Could Optimal Payments Plc, Tullow Oil plc & International Consolidated Airlns Grp SA Help You Retire Early?

Roland Head takes a look at whether now is the right time to buy Optimal Payments Plc (LON:OPAY), Tullow Oil (LON:TLW) and International Consolidated Airlns Grp SA (LON:IAG).

| 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.

One of the secrets behind the wealth of many well-known investors is that  they had one or two really big successes early in their investing careers.

In this article I’ll ask whether Optimal Payments (LSE: OPAY), Tullow Oil (LSE: TLW) or International Consolidated Airlines Group (LSE: IAG) could deliver the kind of big gains required to help fund an early retirement.

Optimal Payments

Sales at online payment processor Optimal Payments have risen by an average of 42% every year since 2009. The firm’s shares are worth 500% more than five years ago. However, Optimal’s stock market performance has become more uncertain this year.

Personally, I think it’s probably too late to hope for more multi-bagging gains from Optimal. Although the firm has a good record of generating free cash flow, the recent acquisition of Skrill has left Optimal with €500m of debt. That’s more than five times this year’s forecast post-tax profits of $93m.

I also suspect that Optimal’s profit margins will come under increased pressure from peers such as Apple Pay over the next few years.

Optimal shares currently trade on a 2015 forecast P/E of 18, falling to 13 in 2016. That’s not cheap enough to be a buy, in my view.

International Consolidated Airlines Group

British Airways owner IAG has had a storming year. The airline group’s shares are 42% higher than 12 months ago. Sales for the first nine months of the year are 13% higher than in 2014.

The shares are still tempting, too. IAG stock currently trades on a 2015 forecast P/E of about 11. The latest forecasts suggest earnings per share could rise by a further 28% in 2016, giving a 2016 forecast P/E of just 9.

Does this make IAG a strong buy? Perhaps. Ownership of three major European airlines means that IAG benefits from economies of scale and good access to attractive routes. Current low oil prices should mean that the group can lock in low fuel prices for several more years.

On the other hand, the airline business is cyclical. IAG’s gearing is now 49% and adjusted net debt is €7.1bn. While growth appears to be strong at the moment, any downturn could put severe pressure on IAG’s profits.

IAG could well deliver more gains for investors, but at nearly 600p I don’t think the shares are an outright bargain.

Tullow Oil

Tullow’s 52% plunge over the past year has seen the oil exploration and production firm ejected from the FTSE 100. Tullow shares are now worth 85% less than when they peaked at 1,566p in February 2012.

Does this make Tullow cheap? Not necessarily. Tullow’s valuation needs to be looked at in the context of its sizeable debt burden. At the end of June, Tullow’s net debt had risen to $3.6bn (£2.3bn). That’s significantly more than the firm’s £1.8bn market cap.

Tullow won’t run out of cash. The group recently renewed its credit facilities and has $2.1bn in cash and undrawn credit facilities. The problem is that low oil prices mean this debt, which is being used to fund the TEN project, will take longer to repay than expected.

I’m not convinced that there will be much spare cash flow available to return to shareholders for the next few years. Tullow remains a risky buy, in my view.

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.

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Tullow Oil. 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

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 »

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

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »