Should you scoop up these post-Brexit bargains or stay away?

Bilaal Mohamed looks at two very different firms suffering big post-Brexit declines. Have they been oversold, or is the future really bleak?

| 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’ll be taking a closer look at two companies that have suffered huge share price declines since the UK voted to leave the European Union. Is the outlook for these two FTSE 100 giants as bleak as their valuations suggest, or have they been oversold in the post-Brexit panic?

Crash-landing for easyJet

Low-cost airline easyJet (LSE: EZJ) has been one of the biggest casualties of the blue chip index since last month’s referendum. The budget airline saw its share price fall to 12-month lows following the 23 June vote along with others in the travel sector. And if the shock of Brexit wasn’t enough to put a dent in investor confidence, last week’s disappointing third quarter update will surely leave the market feeling uneasy about the company’s prospects.

Late last week, the Luton-based carrier released a trading statement for the three months to the end of June revealing a 2.6% fall in revenue compared to the same period in 2015. Total revenue for the quarter fell to £1.2bn, with revenue per seat also registering a 7.7% decline to £54.54. The firm blamed the poor numbers on a series of external events resulting in a high number of flight cancellations. Worries over Brexit will no doubt affect consumer spending, but the terrorist attacks in Brussels, bad weather and air traffic control strikes are all external factors that even the best-run airlines can do little to control.

But it wasn’t all bad news for easyJet, as the airline announced a 5.8% increase in passenger numbers to 20.2m, driven by an increase in capacity of 5.5% to 21.9m seats, with the load factor up by 0.3 percentage points to 92%. Recent events in Nice and Turkey will no doubt have a further negative impact on consumer confidence, but the company has a strong cash position, solid balance sheet and flexible fleet plan. The shares have fallen 40% over the past year and now support a 5.4% yield for this year, and 5.9% for fiscal 2017. With the shares trading on just eight times forecast earnings, I think easyJet represents a decent long-term recovery play for contrarians, with the added bonus of a healthy dividend.

Bargain electricals

Another Brexit casualty has been electrical and telecoms retailer Dixons Carphone (LSE: DC). Worries over the impact on consumer spending of a weaker UK economy led to a sharp fall in the share price immediately after the results of the EU referendum were announced. The shares plunged to lows of around 280p in the days following the Brexit vote, and despite a subsequent bounce, are still trading at a significant discount to the New Year’s Eve high of 500p.

Market consensus suggests that earnings should continue to grow over the medium term, albeit at a slower pace than originally anticipated due to weaker consumer confidence. In my view the shares look undervalued at eleven times forecast earnings for this year, falling to 10 times for the year to August 2018. Bargain hunters may view this as a good time to buy a slice of one of Europe’s largest electrical retailers.

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.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »