HSS advised that it had identified a further £10m to £14m worth of savings as part of its ongoing cost-cutting drive, adding to the £13m of annualised savings the company has already found.

Today’s release also offered up plenty more titbits for investors to get their teeth into. The Manchester-based business has discovered “significant potential” to improve the profitability of its tool hire business “by focusing on profit opportunities in relation to customers, products and branches.”

And it said it has identified various ways to improve its commercial proposition, including targeted sales plans which will focus on “the most profitable opportunities and the prioritisation of local markets, with the group continuing to build on its digital competitive advantage.”

The small-cap hopes that these measures should underpin a massive improvement in performance by 2020. At the close of the decade, it expects revenue growth to match that of the broader market, and that rental revenue growth should exceed that of the market.

What’s more, the firm said that it is aiming for an EBITDA margin above 20% and EBITA margin above 9%, as well as leverage of less than three times, and return on assets above 20%.

Bouncing back

Today’s release underlines the promising start chief executive Steve Ashmore — who only took the reins in June — is getting off to.

Indeed, added to recent trading details released by the company, the business certainly appears to have wind in its sails. Rental revenues continue to stabilise, HSS advising in late November that underlying sales were flat year-on-year during July-September. And this marked a considerable improvement from recent months (revenues dropped 3.4% by comparison during the first half).

City analysts are predicting that it will see pre-tax losses narrow to £17.4m in 2017, an improvement from £14.2m the prior year. And in 2018 losses are expected to drop to ‘just’ £4.2m. While HSS has a long way to go to return to profitability, I believe the company could prove a sage pick for contrarian investors today.

A breath of fresh air

Porvair (LSE: PRV) is another stock with solid revenues momentum that you should check out today.

In its latest update in September the filtration specialist advised that, with revenues growth having remained around 8% in Q3, pre-tax profits were running ahead of expectations. With it also advising of “healthy” order books across the group, the stage looks set for Porvair to keep delivering meaty revenues expansion.

It has a strong record of earnings growth behind it, and City analysts are predicting a 9% advance in the year ending November 2018 to keep the run going. And for the current fiscal period, a further 3% advance is forecast.

This results in a forward P/E ratio of 23.4 times, a figure that sails above the widely-regarded value watermark of 15 times. But given the success of Porvair’s ongoing acquisition drive, not to mention the brilliant long-term revenues opportunities created by its revved-up organic investment programme, I reckon the business is worthy of such a tidy premium.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of Porvair. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Sadly, that wasn’t the case with Carillion (LSE: CLLN) after its share price slumped following July’s profit warning. While the support services provider and construction contractor might have looked like a tempting recovery prospect, the bad news continued and a further warning on 17 November created fresh panic.

The firm’s outlook had deteriorated further and it revealed it was set to breach its banking covenants unless it could delay the scheduled tests — prior to that, Carillion had told us it was forecast to be in compliance with those covenants at year-end in December.

Looking at its fundamentals now, with the share price down to 17p (which represents a 93% fall in 12 months), the P/E is crushed to almost nothing — although forecasts are not worth a lot right now, as the firm’s very existence is under threat.

Debt is the killer

Net debt stood at £571m at 30 June, almost double the £291m level a year previously. That’s the equivalent of more than three times last year’s underlying pre-tax profit, and that multiple should rise significantly based on this year’s results. Debt is now nearly five times the currently forecast pre-tax profit for December 2017, and I think even that could turn out to be optimistic.

And with the firm’s market cap at just £71m at the moment, it’s effectively owned many times over by its creditors.

Carillion is in a highly competitive industry, with relatively low margins and a slowdown in demand. I can’t see how it’s going to pull this one out of the fire.

A more attractive prospect

Negotiating its way out of a tricky debt situation is also a key strategy at HSS Hire Group (LSE: HSS) at the moment, with the tool and equipment hire company having suffered from a few tough years. And pre-tax losses are forecast for the next two years, albeit a relatively small one of £3.3m for 2018.

The share price has crumbled too, by 85% over the past five years to 29p, though it has ticked up today by 5% after the company released a third-quarter update — which did suggest things are finally turning round.

