Sunday share tips: Nichols and Gattaca

The Times’ Lucy Tobin has said that investors should consider investing in AIM-listed soft drinks group Nichols, on the back of its emerging-markets potential.

The stock is currently trading down 3% since the start of the year after the Vimto maker said that annual pre-tax profits would be flat to slightly higher than last year’s £25m.

But there are “bubbles of opportunity in Nichols’s stock”, Tobin said, referring to “buoyant demand overseas” with revenues in Africa and the Middle East up 26% and 17% in the first half of 2023, respectively, offsetting weakness in the UK.

Meanwhile, the company is undertaking “self-help work” in the review of its so-called ‘out of home business, which includes offerings like iced drinks at theme parks and cinemas, which should boost margins from 2024 onwards.

The balance sheet is also strong, Tobin said, with no debt and a cash pile of £56m, along with the company being a “reliable dividend payer”, with yields above 4%.

“With the shares changing hands at a price-to-earnings ratio of 16, it’s not in bargain basement territory, but the overseas growth opportunities look frothy. Buy,” Tobin said.

Over at the Mail on Sunday, the Midas column recommends taking a look at STEM-focused recruitment specialist Gattaca, with the UK economy suffering from a skills gap that could cost it £1.5bn a year.

Gattaca is currently midway through a turnaround programme under chief executive Matthew Wragg, who was appointed last year to deliver “much-needed change”, Midas said. According to the paper, the company had “lost its way” over the past decade, “making acquisitions, amassing debt and pursuing deals even if they were unprofitable”.

The turnaround is working, Midas said, with profits soaring last year while Gattaca reinstated its dividend and added another special dividend. Profits for the current fiscal year ending July 2024 are expected to rise a further 15%, and a higher dividend and special dividend are also on the cards.

“Further gains are likely in 2025 and beyond. Wragg is intent on sloughing off low-value contracts and focusing on more lucrative parts of the market where firms need specialist advice and support. Costs have been trimmed, the business has been streamlined and Wragg has been working hard to ensure employees feel motivated and part of the team,” the paper said.

With the stock now at just a whisper above its 2006 flotation price of 119p – trading at around 124p – Midas has marked the shares as a ‘buy’. “Sentiment has begun to change [...] and should continue to do so,” the paper said.