Shares in chemicals company Elementis (LSE: ELM) have fallen by as much as 8% today after a disappointing trading update. The key takeaway for investors is that profit for the full year is now expected to be at the bottom end of previous guidance as a result of challenging trading conditions.
Despite this, Elementis still anticipates that its year-end cash balance will be higher than the prior year’s balance as a result of the impressive cash-generative nature of the business.
Looking ahead, Elementis expects its specialty products divisions to make progress versus the current year, with new product launches and diverse market positions being of major benefit to its future prospects. Furthermore, the company’s chromium operation is set to benefit from its North American business model, where Elementis’ unique delivery systems promote strong customer loyalty. However, with a stronger US dollar, export sales from the US could remain under pressure.
Even after today’s share price fall, Elementis still trades on a price-to-earnings (P/E) ratio of 15.5. This is relatively high and with the company’s bottom line set to rise by a rather modest 3% next year, its share price could come under further pressure over the coming months.
Sound move
Meanwhile, Santander (LSE: BNC) appears to offer excellent value for money at the present time. It trades on a P/E ratio of only 9.8 and this indicates that an upward rerating is very much on the cards.
Like Elementis, it’s facing challenging trading conditions at the present time, with its diverse geographical spread not being enough to spare it from the disappointing economic outlook for Brazil. As a result, Santander’s earnings forecasts have gradually fallen so that it’s now expected to increase its net profit by just 5% next year.
While lower than the wider market’s typical growth rate, Santander could still become a relatively appealing stock for investors next year since it offers a strong balance sheet, very well-covered dividend and exposure to a sector that continues to mount a strong recovery from the depths of the credit crisis. Therefore, buying Santander now seems to be a sound move.
Low risk
For less risk-averse investors, buying Premier Oil (LSE: PMO) could also be a logical move. Certainly, asset impairments are a real threat to the company (and its sector) as the oil price moves lower and the economic value of assets declines. However, with Premier Oil trading on a price-to-book value (P/B) of 0.35, the market appears to have priced-in substantial falls to the company’s net asset base.
Looking ahead, Premier Oil’s near-term future is rather bleak, with a tumbling oil price seeming likely to continue. However, in the long run the company offers a relatively appealing asset base and a low valuation. In 2016, it also offers a forecast pre-tax profit of £35m that has the potential to lift investor sentiment and push the company’s share price northwards.