The firm’s services business appears to be the highlight at the moment, with a 12% rise in revenues, and Q3 profits were reported to be ahead of the first half, in line with management expectations. In fact, HSS has now recorded five successive months of EBITA profit.

Cost-saving measures are “fully implemented” and should result in annualised savings of around £13m, and HSS reckons its improvements in capital efficiency should lead to £4m-£6m in capital reduction year-on-year.

It’s debt again

The firm’s net external debt figure of £232m might cause a sharp intake of breath — it’s down from £240.4m at the same stage a year ago, but it’s still a big figure for a company with a market cap of £50m.

It’s a risky investment for sure, and the key will be debt renegotiation due next year. But with the company’s turnaround gathering strength, I’m less concerned about that than I am over Carillion’s situation. I seriously doubt the banks will pull the plug at  this stage — especially if we get closer to a forecast return to profit.

I’m cautiously optimistic.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Spotting a good growth stock that’s temporarily out of favour can give us an opportunity to buy into a strong story we missed the first time round.

A quality business

Shares of Jet2 holiday business owner Dart Group (LSE: DTG) rose by more than 5% today, after the company said underlying pre-tax profit for the year ending 31 March would be ahead of expectations. According to Dart, winter losses were lower than expected, boosting full-year results.

As a package holiday specialist, Jet2 makes all of its profit during the summer season. A loss during the winter is normal. However, Dart stock has fallen by 20% from an all-time high of 684p over the last year, due to concerns that the group’s earnings growth could stall.

That’s still a risk. The group has been investing heavily recently. It’s opened new operating bases at London Stansted and Birmingham airport and ordered a number of new aircraft. Capital expenditure rose by 33% to £80.1m during the first half of the current year, as payments were made on aircraft deliveries and upgraded facilities.

Dart’s 2016/17 earnings should beat current forecasts of 49p per share. But profits are still likely to be lower than they were in 2016 and a further fall is expected for 2018.

However, while capital expenditure is pushing down the group’s profits, sales are still rising fast. Revenue is expected to have risen by 20% to £1,681m last year, and similar sales growth is forecast for 2017/18.

I expect the group’s increased spending to support for medium-term profit growth. With the stock trading on a 2018 forecast P/E of 14, I believe now could be a good time to buy.

This stock is down for a reason

Equipment hire firm HSS Hire Group (LSE: HSS) is down by 7% at the time of writing, thanks to a very poor set of 2016 results.

Although sales rose by 9.6% to £342.4m, adjusted pre-tax profit was unchanged at £5.8m. This means that HSS’s profit margins were lower. In this case, the operating margin fell from 6.5% to 6.0%. No final dividend will be paid for last year, a decision that is inevitable given HSS Hire’s biggest problem — debt. In my view, shareholders should be much more concerned about this than about any change in sales or profit margins.

HSS Hire ended last year with net debt of £219.4m. To put this in context, the group’s property portfolio and its entire fleet of hire equipment were only worth £178m at the end of 2016.

I’d normally expect a business of this kind to finance 50%-75% of the value of its fixed assets. But this group’s assets are worth less than the debt used to buy them. That’s an unsustainable situation, in my opinion. HSS Hire’s balance sheet looks very strained to me and I believe the firm needs refinancing. Additional debt is not an option, so a big rights issue seems the most likely option.

I estimate that £50-£100m would be required to put the group on a sound footing. Given that HSS Hire’s market cap is just £106m, a fundraising of this size would cause major dilution for existing shareholders. In my view, HSS Hire is a strong sell.

The post Is this as good as it gets for these battered growth stocks? appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Recovery potential

Perhaps the most surprising aspect of today’s results is that full year pre-tax profit is in line with market expectations. While revenue declined by 3% and pre-tax profit was 12% lower at £221m, this was forecast prior to the company’s results release. Investor sentiment seems to have been hurt by the future prospects for the business in what remains a difficult operating environment.

For example, a low oil price affected a number of Aggreko’s markets, notably North America. This situation could continue in the short run, since the prospects for the oil industry remain uncertain. However, the company is attempting to turn its performance around. It is on track to implement cash savings across the group in excess of £100m, while it is also investing in new technology. Furthermore, a new customer relationship management system has been introduced as part of a broader digitisation and this could help to boost the company’s future financial performance.

