Friday newspaper share tips: Shoppers avoid Poundland, investors advised to do the same

The lack of retail foot traffic has hit Poundland shares, and The Times’ Tempus doesn’t think it’s worth jumping in and snapping up a discount.

The retailer, including the newly acquired 99p Stores, said on Thursday it experienced strong sales growth across its operations for the 13 weeks ended 27 December 2015, with total sales for the quarter growing 29.4%.

"However, the trading conditions that we experienced in November continued through the third quarter, with high street customer numbers down year-on-year and this has impacted sales growth," said Poundland chief executive Jim McCarthy.

He indicated the retailer was still expecting pre-tax profit for the full year to be towards the lower end of market expectations, between £39.8m and £45.8m.

Questor highlighted the retailer’s key problem - people don’t set out to venture to Poundland, but will pop in to pick up some supplies while they’re passing by.

With fewer shoppers on the street between Halloween and Christmas, that hit the discount retailer.

“Retailers can blame the weather all they like, but the high street is in long-term decline because of the internet,” the column said on Friday.

Tempus also said that Poundland.co.uk isn’t exactly going to be a destination for online shoppers either.

But it said there is another side to the coin.

“The investment counter-story is that the doom-mongers should just wait and see what will happen to profits when the dismal 99p Stores outlets — bought last year — are transformed into the more upmarket offering of Poundland.”

With shares heading towards the price that’s in the name following the profit warning and a 5% fall in like-for-like sales, Tempus advised to ‘avoid’ the shares.

“The question for investors is would you want to catch this falling knife (even if they are just a pound for a pack of four)?”

In The Telegraph, Questor followed suit from RBC Capital Markets, rating aviation company BAE Systems at ‘buy’.

RBC Capital Markets upgraded it from ‘outperform’ to ‘top pick’ on Thursday, and raised the target price from 570p to 630p.

The investment bank said in a note on Wednesday that it thinks the tide has turned for US defence spending.

“We think investors continue to underestimate the fact that this is BAE's largest end market (~40% of sales), and that its portfolio is well placed to benefit in both shorter cycle (eg USN maintenance) and later cycle (eg F-35, AMPV, ACV) areas of US DoD spending.”

It also believed that investors were overly concerned about the defence spending outlook for Saudi Arabia – concerns it believed were unfounded.

Questor noted a lot had happened since it last rated the stock in August, with BAE announcing it was cutting the production rate of its Typhoon fighter, giving it more time to find buyers.

On top of that, it highlighted revenue from the US defence area may increase as budgets are eased.

With a strong performance and a P/E ratio of 13.4, the column said the stock is trading at a discount compared to its peers.

“There’s still more value to be had at the current price, so Questor retains a buy, but is preparing to hold.”