All things being equal, slip in recruiter’s share price looks like buying opportunity

With debt falling and plans to grow the higher-margin consultancy arm, Russ Mould sees upside in Parity

A SLIDE in the share price of Parity may present risk-tolerant, smallcompany investors with a chance to take a stake in the consultancy and recruitment specialist after a trading statement earlier this month (July 17) showed that debt continues to fall as the firm repositions its business.

Alan Rommel, chief executive, said there had been good progress in the plan to grow the highermargin consultancy arm, which also provides better visibility when it comes to revenues. As a result, he expects first-half profits to grow at a double-digit rate against the same period a year ago, and believes that full-year earnings will match analysts’ forecasts.

Better still, management is sweating the balance sheet to wring cash out of it. Last year, net debt borrowings came down from £7.4m to £4.4m, and by the end of June this figure had reached just £2.3m. A pension deficit of £1.8m comes on top of those liabilities, but the lower the debt goes, the lower the risks presented by the stock and the higher its share price could potentially go. Parity trades on a forward-earnings multiple of less than 10 for 2017. In addition, Parity’s £10.3m market cap could start to look low, compared with its upwards of £90m in annual sales, if margins rise and profits start to advance smartly.

Questor says: Speculative buy Ticker: PTY

Share price at close: 10.125p

Update: Aggreko

Temporary power supply provider Aggreko has lost about a sixth of its value since our first look at the stock in January, but last week’s encouraging update from US peer United Rentals suggests this tumble is undeserved. Shares in its FTSE 100 rival Ashtead welcomed increased sales and profit guidance for 2017 from United Rentals, which targets the construction sector, although Aggreko’s merely shrugged.

It will, therefore, be interesting to see what Aggreko says at its interim results on Aug 2, especially as a trading statement from pumps group Weir earlier this month (July 17) flagged a pick-up in spending from the US oil and gas sector, an area where Aggreko is very strong. Sentiment towards Ashtead remains very bullish, whereas only three of 16 analysts are Ashtead buyers. It may, therefore, take relatively little to keep the market happy when

Aggreko reports, especially if it can reassure on its problems in Argentina. Questor says: Hold

Ticker: AGK

Share price at close: 863p

Update: Cineworld

Cinema group Cineworld is due to report interim results on Aug 10, and there is a chance they will not make for great viewing, given the hot summer and how a number of film releases have done poorly. A slip in Cineworld’s share price this spring should already reflect weak box office figures, and the FTSE 250 firm’s strong long-term competitive position in the UK and growth potential overseas mean it would be unwise to judge it on six months of trading.

Questor says: Buy

Ticker: CINE

Share price at close: 689p

Update: Game Digital

News that Mike Ashley’s Sports Direct has taken a 25.75pc stake in Game Digital has given shares in the video games retailer a lift, but investors should remain wary of thinking the company is out of the woods after last month’s dismal trading update.

Mr Ashley appears to be looking at the potential offered by sports gaming play and how this can tie into his retail operations. It will not have escaped his eye that Game Digital’s £45m market cap is below its £69m net cash pile, so the operating business is in effect thrown in for free.

However, a minimum in £73m in non-cancellable lease payments on the firm’s headquarters and stores mean that the financial picture is not as clear-cut as it may initially seem.

Mr Ashley’s other high-profile swoops for stakes in Findel, Debenhams and French Connection have done little to help their share prices (or operational performance) on a sustainable basis. We are loath to second-guess someone as shrewd as Mr Ashley but it is hard to see what can change Game Digital’s fortunes. Questor says: Avoid

Ticker: GMD

Share price at close: 27.25p

Russ Mould is investment director at AJ Bell, the stockbroker

Parity Buy Market cap of £10.3m on £90m annual sales may soon look low.