Growth potential

In fact, Aggreko is expected to record a rise in its bottom line of 3% in the current year. This is forecast to be followed by growth of 9% next year. Therefore, while its performance in 2016 and in prior years was disappointing, it may offer capital growth potential if investor sentiment improves due to a turnaround in its financial performance.

In terms of the size of potential gains, Aggreko’s average price-to-earnings (P/E) ratio in the last four years has been 16.7. Today. It now trades on a P/E ratio of just 14.7. This means that if its rating reverts to its long-term average and it meets its forecasts for the next two years, the company’s shares could rise by as much as 24%. And with the long-term outlook for the oil industry being relatively positive, now could be a prudent time to buy a slice of the business.

Higher growth option

While Aggreko may have turnaround potential, sector peer HSS Hire (LSE: HSS) could be an even more enticing growth play. The hire company is forecast to record a rise in its bottom line of 85% in the current year, followed by growth of 58% next year. Despite such a high growth rate, it trades on a price-to-earnings growth (PEG) ratio of just 0.2. This indicates that there is significant upside potential on offer over the medium term.

Certainly, a potential slowdown in the UK economy could slow HSS Hire’s progress down somewhat. However, the prospects of Brexit-induced falls in the economic growth rate already appear to have been more than fully factored in to the company’s valuation.

So, while Aggreko could rise by 24% or more, HSS Hire could deliver vastly higher capital gains in the long run.

The post Is Aggreko plc a falling knife after dropping 10% today? appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Mothercare and HSS have both lost about 50% of their market value over the last 18 months. Is it time for investors to place bets on a recovery at each company, or do fundamental problems remain?

A tough challenge

Mothercare chief executive Mark Newton-Jones did his best to put a brave face on a poor set of interim results. He told investors that “the second half has started in line with our plans and the business is well prepared for the important peak season.”

According to today’s report, 60% of UK stores have now been refurbished, and the majority of unprofitable stores have been closed. The group’s internet presence has been upgraded and 40% of new business is now generated online, up from 36% last year.

It’s certainly true that the second half of the year — including Christmas — is critical for Mothercare. About 65% of annual profit is made during this period.

Mothercare’s underlying earnings rose by 3% to 3.4p per share during the first half of the year. On this basis it’s possible that full-year forecasts of 10.1p per share remain realistic. These put the stock on a forecast P/E of 11. Expected earnings growth of 18% next year means that Mothercare’s P/E multiple falls to 9.4 for 2017/18.

I’m sitting on the fence here. Although Mothercare’s sales do seem to be stabilising, the group is plunging back into debt as it upgrades its stores. The underlying loss at the UK business rose by 44% to £8.8m during the first half. My concern is that Mothercare’s decline has coincided with a weak period for the high street. Recovering from this could be tough. I believe there are better choices elsewhere in the retail sector.

This looks bad

Revenue rose by 10.9% to £256m at equipment firm HSS Hire Group, during the first nine months of this year. The company said operating profit before amortisation costs (EBITA) rose by 6% to £14.6m over the same period. This metric includes the effects of depreciation on HSS Hire’s rental equipment, so it’s a reasonable measure of cash profitability.

The group’s profit margins also seem to be recovering. HSS’s EBITA margin was 6% during the first nine months of last year. The equivalent figure for this year is 5.7%, but the company says that this has risen from 4.5% at the half-year mark.

Unfortunately, the firm’s turnaround plan is taking longer than expected. It will now extend into the first quarter of next year. Q4 trading is expected to be poor and management expects full-year EBITA to be below expectations.

That’s bad enough, but HSS Hire’s overwhelming problem is debt. The firm’s property and hire fleet were valued at £185m on 2 July, but the group’s net debt is now £240m. HSS is effectively in negative equity.

Because debt always takes priority over equity, my view is that HSS shares are worth very little at the moment. I suspect the company will be forced to raise cash from shareholders at some point, in order to reduce debt. I certainly won’t be investing in this turnaround story.

