14 stocks to own if we vote 'remain'

In just a couple of days, Britain will go to the polls to vote on its membership in the European Union. After 'leave' took a commanding lead, there's been a dramatic swing back to 'remain' which is inching ahead in the polls - even David Beckham is on board.

The markets are certainly happier: billions were pumped into stocks on Monday and sterling enjoyed its biggest leap since 2008.

The reaction of the markets no matter the result is prescriptive. If we vote to remain, recent gains will continue - broker Panmure Gordon is betting on a 3-5 per cent bounce in UK equities.

While the 'remain' camp's return to the top is reassuring, this is still a close-run thing. Not only are we in uncharted territory - which gives analysts limited predictive power over voting behaviour, unlike during general elections - but one cannot rule out an incident in the next 48 hours to swing sentiment back in favour of 'leave'.

BREMAIN BOUNCE

Still, Panmure thinks 'remain' will win it. 'The last few days of campaigning are set to see momentum stay with 'remain' and we expect sterling and UK equities to continue to take back some of the ground lost during early June,' said the broker's head of research Barrie Cornes.

As uncertainty has pulled down stock valuations across the City, the broker has put together a list of those it believes are poised to bounce if the UK votes Bremain.

Among them are the auto group Vertu Motors, building supplies firm Travis Perkins and the Schroder UK Mid-Cap Fund. Retailer Pets at Home, explorer Pantheon Resources and media giant Daily Mail and General Trust also make the list.

Below are the eight other companies with the potential to bounce most, according to Panmure.

AB Dynamics

Share price: 421p

Target Price: 500p

Providing the testing for research and development in the global motor industry, AB Dynamics is in line for annual profit growth of 20 per cent a year as Apple and Google continue to muscle in on the industry with their vision for driverless cars.

'Economies are not driven by the majority, but a minority that play by different rules. It would appear that the key issue facing automakers today is whether to build cars in the UK or Poland. It is not,' explains analyst Sanjay Jha.

'The elephant in the room is the advance towards the autonomous car, which is allowing new entrants to come and play in their backyard.'

Recent weakness in the run up to Thursday's vote leaves AB down 16 per cent from May's all-time high of over 500p, which is exactly what Jha thinks the group is worth - this gives them 19 per cent upside.

The analyst has pencilled in sales of £20.5 million in the 2016 financial year, with profit of £4.8 million, giving earnings per share (EPS) of 22.5p. AB trades on 19 times forward earnings, but this looks justified with earnings growth of over 20 per cent for the next two years.

Brewin Dolphin

Share price: 251p

Target Price: 320p

Before the recent recovery in Brewin Dolphin's share price, uncertainty had knocked nearly a quarter off the asset manager's share price to 230p, a three-year low.

While earnings forecasts had been trimmed 4.4 per cent from 17p to 16.3p for the 2016 financial year, the stock has de-rated by nearly 20 per cent to 13.5 times and underperformed its sector, which is down just 13 per cent.

'We maintain our belief in management's ability to manage the transition from a relationship-led model to a scalable technology platform and that the current low expectations means there is the opportunity for both EPS estimate upgrades and multiple expansion,' explains analyst Donald Trait.

He reckons the shares are worth 27 per cent more at 320p.

CareTech

Share price: 230p

Target Price: 730p

Residential housing group CareTech should recover from its recent sell-off no matter Thursday's result, with accelerating growth, 3.5 per cent yield and shrinking gearing underpinning Panmure Gordon's 380p target price.

Down 10 per cent from its 255p high in April, fears over property prices and staffing have put pressure on the shares.

Recent interims proved strong underlying cash profit growth and improvement in margins through improved staff retention. A stronger balance sheet also supported organic and acquisitive growth and now Panmure is expecting annual earnings growth of 8 per cent compounded.

'Even in the event of Brexit, the company remains a strong defensive play,' says analyst Julie Simmonds.

'CareTech continues to trade at a significant discount to peers (7.3 times earnings before interest, tax, depreciation and amortisation [EBITDA], 6.4 times price/earnings multiple versus 9.8 times and 15.2 times for the peer group) we see the potential for a re-rating, whatever the outcome on Thursday.'

Inspired Energy

Share price: 12.6p

Target Price: 19p

Dealing in energy procurement for commercial and industrial clients, Inspired showed growing momentum in March's prelims when it announced a surprise dividend hike three times larger than Panmure expected.

Still, the company has underperformed over the last quarter and the shares now trade on just 10.6 times forward earnings.

Both of its divisions have performed well: a 40 per cent jump in its corporate business is nearly all organic, given the timings of recent acquisitions, and its small and medium-sized enterprises arm achieved record sales.

Analyst Michael Donnelly reckons the shares are worth 50 per cent more at 19p.

Marshalls

Share price: 298p

Target Price: 370p

Although sales have slowed at Marshalls, it's still executing positive momentum alongside margin expansion. Derating 25 per cent from its July 2015 peak, the shares have slipped 10 per cent year-to-date.

With a robust order book, Panmure is forecasting 3.6 per cent sales growth in 2016, which will reach 5 per cent in 2017.

Supported by operational efficiencies and gearing, higher margins should underpin pre-tax profit growth of 24 per cent in 2016 and nearly 10 per cent in 2017.

'The rating has fallen from 21.4 times (September 2015) to 15.1 times today, we believe the rating has fallen far enough and the stock will enjoy a post-referendum bounce,' said analyst Adrian Kearsey. He reckons the shares are worth 370p, which offers 24 per cent upside.

Merlin Entertainment

Share price: 427p

Target Price: 515p

Relying heavily on international tourism and with exposure to foreign exchange headwinds and large investment requirements, market nerves around Merlin Entertainment are understandable.

Even though the group has a three-year earnings profile of 13 per cent compound annual growth rate, the shares now trade on nearly 19 times forward earnings after slipping 10 per cent, with an enterprise value (EV)/EBITDA multiple of 11 times.

'Merlin offers low-risk structural growth in a global industry with high barriers to entry,' explains analyst Anna Barnfather.

'Its global footprint and strong multi segment brands give multiple levers to drive double digit earnings growth over the long term.' Offering 21 per cent upside, she believes the shares are worth 515p.

Micro Focus

Share price: 1,571p

Target Price: 2,034p

Micro Focus is on the cusp of a double-headed rally, initially to be triggered by a vote to remain in Europe. With a global business, the removal of this uncertainty should push shares in the IT company to 1,650p.

But it's already said revenue will be in the top end of its guided range when it releases its results on 14 July. Panmure has pencilled in $1.2 billion (£815 million) revenue, underlying adjusted cash profit of at least $530 million and net debt of $1.1 billion.

This should push the shares closer to their 2,034p target.

'Ahead of this double header rally the shares enjoy strong valuation support namely: EV/EBITDA [of] 12 times, a sector discount, and free cash flow yield [of] 6.9 per cent.'

St James's Place

Share price: 877p

Target Price: 1,146p

A 'remain' vote will lift the lid on the price of most financial shares, but Panmure analyst Barrie Cornes is confident St James's Place (SJP) will lead any recovery.

'Whilst we could have chosen almost any of the insurers to bounce on a stay vote many of which have dividend yields north of 6 per cent, we think that it is SJP that will rally fastest within the sector,' said Cornes.

Granted, there was a slowdown in sales in the second quarter, but the broker reckons this is down to clients 'sitting on their hands' ahead of the vote.

Trading at a small premium to its 810p embedded value, Cornes has a 1,146p target price on the stock, which offers 30 per cent upside.

This article was written for our sister website Interactive Investor.

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