Thursday newspaper share tips: Stagecoach, Bunzl

Stagecoach shares are cheap but the company is facing challenges which investors should keep in mind, the Financial Times´s Lex column said.

First and foremost, the UK transport group needs to decide how much to bid for South West Trains.

That commuter rail franchise, which will come up for renewal next year, accounts for a significant slice of the rail division´s £2.1bn in sales.

However, South West Train´s sales are very sensitive to economic activity in the capital - which has now become gloomier - although the franchise terms do offer compensation in the case of sharp falls in London´s GDP or levels of employment.

This is especially important because the company´s thin margins leave little room for error. It is already being impacted by slower-than-expected revenue growth along the east coast inter-city line, as cheaper oil has made driving a more competitive alternative.

On the plus side, free-cash-flow is healthy and trading on a single-digit price-to-earnings multiple the stock is cheap. It also offers a yield of ver 4%.

Even so, transport operators underperformed the wider market during the last downturn, the tipster added.

"It is hard to believe they will perform any better if there is another," Lex said.

There is something to be said for dullness and Bunzl is a case in point, The Times´s Tempus said.

In particular, the manufacturer of packaging products for various sectors is well-versed in the art of gobbling-up similarly dull competitors.

For example, it recently acquired a distributor of cleaning and hygiene supplies in Belgium and a UK maker of bags and boxes for fashion.

Critically, it derives 60% of sales from the States and only 15% from the UK.

Materials price inflation in the US is becoming less of a worry, but Britain may be hit by margin erosion as imported materials become more expensive.

Nevertheless, that is missing "the bigger picture", Tempus said.

Be that as it may, changing hands on 22 times´ earnings the stock is trading at an all-time high, so it "might be time to take a limited amount of profits though the upward trend will continue in the long term," Tempus concluded.