Are SKY PLC, Computacenter plc & Ladbrokes PLC Must-Buy Stocks After Today’s Updates?

Roland Head looks at the latest figures from SKY PLC (LON:SKY), Computacenter plc (LON:CCC) and Ladbrokes PLC (LON:LAD).

| 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.

Shares in satellite broadcaster Sky (LSE: SKY) fell 4% this morning, despite the group reporting a 3.9% rise in customer numbers to 21.6m.

Revenue for the first nine months of the year was £8,715m, 5% higher than during the same period last year. Operating profit was 12% higher, at £1,143m. This gives Sky an operating profit margin of 13%. This is respectable, but it is significantly lower than BT (19%) and ITV (22%).

Sky was keen to emphasise new programming deals such as UEFA Euro 2016, but these are expensive. Sky’s net debt keeps rising and has now reached £6.3bn. According to today’s figures, free cash generation over the last nine months was £775m. However, £750m of this was used to fund the dividend, with the remainder going towards the acquisition of Sky Deutschland.

Sky’s earnings per share are expected to fall by 7% in 2016/17. I believe the group will also need to divert some cash from dividends to debt repayment at some point. With the shares trading on 17 times 2017 earnings, I’m staying away for now.

Rising takings in a tough market

Ladbrokes (LSE: LAD) said the Cheltenham festival had been “the worst in living memory” for bookmakers, but that otherwise the firm had had good luck with betting results during the first quarter.

Group net revenue rose by 10.6% during the first quarter, thanks to a modest 4% rise in UK retail revenue and a chunkier 36.5% increase in digital net revenue.

One of Ladbrokes 2017 targets is for the group to generate 30% of its revenue from online activity. The total at the end of 2014 was 18.6%, so today’s results suggest solid progress is being made.

Overall, I think that Ladbrokes is probably a reasonable buy at current levels. Although the shares are trading on 18 times 2016 forecast earnings, profits are expected to rise by 25% next year. Dividend payments are also recovering.

Is this the best stock in the FTSE 250?

Revenue rose by 2% to £730.2m at IT firm Computacenter (LSE: CCC) in Q1.

Computacenter builds and operates data centres and other IT infrastructure for its customers. The group’s main operations are in the UK, France and Germany. The UK accounts for nearly half of all sales, but is proving troublesome at the moment. Sales were down 4% to £348.5m during the first quarter. Sales were also lower in France, but strong growth in Germany — the group’s second-biggest market — helped offset this.

The firm said that overall it expects to make progress this year and should also end the year with “record levels of net funds”. This is why I like Computacenter so much — it generates a lot of cash.

At the start of last year, Computacenter returned £97.9m of surplus cash to shareholders, reducing its net cash balance to £26m. Since then, net cash has risen back to £102.5m and is presumably expected to be higher at the end of the year. Further returns of cash seem likely and the shares look affordable on 14 times cash-adjusted forecast earnings.

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 Sky. 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 »