The post Will recovery plays Mothercare plc and HSS Hire Group plc come good in 2017? appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

So what went right? Speedy Hire’s sales increased by 13.4% in the first six months of the year as it continued to focus on improving its operational strength. It disposed of heavy plant as part of a major restructuring that has allowed it to focus on developing its core operations. Notably, it’s reduced its hire fleet by 10%, which has significantly improved its asset utilisation. And as a happy consequence of this improved performance, full-year results are now expected to be ahead of previous guidance.

Speedy Hire’s profit rise means that it has been able to raise dividends by 10% to 0.33p per share. Although this puts it on a dividend yield of only 1.9%, its earnings forecasts show that it could become a sound income play over the medium term. For example, it’s expected to grow its bottom line by 110% in the current financial year and by a further 45% next year. This means that its dividend could be covered 2.7 times next year, which indicates that higher shareholder payouts could be on their way.

Despite Speedy Hire’s bright outlook, its valuation remains low. It has a price-to-earnings growth (PEG) ratio of 0.3, which offers up a wide margin of safety in case its transformation programme stutters. However, there’s little evidence of that being likely from today’s update. Speedy Hire’s strategy is simple, straightforward and focuses resources on its most profitable areas.

What’s the alternative?

Of course, it’s not the only hire services company that could be worth buying. HSS Hire (LSE: HSS) is expected to report a rise in earnings of 57% this year and 41% next year. This puts it on the same PEG ratio as Speedy Hire of 0.3, while HSS has superior income prospects than Speedy Hire.

HSS Hire currently yields 1.4%, which is lower than Speedy Hire’s yield. However, HSS Hire’s dividends are due to be covered 5.3 times by profit next year. This provides it with greater scope to quickly raise dividends. For example, if HSS Hire paid out half of next year’s forecast earnings as a dividend, it would yield around 4.2%. Such a level of payout would be highly affordable and allow HSS to continue reinvesting for future growth.

Even though HSS offers a similarly wide margin of safety and a brighter income future, Speedy Hire is a strong buy at the present time. Its turnaround isn’t yet complete and while there’s a risk of disappointment in the short term from deteriorating operating conditions, Speedy Hire has a low enough valuation to continue to rise following today’s double-digit share price gains.

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Things have clicked for the ceramics manufacturer since those dark days and today’s upbeat interim results follow some impressive double-digit advances in earnings over the last few years.

Priced for growth?

For the six months to the end of June, revenue gained 12% over the equivalent period last year, operating profit and earnings per share both rose 30%, and the directors hiked the interim dividend by 12.5%.

The company retains some value characteristics, such as a £9.6m cash pile, zero borrowings and a still-manageable pension deficit, but the price-to-earnings (P/E) ratio now seems high. At the current share price around 807p, the forward P/E rating runs at just over 18 for 2017 and the forward dividend yield sits just under 2.7%.

Churchill China is now priced for growth, it seems, and the share price has certainly delivered for investors with a 367% uplift since 2009. City analysts following the firm expect earnings to rise 10% this year and 9% during 2017. In today’s statement, the directors confirmed the firm is on course to meet expectations.   

Shining in hospitality

The firm seems to be driving its best results in the area of hospitality — revenue and profits are growing as the company pushes into export markets. But trading in its retail operation remains challenging, which reminds me of the situation 11 years ago. However, tough control of costs and a shift away from licensed ranges to Churchill-branded products drove up margins and earnings despite a small decline in revenue.

The directors mentioned that Britain’s journey along the Brexit process brings further uncertainty and it’s worth remembering that there’s a large element of cyclicality fired into Churchill China’s business, so with forward earnings growth slowing, I’m cautious about the firm’s high-looking valuation.  

Hoping for a turnaround

Investors looking for a turnaround in the fortunes of tool and equipment hire firm HSS Hire Group (LSE: HSS) will see positives in today’s half-year report. Revenue is up 13.5% on the year-ago figure, adjusted earnings per share came in at 0.1p compared to a loss of 2.27p last year, and the directors held the interim dividend at 0.57p.

The firm’s business model had previously seemed to collapse in terms of its viability. Although the sector is cyclical, the problems appeared to be more about the way the firm executed its operations than about falling demand generally. But management is busy restructuring and changing the way the firm goes about its business, although that involves yet more investment. 

One unwelcome outcome is a rise in the company’s already-gargantuan net debt from around £218m at the end of 2015 to £238.7m today, a figure almost one-and-a-half times the level of half-year revenue. That could be why the share price has struggled to advance this year despite rosy City analysts’ forecasts for earnings. HSS Hire Group could reward investors well from here, but it’s risky.

The post Should you buy Churchill China plc or HSS Hire Group plc after today’s results? appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The company’s previous forecast was for an underlying trading profit of £50m in 2016. That figure is now expected to rise to “not less than £65m”. This progress is the result of a number of one-off contractual gains, plus certain cost savings running ahead of schedule.

In my view today’s news confirms the growing momentum of Serco’s turnaround. However, the firm’s revenues have fallen by 38% since peaking at £4.6bn in 2011. It’s also not clear whether profit margins will ever return to historic levels.

Serco shares currently trade on a 2017 forecast P/E of 47 and offer no yield. It’s clear to me that chief executive Rupert Soames needs to deliver both sales growth and higher profit margins to justify further share price gains.

It’s a big challenge, but today’s figures suggest to me that Mr Soames may succeed. In my view Serco remains a long-term buy.

Will more cash be needed?

Shares in equipment hire firm HSS Hire Group (LSE: HSS) fell by more than 5% this morning, despite the firm’s assurances that first-quarter trading was in line with expectations.

I suspect that investors selling the shares this morning are concerned about the group’s debt situation. The firm announced the appointment of a new chief financial officer today, alongside news that its net debt rose from £218m to £234m over the last three months.

Based on the firm’s 2015 results, this means that HSS’s net debt is worth more than the £183m value of its property, plant and equipment. The firm’s net debt of £234m is also nearly 20 times this year’s forecast profit of £12m.

These figures suggest to me that HSS could find it difficult to repay or refinance its borrowings. A rights issue or placing to make the firm’s debt more sustainable is a definite risk, in my opinion.

For this reason I don’t think HSS is an attractive buy at the moment. The shares could have further to fall.

Could this one double?

Mining royalty firm Anglo Pacific Group (LSE: APF) buys stakes in other company’s mines in exchange for a slice of future revenues. The firm’s business has been hit hard by the mining downturn, but I believe Anglo Pacific’s fortunes could soon start to improve.

The company said today that first-quarter trading was in line with expectations and that royalty income was expected to rise sharply during the second half of this year, as it did last year.

Prices for two of Anglo’s main commodities, coking coal and vanadium pentoxide, are starting to recover. The firm also believes its royalty deal with uranium miner Berkeley Energia could be worth $10m more than its recorded value, based on a recent deal between Berkeley and another party.

The big question is whether Anglo’s earnings will recover fast enough to allow the firm to maintain its planned 6p per share dividend. This currently provides a forecast yield of 8.2%. A yield this high is always risky, but even if the payout is cut I think Anglo Pacific could do well from here.

The post Are Serco Group plc, HSS Hire Group plc and Anglo Pacific Group plc today’s top turnaround buys? appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of Anglo Pacific. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Market day

Shares in direct marketing specialist 4Imprint Group (LSE: FOUR) have continued to climb to fresh record highs in recent days. And this comes as little surprise to me as organic growth is exploding — the company has seen revenues and orders leap 15% in the first four months of the year.

With huge infrastructure expansion also bolstering the firm’s sales outlook, the City expects earnings at 4Imprint to gallop 27% higher in 2016. And an extra 13% advance is forecast for next year.

Consequently a slightly-toppy P/E rating of 20.6 times for the current period slips to a much-improved 18.6 times for 2017. And I expect the multiple to keep on toppling looking ahead.

Tool up

Tool hire specialist HSS Hire Group (LSE: HSS) has ploughed vast sums into expanding its branch network and hoovering up specialist businesses to bolster its revenues outlook. And these measures are clearly paying off handsomely as HSS printed sales growth of 10% during 2015, outstripping the rental market average of 1.5% by some distance.

The number crunchers expect earnings at HSS to more than double in the current year, resulting in a P/E rating of 17.6 times. And the multiple falls to just 10.6% for 2017 thanks to an anticipated 58% bottom-line improvement.

And a sub-1 PEG reading of 0.2 through to the close of next year underlines HSS’s splendid value for money.

Build bumper returns

I’m convinced Britain’s chronic housing shortage should keep propelling earnings higher at MJ Gleeson (LSE: GLE).

MJ Gleeson saw revenues surge 52.1% during July-December, to £64.8m, helped by solid demand for affordable housing. And the firm plans to expand its geographical reach to help drive the top line still higher.

The City expects MJ Gleeson to enjoy earnings rises of 19% and 11% in the periods to June 2016 and 2017, respectively, resulting in very-decent P/E readings of 13.3 times and 12 times.

And like HSS, PEG readings of 0.7 times for this year and 1.1 times for 2017 at MJ Gleeson indicate unmissable bang for your buck.

Hostel hero

Online hostel-booking specialist Hostelworld Group (LSE: HSW) is in the box seat to enjoy strong revenues expansion, in my opinion, as demand for cheap beds across the globe takes off. Indeed, the company saw bookings leap 21% between July and December last year, and rising success in emerging regions promises to send sales still higher.

Earnings at Hostelworld are set to rise 7% in 2016, according to recent broker forecasts, and an additional 10% advance is chalked-in for 2017.

These figures leave Hostelworld dealing on P/E ratings of just 15.7 times and 13.7 times for these years. I reckon this represents stellar value given the firm’s strong position in a fast-growing sector.

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Learning that a company’s performance is in line with management’s expectations is always a comforting outcome, and the market seems to like it because, at around 82p as I write, the shares are up about 3.5% today.

Trending up

The share price has been elevating since late November, and with good reason. Performance is on track and the firm’s valuation seems modest. City analysts following the firm expect earnings to balloon by 168% during 2016 and the forward price-to-earnings (P/E) rating sits at 12 or so. Meanwhile, the forward dividend yield runs at 2.3%, and those anticipated earnings look set to cover the payout a healthy 3.5 times.

When it comes to equipment hire firms, I worry about the inherent cyclicality of their businesses. However, HSS Hire Group reckons it enjoys a distinctive and differentiated market position by concentrating on the less cyclical ‘maintain and operate’ segments of the tool and equipment hire market, which is an activity that tends to carry on regardless of the economic weather.

The firm explains that the ‘maintain’ segment refers to customer activities such as refurbishments, improvements and repairs, while the ‘operate’ segment of the market includes facilities management, transportation and cleaning. That contrasts with the more cyclical activity of providing large plant and heavy machinery geared to construction activities in the ‘new build’ segment. So, my reading is that HSS Hire Group leaves much of the large plant hire to others in the industry.

That could be a strategy that helps propel the firm ahead of alternative investments such as J Sainsbury (LSE: SBRY) in the coming year and beyond.

Big change ahead

Despite my enthusiasm for HSS Hire Group I don’t think J Sainsbury will be a pushover in this contest. Yesterday’s news from the supermarket is that the firm has agreed key financial terms for its possible offer for Argos brand owner Home Retail Group.

Takeover proposals tend to be more enthusiastically received by shareholders of the company being acquired than the acquirer, and indeed Home Retail Group’s shares are up more than 50% since J Sainsbury first pitched its takeover proposal, while Sainsbury’s share price is flat. However, the deal looks good for Sainsbury to my eyes, and I hope it goes ahead, which now seems likely.

With the supermarket sector in such a fragile state, I reckon the stock market will want proof that Sainsbury can extract the synergies, cost savings and sales increases it hopes to from the combined operation, before and if the shares are re-rated. There could be a significant ‘digestion’ period as Sainsbury rearranges the combined store estate and hones its forward strategy before profits start to rise. So, for the time being, my bet is that HSS Hire Group will be the best performer on total shareholder returns in the year ahead.

The post Why HSS Hire Group PLC Looks Set To Beat J Sainsbury plc appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.