Is A Bounce On The Cards For Thomas Cook Group plc, Royal Mail plc, Rentokil Initial plc & FirstGroup plc?

Thomas Cook Group plc (LON:TCG) , Royal Mail plc (LON:RMG), Rentokil Initial plc (LON:RTO) and FirstGroup plc (LON:FGP) should be on the radar, argues Alessandro Pasetti.

| 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.

I have kept a close eye on FirstGroup (LSE: FGP)Rentokil (LSE: RTO)Royal Mail (LSE: RMG) and Thomas Cook (LSE: TCG) since 29 May, when I first noted that the shares of these four companies were among the cheapest in the UK. It’s been a roller-coaster ride for their shareholders, but is the tide turning?

Barring FirstGroup stock, whose performance has been poor all along the way, the shares of Rentokil, Royal Mail and Thomas Cook have bounced back in recent days.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

So, is it time to jump on the bandwagon?

Thomas Cook: Where’s Fair Value? 

Tthomas-cook-logohe FTSE 100 index has lost 3% of value from its highs at the end of May. 

Thomas Cook shares are down 25% since 29 May. But they have risen by 8.6% in the last five days of trading, for no apparent reason. What’s next?

Thomas Cook has the backing of its lenders, which won’t pull the plug if things get more complicated. There’s a lot to like in it. I reiterate the view that larger disposals should be pursued at a time growth in the sector is problematic.

I think Thomas Cook shares would be fairly priced at 160p, where they traded at the end of May. That implies upside in the region of 27%. But as I said a few weeks ago, much of Thomas Cook’s fortunes hinge on how the broader market performs, rather than on fundamentals.

RentokilRentokil: Easy Does It

Rentokil shares are up 4.2% since 29 May, but investors who decided to bet on Rentokil at the end of June — when the stock traded at a three-month low — have recorded a paper gain of 11%. They are up 3.4% in the last five days of trading. 

Rentokil is a turnaround story that may yield dividends if acquisitions were made to bulk up in the right places, and at the right take-out multiples. Divestments are likely, and will help Rentokil release value for shareholders.

I wouldn’t be surprised if Rentokil continued to beat market expectations, reporting better earnings per share in the next few quarters. Its valuation suggests a 5% to 10% upside to the end of the year.

Royal Mail: A Long-Term Value Play?

royal mailSince 8 August, Royal Mail shares have risen by 7.4%, but they are still down 14.8% since 29 May.

The shares trade at 441p, or about 30% above the price of 330p at IPO. They are still about 15p below the highest level they recorded during their first day of trading. It’s hard to figure out where Royal Mail’s valuation will go, but Royal Mail is a much more efficient and profitable business than in previous years.

Its trading multiples suggest further upside to the end of the year and into 2015. The threat posed by rivals in the parcel-delivery market is real, but Royal Mail’s cash flow profile is reassuring, debts are manageable, and profitability could surprise on the upside.

Elsewhere, FirstGroup shares are down 14% since 29 May, and are trading around their lows for the year. Shares of most companies operating in the sector have rallied beyond fair value in the first half of 2014, and will struggle in weeks ahead if volatility makes a comeback. In this context, FirstGroup is the less obvious choice, although I still believe it could offer value if consolidation in the sector speeds up.

More on Investing Articles

Woman looking at a jar of pennies
Investing Articles

I think the JD Sports share price is a bargain. Here’s why

Our writer explains why the JD Sports share price has led him to buy more for his portfolio.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is this tech stock one of the best shares to buy now?

Jabran Khan is on the hunt for the best shares to buy now for his holdings and takes a closer…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

3 top FTSE 250 shares to buy right now

I think the FTSE 250 is offering some great dividend and growth shares at the moment. And there are plenty…

Read more »

Happy retired couple on a yacht
Investing Articles

This growth stock has seen its shares pull back! Should I buy now?

When a growth stock sees its share price drop, I look carefully to see if I could pick up a…

Read more »

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

How to identify the best income shares like this one

Income shares vary in quality but this approach keeps me from making some of the worst howlers with dividend investing.

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

If I’d invested £1k in Tesla shares a year ago, here’s how much I’d have now

If Jon Smith had bought Tesla shares a year ago, he'd be in profit. But he has some concerns for…

Read more »

Twenty pound notes in back pocket of jeans
Investing Articles

Should I buy tobacco shares now for big dividends?

After a possible setback for electronic cigarettes, our writer explains why he would still buy tobacco shares for his income…

Read more »

a couple embrace in front of their new home
Investing Articles

3 FTSE shares I’m buying with the Help to Build scheme!

Last week, the government launched a new, Help to Build scheme. So, here are three FTSE shares that could benefit…

Read more »