Ian Pierce: B&M

Data is telling us that domestic consumer confidence is shot and traditional brick and mortar retailers are going the way of landline telephones, but that isn’t stopping me from backing discounter B&M (LSE: BME) in 2018 and beyond.

With enticingly low prices on brand name foodstuff and off-brand goods, B&M is growing rapidly by opening new outlets (from its current 522 it sees room for 950 in the UK) and increasing like-for-like sales (up a full 7.5% in H1 2018).

Add in expansion prospects for its Jawoll brand in Germany and Heron Foods in the UK, attractive EBITDA margins of 8.6% and a great management team and I see plenty to love. 

Ian Pierce does not own shares of B&M.

Roland Head: Centrica

I believe utility and energy group Centrica (LSE: CNA) is one of the top turnaround opportunities for 2018. In my view, the risk of tougher regulation is probably overstated. Despite falling customer numbers, I expect British Gas to retain its status as the UK’s largest energy supplier.

A second attraction is that Centrica should be well positioned to benefit from rising oil prices, through its stake in the Spirit Energy joint venture. Management have indicated their support for the the 8% dividend yield and earnings are expected to return to growth this year. The shares look cheap to me at current levels.

Roland Head owns shares of Centrica.

Edward Sheldon: Legal & General Group

My top stock for 2018 is Legal & General (LSE: LGEN). Here’s why:

The company released an upbeat trading statement in December, stating that it was seeing “great momentum” across all its businesses and that it remains “strategically well placed to deliver strong, attractive growth and returns” in its core markets.

Yet this momentum does not seem to be reflected in the valuation. On a P/E ratio of just 10.8, the shares look cheap. Furthermore, the insurer’s dividend prospects look extremely enticing. A payout of 15.2p per share is expected for FY2017, a yield of 5.6% at the current share price.

The shares have been range bound for several years now, while the dividend has been increased significantly. For this reason, I believe it’s only a matter of time until they move higher.

Edward Sheldon owns shares in Legal & General Group.

Kevin Godbold: Just Eat

I’ve previously owned up to being nervous about the high valuation the market is placing on Just Eat (LSE: JE), the global marketplace provider for online food delivery. However, I’ve since realised that home-delivered takeaway food is a way of life for many, and that trend looks set to fuel the firm’s profit growth figures in 2018 and beyond.

The recent move to the FTSE 100 and the company’s imminent takeover of competitor Hungryhouse encourage me to believe that the stock will do well this year, even with a forward P/E ratio running above 30. Meanwhile, City analysts expect earnings to grow around 41% during 2018, which looks like robust ongoing growth.

Kevin Godbold does not own shares in Just Eat.

G A Chester: Polymetal International

I’m generally keen on gold mining stocks for 2018, as I see geopolitical tensions and other catalysts for investors to seek the relative safety of gold. I’d buy mid-cap Polymetal International (LSE: POLY) as a good risk-reward compromise between FTSE 100 giant Randgold Resources and speculative junior miners.

The company is well established in the Russian Federation, having been founded in 1998. It’s forecast to increase earnings by 18% this year, giving an undemanding P/E of 11 and an attractive PEG ratio of 0.6 (the PEG ‘fair value’ marker being one). There’s also a generous prospective dividend yield of 4.6%.

G A Chester has no position in Polymetal International or Randgold Resources.

Bilaal Mohamed: Porvair

My top stock for 2018 is specialist filtration and environmental technologies group Porvair (LSE: PRV). The Norfolk-based company develops, designs, and manufactures specialist filtration and separation equipment, serving a range of market segments including aviation, energy and industrial process, laboratory supplies and molten metals.

Porvair’s strong track record of growth means the shares don’t come cheap at 24 times current year earnings, perhaps  reflecting the market’s bullish long-term view on the stock. Nevertheless, I believe a buying opportunity has presented itself after a strong share price correction in recent months. I reckon this high-growth stock could be set for spectacular returns in 2018, and beyond.

Bilaal has no position in Porvair.

Paul Summers: Ramsdens Holdings

At the risk of sounding like a stuck record, my top pick for 2018 is a stock I praised quite a bit in 2017: pawnbroker, jewellery retailer and currency specialist Ramsdens Holdings (LSE: RFX).

November’s hugely encouraging interim numbers showed “continued strong growth” in its various divisions. Revenue rose 18% to £21.8m with pre-tax profit soaring 63% to £5.2m.

Beyond recent results, I also see Ramsdens as a defensive play in a rather expensive market. Trading on just 12 times earnings, the stock is still attractively priced and comes with a 3.3% yield.  Should Bitcoin crash and investors seek the relative safety of assets like gold, I can see the company having another solid year.

