there are no dreadful economic shocks down the line". Moreover, Lloyds is forecast to pay at least 4.5p this year, rising to 5p or more in 2018, which gives it a 6.4% dividend yield, one of the highest in the FTSE 100 index.
The bank is a simple, back to basics operation since the crisis, the largest branch network and digital bank in the UK, with a 25% share of the current account market, 22% of retail deposits and more than 20% of mortgages, plus newly acquired credit card business MBNA giving it a quarter of that market.
With costs slashed in recent years, Lloyds is making money and paying generous dividends. While profits last year were shaved due to bad debts, restructuring, PPI charges and other penalties, these costs should steadily reduce as Lloyds puts the bad days behind it and pays out those attractive dividends.
Likewise, a simplified Aviva under its own new management was a 'strong hold' for Questor in the Sunday Telegraph for its secure 5% dividend yield. Kiwi chief Mark Wilson has turned the insurer into a solid "cash machine", with a plan this year to increase the dividend payout to 50% of operating earnings from the 46% in the year to March. A £300m buyback was also announced.
Alongside the sale of its stake in two Spanish life and pensions joint ventures plus a retail life business for £403m, plus a rumoured £500m disposal of its Friends Provident International life and investments unit and long-running City campaign for it to sell its asset management arm, Wilson is eyeing selective acquisitions and reinvestment as part of his plans to boost earnings. Investment in technology of around £100m a year such as a smartphone app to collate customer policies are an example, while integrating systems will enable the group to do better at cross-selling products but also managing risk.
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