Can Last Week’s Winners Anglo American plc, Petrofac Limited & RSA Insurance Group plc Keep Rising?

Royston Wild runs the rule over Anglo American plc (LON: AAL), Petrofac Limited (LON: PFC) and RSA Insurance Group plc (LON: RSA).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I’m taking a look at the share price prospects of three recent FTSE chargers.

Insurer heading north

Financial play RSA Insurance (LSE: RSA) enjoyed a 7% share price uptick last week, taking the firm further away from the multi-year troughs punched earlier this month. And I believe further gains could be in the offing.

RSA Insurance was helped by positive financials last week that showed an operating profits leap of 43% in 2015 to £523m. And the insurer believes that it has “good prospects of substantial further performance improvement” thanks to its improved core focusing on the lucrative UK, Scandinavian and Canadian markets.

With RSA Insurance also ratcheting up its cost-saving targets last week, the City expects the business to enjoy a 47% earnings improvement in 2016 alone, resulting in a very decent P/E rating of 13.7 times. And a projected dividend of 14.8p per share — yielding a chunky 3.4% — should come as further incentive for value hunters to jump in.

Beware of false dawns!

The breakneck ascent of mining colossus Anglo American (LSE: AAL) in recent weeks is showing no signs of slowing. The share has seen its value ascend a whopping 62% from the start of February to last Friday, including a 3% advance during the course of last week.

But I remain convinced this stellar performance is built on sandy foundations. The London firm has a mammoth amount of short covering to thank for its eyewatering rise, while a tentative uptick in commodity values has fuelled speculation that the worst could be over across material markets.

Still, I’m convinced the recent stabilisation of resources prices is likely to prove a temporary phenomenon. Data from China continues to steadily disappoint, while producers across commodity sectors continue to swamp the market with new material in spite of insipid underlying demand.

The City expects Anglo American to subsequently suffer a 60% earnings fall in 2016, a fifth successive drop if realised. I believe a consequent P/E rating of 25 times is ridiculously expensive given the terrible state of major commodity markets.

Turning the corner?

Oil services provider Petrofac (LSE: PFC) also saw its share price detonate last week, although I believe the 21% explosion between last Monday and Friday represents nothing more than a flash in the pan.

Petrofac assuaged concerns over future revenues by announcing that its order backlog surged 10% last year to a record year-end level of $20.7bn. And Petrofac noted that “we see continuing investment from our clients in our core onshore markets of the Middle East and North Africa, in both key upstream and downstream projects.”

But an environment of low oil prices has prompted producers the world over to introduce further capital expenditure cutbacks for the years ahead, and extra reductions could be in the offing should crude continue to fall.

The City expects earnings at Petrofac to surge to 124 US cents per share in 2016, resulting in a P/E rating of 10 times. Many would argue that this represents fair value given that the troubles of the firm’s Laggan-Tormore gas project are now behind it. Still, I believe the worsening supply/demand balance washing over the oil market could push Petrofac’s share price significantly lower once again.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Petrofac. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »