Davy selects top stocks for 2016
Published 06/01/2016 | 02:30
Ryanair, Paddy Power Betfair, and hotel group Dalata are among the top stock picks for 2016 at Davy Stockbrokers.
It said that CRH and Independent News & Media (INM) are also among its favourites for the year.
Davy said that it believes European equity markets should deliver returns in line with the current 8pc earnings growth forecast for the region.
"Careful stock picking remains critical and, once again, we have picked a number of stocks that we believe will outperform the market regardless of underlying conditions," the broker said in a report.
Other stocks Davy has set its sights on for 2016 include Aer Lingus owner IAG, Kerry Group, and Danone. Independent News & Media is among its small-cap top picks, along with Total Produce, Cairn Homes and Premier Foods.
"With 72pc of rooms in Ireland, Dalata is well positioned to capture upward activity in the economy," according to Davy. "With national Irish occupancy levels at 80pc (84pc in Dublin), Dalata is well positioned to drive room rates higher." Davy noted that 52pc of Dalata's rooms are located in Dublin and 20pc in the rest of Ireland, with the remainder in the UK.
At Ryanair, Davy said that rising passenger numbers provide additional opportunities.
"Ancillary revenue remains a significant opportunity, particularly given the passenger growth projections," the broker said. "The launch of the new website combined with the new customer-friendly strategy will open up new opportunities to expand revenue per passenger."
Davy also said that INM's balance sheet is in good health, with over €40m of net cash expected to be on the books by the end of 2015, increasing to €70m by the end of this year.
"We expect the group to generate free cash flow of over €27m in 2016, implying a free cash flow yield of 11.6pc.
"The strength of its balance sheet and cash flow will provide management with the ability to pursue acquisition targets and/or potentially look to return cash to shareholders," said Davy.
The broker also said that it expects IAG to announce this year the level of synergies it expects following its purchase of Aer Lingus last year.