Paul Summers owns shares in Ramsdens Holdings 

Peter Stephens: Randgold Resources Limited

This year may prove to be a more difficult year for share prices. Global political risks remain high, which is why buying a gold miner such as Randgold Resources (LSE: RRS) could be a shrewd move. It could offer defensive characteristics if investors flock to perceived safer assets such as gold, while also offering high growth potential.

For example, Randgold is forecast to record a rise in earnings of 24% this year, and yet it has a PEG ratio of just 1. A dividend yield of 2.9% is growing rapidly thanks to the company’s strong net cash position, and this could prove useful if inflation moves higher.

Peter Stephens owns shares in Randgold Resources

Rupert Hargreaves: RPC Group 

2017 turned out to be a mixed year for RPC Group (LSE: RPC). For the six months to September, adjusted operating profit grew 58% with adjusted earnings up 27%. However, despite this growth, investors are worried about RPC’s rising debt. Net debt has more than doubled to £1.1bn in the past two years.

These concerns have sent shares in RPC down 20% over the past 12 months but I believe that this decline is overdone. RPC is highly cash generative with free cash flow in the first half of £170m, giving management plenty of headroom to reduce debt. What’s more, recent declines mean that the stock is now trading at a forward P/E of only 12.3, below the five-year average of 13.4.

Rupert does not own shares in RPC Group.

Royston Wild: Taylor Wimpey

Share prices across the housebuilding sector boomed in 2017 as predictions of a collapse in property values failed to materialise. Taylor Wimpey (LSE: TW), for instance, saw its market value jump 34% last year.

And I expect the Footsie firm to keep on thriving. Amid a lack of adequate housing supply, and buoyant buyer appetite being supported by favourable mortgage rates and government initiatives like stamp duty cuts and Help to Buy, there remains little reason to expect sales at Taylor Wimpey to slow down.

Earnings at the Footsie business are predicted to rise 10% in 2018, creating a bargain forward P/E ratio of 9.8 times. And with the business also carrying a monster dividend yield of 7.3%, the stage is set for the share to remain well-bought this year.

Royston Wild owns shares in Taylor Wimpey.

Specifically, today Providence revealed that the Drombeg prospect, the second and final target in its exploration plan, has been found to be water bearing, following a similarly disappointing result for the well’s Druid exploration prospect. Following these findings, the well will now be being plugged and abandoned.

However, despite these disappointing results, management remains upbeat about the future. “Frontier exploration requires perseverance and we look forward to seeing the outcome of exploration wells planned for acreage proximate to FEL 2/14, which will test plays similar to Diablo and to those which have proved to be successful in the conjugate Flemish Pass Basin, offshore Canada,” CEO Tony O’Reilly said in a statement alongside today’s update. 

Further, according to O’Reilly, as the company had farmed out around half of its exposure to these prospects, it remains “well funded for our forward drilling operations offshore Ireland.” The next target is the Barryroe oil field where Providence is the operator of the prospect with an 80% share. 

Disappointing news 

Today’s news from Providence is disappointing for shareholders, but it’s not the end of the line for the oil minnow. Oil & gas exploration is a high risk, high reward business, where companies with the most diversified portfolios usually come out on top. Providence’s management realises this and has sought to reduce risk by acquiring other exploration licences. 

The company’s Barryroe prospect has seen it recently being granted a two-year extension to its existing exploration licence by the Minister for Communications, Climate Action & Environment of Ireland. Providence is in discussion with a number of parties regarding farm-out agreements for Barryroe to help push the exploration programme forward and achieve first oil. But as with all projects like this, it’s almost impossible to put a time frame on when the company will achieve first oil from Barryroe. 

Time is running out 

After the two latest drilling failures, it looks as if Providence might need to sign a farm out for Barryroe as soon as possible. At the end of 2016, the firm reported a cash balance of €31m (£28m), after raising £53m in June. For the year, the company accumulated losses of €20.5m. 

While it is true that Providence owns an attractive set of assets, which could prove to be lucrative for the firm, exploration activities are expensive, and without cash to keep the lights on, Providence might struggle to unlock value. 

Is it time to catch this falling knife today? For risk-averse investors the answer looks to be a firm ‘no’ as Providence is still in its early stages and there’s plenty more that could go wrong for the company before it’s able to generate revenue. On the other hand, high-risk investors might be attracted to the firm’s portfolio of assets offshore Ireland, some of which might yet yield results. 

It stated that the company’s offshore Ireland operations have continued to progress. The well penetrating the Paleocene Druid prospect within the pre-drill depth prognosis was safely drilled to its section target depth. However, preliminary analysis indicates that the Druid prospect comprises a porous water-bearing reservoir. This means that the company will now press ahead with an assessment of the deeper Lower Cretaceous Drombeg exploration target. It is situated around 2km beneath Druid, and has a resource potential of around 2m barrels of oil versus Druid’s 3m.

