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One turbulent stock I’d buy and one I’d sell

License: CC0 Public Domain

Another day of turbulence over at Sepura (LSE: SEPU) on Friday following fresh financing the news.

But this time investors have cause to cheer, the stock last 8% higher on the day and above Thursday’s record closing price of 12.5p per share.

Sepura announced that it had ground out an agreement with its lenders to defer covenant tests initially scheduled for today until May 15. The radio builder added that an option exists to extend this deadline until the end of May if required.

Chinese puzzle

Shares in Sepura have continued to shake as uncertainty over the proposed takeover by China’s Hytera Communications persists. Earlier this week Sepura announced that the UK Department for Business, Energy & Industrial Strategy is considering launching a review of the proposed acquisition.

The Cambridge-based techie noted that “the Department has sought representations from Sepura on this possibility which Sepura will be providing expeditiously,” and added that “Sepura continues to evaluate the potential process and implications of such a review if implemented.”

Sepura had advised earlier this week that the takeover does not need to be approved by German competition authorities “as… Sepura’s turnover in Germany for the financial year ending 31 March 2017 will be below the relevant turnover threshold for the acquisition to constitute a notifiable transaction.”

However, Sepura is still awaiting sign-off on the deal from the National Markets and Competition Commission in Spain, it said.

For the time being, I reckon risk-averse investors should give Sepura short shrift. Allied to the possibility that the tie-up with Hytera could hit the buffers, weak market conditions (revenues tanked to €43.3m during April-September from €92.9m a year earlier) and consequent fears over debt negotiations in the months ahead also hang heavy.

A great dip buy

I have no such concern over the long-term health of Dignity (LSE: DTY), even if an initially-scary full-year trading statement this month has sent the share price sharply south. The funeral director has dived 14% since the update of March 8.

Dignity advised this month that revenues grew 3% during 2016, to £313.6m, while profit before tax by a similar percentage to £71.2m.

While the business advised that “the number of deaths has been higher in 2016 than the Group originally anticipated following a significant increase in the number of deaths in 2015,” investors scarpered after Dignity added that “historical data would suggest that deaths in 2017 could be significantly lower than 2015 and 2016.”

I would consider the sharp sell-off to be a gross overreaction, however, particularly as Dignity noted that “trading in the first few weeks of 2017 has… continued to be strong.”

Meanwhile, current City projections suggest now could be the time for eagle-eyed investors to pile in.

Anticipated earnings rises of 5% and 8% in 2017 and 2018 respectively result in P/E ratios of 19.1 times and 17.6 times, great value in my opinion given Dignity’s position as one of the best defensive stocks out there, not to mention the great growth potential offered by ongoing acquisition activity.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.