Saturday 21 October 2017

Ryanair and Smurfit Kappa among firms 'poised for share gains'

Ryanair boss Michael O'Leary vowed to appeal any final decision that it will have to reduce its stake in Aer Lingus
Ryanair boss Michael O'Leary vowed to appeal any final decision that it will have to reduce its stake in Aer Lingus
John Mulligan

John Mulligan

Shares in Irish firms including Ryanair, Smurfit Kappa and United Drug are among those likely to generate returns stronger than those of peers during the remainder of 2013, according to Davy Stockbrokers.

The firm has pinpointed eight firms whose shares it thinks are poised for gains in the next six months better than those likely to be generated in their respective sectors.

Davy Stockbrokers also listed food companies Greencore and Aryzta among its top picks.

Exploration firm Tullow Oil, British Airways and Iberia-owner IAG and France-based construction materials giant Saint-Gobain are also among Davy's picks.

Davy said the eight stocks had an ability to grow revenue and profits regardless of the underlying macro-economic environment. The companies also demonstrate strong cash generation and balance sheets that could fund shareholder return-enhancing activities such as dividends, share buybacks and accretive acquisitions. They had supportive valuation metrics, noted Davy.

With Ryanair, Davy said that while its return to growth strategy had been rewarded with some re-rating in its share valuation, the improvement did not fully reflect the potential for growth in the business over the next five years.

At IAG, whose chief executive is Willie Walsh, Davy argues that while the restructuring of British Airways has been largely completed, the benefits from both Iberia and Vueling (which IAG now controls) "have yet to be fully realised".

The broker also noted that packaging firm Smurfit Kappa continued to trade at a 25pc valuation discount to its peers, which it did not believe was justified.

"In addition to a dominant market position in Europe, Smurfit Kappa also has an attractive business in Latin America, particularly in its recent acquisition in Mexico – the value of which we do not believe is captured in the share price," it said.

With United Drug, Davy described the firm as a "high-quality play" on supply chain and commercial services outsourcing in the healthcare industry.

Davy said Greencore, headed by Patrick Coveney, had transformed its business in recent years through the disposal of low-return divisions and active participation in the consolidation of the UK food manufacturing sector.

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