Looking ahead

Clearly, Providence Resources faces a more difficult future after its update. Investors are likely to remain disappointed with the company’s progress regarding the Druid prospect in the short run. This means that there could be further share price falls ahead. That’s particularly the case if its update regarding the Drombeg prospect fails to be positive.

Of course, oil and gas exploration companies such as Providence Resources are by their very nature highly volatile and risky entities. Their share price performance is largely dependent on news flow and the success of their drilling operations. In some cases, this can lead to significant share price growth. However, negative news tends to be received extremely poorly by investors due to smaller exploration companies lacking the diversity of their larger peers.

Sector appeal

Despite today’s share price fall, Providence Resources is still down only 12% in the last year. This is a relatively positive performance compared to some of its sector peers. Clearly, the outlook for the industry is challenging, and a low oil price may remain in the short run.

In the long run though, exploration companies such as Providence Resources and Rockhopper (LSE: RKH) could deliver improved performance. Both stocks could benefit from a rising oil price, with demand from the emerging world in particular expected to increase. At the same time, a reduction in global supply from OPEC and non-OPEC countries may lead to a fall in the supply surplus which has been present in recent years. This may lead to higher industry-wide profits and higher valuations.

Stock potential

Of course, Providence Resources and Rockhopper remain lossmaking at the present time. In the case of Rockhopper though, it has built a range of assets in numerous territories which means that its asset base may be less risky than those of some of its sector peers. Furthermore, its production volumes could increase in future and allow it to directly benefit in a potentially higher-oil-price environment.

With both stocks being relatively small, they are of a high-risk nature. Therefore, they may remain highly volatile in future and may only be worthy of consideration alongside larger, more financially stable, sector peers within a portfolio. However, with high potential rewards, they could be worthy of a closer look for less risk-averse investors.

Three of today’s biggest fallers are banknote printer De La Rue (LSE: DLAR), iodine producer Iofina (LSE: IOF) and Irish oiler Providence Resources (LSE: PVR).

De La Rue

De La Rue’s shares fell by 9% to 500p on Wednesday morning, after the firm cut its dividend by 41% to 25p. The firm’s reported profits fell by 35% to £38.9m last year, while underlying earnings per share dropped 25% to 45.3p.

The problem seems to be that intense competition is driving down profit margins on bank note printing. De La Rue managed to achieve a 5% increase in print volumes last year, but only through “a tactical approach” to pricing. In other words, the firm lowered its prices to win more business.

However, today’s fall could mark the low point for De La Rue. It’s possible that the firm’s new chief executive, Martin Sutherland, is keen to get the bad news out of the way as quickly as possible.

What’s more, the firm’s shares now look quite reasonably priced. Based on today’s results, De La Rue is trading on an underlying P/E of 11.0 and a dividend yield of 5%. A rebound is possible.

Providence Resources

Irish oil explorer Providence struck it lucky with the Barryroe discovery in 2012, which has a mean oil-in-place estimate of around 1.8 billion barrels.

The problem is that Providence has been unable to secure a farm-out deal to finance the development of Barryroe.

Providence shares fell by another 9% this morning, after the firm admitted that it was still no closer to its goal. Although a provisional deal was agreed in February, it was dependent on the unidentified partner securing financing. This still hasn’t happened.

Providence shares have now fallen from a peak of almost 700p to just 25p. On the face of it, the shares offer value, but this company could also be a value trap.

At today’s oil price, Barryroe isn’t as attractive as it used to be. The firm has $24m of debt due for repayment over the next 12 months, and cash is tight, despite raising $28m through a placing earlier this year.

Providence shares are effectively a gamble on a farm-out deal. The firm has already failed to deliver for the last three years. I’d stay clear.

Iofina

Shares in iodine producer Iofina fell this morning, despite the firm reporting record revenue of $25.9m for 2014. One problem was that the firm also reported a record loss of $6.6m.

According to Iofina, iodine prices fell sharply last year. This meant that while Iofina’s production rose by 92% to 327.7 tonnes, revenue only rose by 35%. Iofina ended last year with just $7.0m in cash and $18.8m of debt, of which $15m is due for repayment in May 2017.

In today’s results, the firm said that earnings before interest, tax, depreciation and amortisation (EBITDA) were positive during the first quarter of 2015. However, it’s not clear to me whether this will translate into an operating profit, unless iodine prices improve.

The problems experienced by Iofina and Providence highlight how small commodity stocks can be the victims of market circumstances, even with good assets.