6 newcomers race into Citywire Top Stocks

Cruise ship operator Carnival (CCL.L), retailer Debenhams (DEB.L) and power station owner Drax Group (DRX.L) all make their Citywire Top Stocks debut this month.

Joining them are Legal & General (LGEN.L), Lloyds Banking Group (LLOY.L) and Pearson (PSON.L), which have also all previously featured in the rankings.

Citywire Top Stocks tracks the top 10 holdings of five leading UK fund managers, whose funds feature in Citywire Selection’s list of investment recommendations.

It has been a busy month for Richard Buxton, manager of the Schroder UK Alpha Plus fund, who added four new holdings to the top ten positions in his portfolio.

The latest figures are a snapshot of the funds’ top holdings at the end of June and the new entrants are in order of the ‘conviction’ displayed by the fund manager.

Next: Debenhams

Key stats
Market capitalisation	£1,203m
No. of shares out	1,271m
No. of shares floating	1,159m
No. of common shareholders	not stated
No. of employees	8735
Trading volume (10 day avg.)	3m
Turnover	£2,210m
Profit before tax	£117m
Earnings per share	9.11p
Cashflow per share	16.26p
Cash per share	2.25p

*Correct as at 6 Aug 2012

Debenhams (DEB.L)

Debenhams makes its Citywire Top Stocks debut through its top 10 place in Richard Buxton’s Schroder UK Alpha Plus fund this month.

Shares in the country's second biggest department store group have soared nearly 60% this year. In a recent trading statement it revealed like-for-like sales had risen 3% in the four months to the end of June, much better than expected. Analysts at JP Morgan named the FTSE 250 company as well placed to benefit from an early UK recovery, citing the stock’s cheapness and online strategy as two reasons to invest in the stock.

Figures from Reuters show Debenhams shares trade at 10 times estimates for next year's earnings and on a dividend yield of 3.3%.

Debenhams was established in London in 1778 and has 165 stores in the UK, Ireland and 68 overseas. It returned to the stock market in 2006 at 195p per share after two-and-a-half years as a private company.

Next: Drax Group

Key stats
Market capitalisation	£1,762m
No. of shares out	365m
No. of shares floating	364m
No. of common shareholders	not stated
No. of employees	1150
Trading volume (10 day avg.)	3m
Turnover	£1,836m
Profit before tax	£465m
Earnings per share	126.42p
Cashflow per share	141.99p
Cash per share	63.81p

*Correct as at 6 Aug 2012

Drax Group (DRX.L)

Drax Group makes it first ever appearance in Citywire Top Stocks, also as part of Richard Buxton’s Schroder UK Alpha Plus fund.

The group owns the Drax Power Station, a coal-fired plant in North Yorkshire, which generates about 7% of the UK’s power. Plans are underway to build a biomass power station at the site and develop further plants in Hull and Immingham.

The stock, also a favourite of Citywire's Smart Investor, has been a long-term holding in Buxton’s fund. Although the shares have fallen 11% this year the allocation of carbon credits and the development of new biomass plants could lead to a recovery.

Drax Group shares trade at 9.7 times forecasts for next year's earnings, with a forward dividend yield of 5.1%, according to Reuters.

Dominic Nash, analyst at Liberum Capital, recently retained a ‘buy’ status on the stock with a target price of 600p.

Nash added: ‘We think investor education from Drax is a key catalyst in the coming months. After the free carbon allocation trough in 2014, we see earnings more than doubling by the end of the decade.’

Next: Legal & General

Key stats
Market capitalisation	£7,673m
No. of shares out	5,873m
No. of shares floating	5,708m
No. of common shareholders	not stated
No. of employees	8058
Trading volume (10 day avg.)	15m
Turnover	£18,317m
Profit before tax	£726m
Earnings per share	12.25p
Cashflow per share	12.86p
Cash per share	240.34p

*Correct as at 6 Aug 2012

Legal & General (LGEN.L)

It has been a busy month for Richard Buxton as Legal & General is another change in the top holdings of his Schroder UK Alpha Plus fund.

The investment group makes a reappearance having previously featured in Buxton’s top holdings in in April and May, exiting in June.

Legal & General’s share price has continued to recover following the 2008 financial crisis, adding over 28% so far this year. Half-year results published today show progress continuing with operating profits of £518 million beating analysts' forecasts and an interim dividend of 1.96p per share, up 18% on a year ago.

Before the results a Reuters survey of analysts put the shares on a forward price-to-earnings (P/E) ratio of 9.2, with a forecast dividend yield of 5.6%.

James Pearce, analyst at UBS, raised his target price on the stock from 120p to 130p with a ‘buy’ rating.

Pearce added: ‘We have tried our best to be sceptical about the turnaround since 2009. However, the facts support the narrative of improved balance sheet strength, and sustainable cashflow increases driven by stable margins on growing assets under management.’

Next: Pearson

Key stats
Market capitalisation	£10,098m
No. of shares out	816m
No. of shares floating	797m
No. of common shareholders	not stated
No. of employees	41521
Trading volume (10 day avg.)	3m
Turnover	£5,862m
Profit before tax	£957m
Earnings per share	119.34p
Cashflow per share	151.27p
Cash per share	172.04p

*Correct as at 6 Aug 2012

Pearson (PSON.L)

Education publisher Pearson is making a comeback in Nigel Thomas’ AXA Framlington UK Select Opportunities fund after dropping out in February following a straight run in its top 10 since last July.

Shares in the owner of the Financial Times have inched ahead 2.3% so far this year, as its adjusted operating profit slumped 10% to £188 million in the first six months of 2012.

Following the group’s interim results Gareth Davies, analyst at Numis Securities, said: ‘Pearson reported interim results which, at a group level, were in line with our and consensus forecasts. However, within this the reduction in underlying profits at Penguin (-44%) and Professional (-75%) though previously flagged, were more extreme than we had expected.

‘We retain our view that Pearson remains a core holding in the sector, and that its consistent investment has enhanced its relative position in a marketplace which is both fast-changing structurally, and experiencing cyclical challenges.’

Pearson shares trade at 14.5 times forecast earnings for next year with a dividend yield of 3.6%, according to Reuters data.

Next: Carnival

Key stats
Market capitalisation	£17,140m
No. of shares out	779m
No. of shares floating	572m
No. of common shareholders	not stated
No. of employees	9800
Trading volume (10 day avg.)	1m
Turnover	10,097m USD
Profit before tax	1,222m USD
Earnings per share	1.55 USD
Cashflow per share	2.78 USD
Cash per share	0.37 USD

*Correct as at 6 Aug 2012

Carnival (CCL.L)

Cruise ship and holiday group Carnival makes it first ever appearance in Citywire Top Stocks as part of Richard Buxton’s Schroder UK Alpha Plus fund.

Its shares tumbled 18% in January when the Costa Concordia, owned by a subsidiary of Carnival, ran aground off the coast of the Italian island of Isola del Giglio.

The shipwreck killed 32 people and the group announced it expected to lose $95 million (£62 million) in 2012 earnings as a result. However, the shares have bounced back to add 10.8% in the past three months.

The owner of P&O and main competitor to Royal Caribbean cruises believes it has seen out the worst of the Concordia disaster and is now taking on the challenging environment in Europe, as business is steady in Alaska, the Caribbean and growing rapidly in Asia.

Wyn Ellis, analyst at Numis Securities, said: ‘Its net revenue yields are down slightly excluding Costa Concordia, and down 3-4% including Costa Concordia. This compared with prior guidance of down 2-4% including Costa Concordia. The primary reason for the change was European yields; post the Concordia incident Carnival has had to discount prices by 20% or more at Costa.’

Data from Reuters shows the shares trading at over 18 times analysts' forecasts for earnings next year with a forward dividend yield of 2.9%.

Next: Lloyds Banking Group

Key stats
Market capitalisation	£21,550m
No. of shares out	70,424m
No. of shares floating	42,560m
No. of common shareholders	not stated
No. of employees	120449
Trading volume (10 day avg.)	136m
Turnover	£26,316m
Profit before tax	£-2,787m
Earnings per share	-4.07p
Cashflow per share	-0.90p
Cash per share	88.25p

*Correct as at 6 Aug 2012

Lloyds (LLOY.L)

Lloyds Banking Group makes a reappearance in Edward Legget’s Standard Life Investments UK Equity Unconstrained fund, having featured briefly in his top holdings earlier this year in March, October and November last year.

The bank recently declared an unexpected £439 million loss in the first six months of the year, as it set aside an additional £700 million to compensate customers who had been mis-sold payment protection insurance (PPI).

But Lloyds share price has bounced back nearly 20% this year as a growing number of City analysts believe the bank, which is 39% owned by the state after its bailout in 2009, may be past the worst.

Last month Frederik Thomasen, analyst at Goldman Sachs, predicted the bank’s share price could more than double in the coming year.

Thomasen said: ‘Lloyds Banking Group is well placed to mitigate UK regulatory reform and generate attractive steady-state returns, on our analysis.

‘Our unchanged 12-month price target of 60p implies 101% potential upside, among the highest in the sector. Our ‘buy’ rating is unchanged and the stock remains on the conviction list.’

According to Reuters, the shares trade on 13.5 times analysts' forecast earnings for next year with no yield as the bank does not currently pay a dividend.

The return of Lloyds lifts Citywire Top Stocks weighting to financials by 4.7% to 12.75%.