Why I Would Buy RSA Insurance Group plc And Supergroup PLC And Sell Serco Group plc

Royston Wild runs the rule over RSA Insurance Group plc (LON: RSA), Supergroup PLC (LON: SGP) and Serco Group plc (LON: SRP).

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Today I am looking at three of the movers and shakers in Monday business.

RSA Insurance Group

Shares in RSA Insurance Group (LSE: RSA) have enjoyed a poor start to the week and were recently 3.5% lower on the day. Still, I believe that investor sentiment is set to pick up as extensive restructuring and massive disposals allows it to concentrate on its key markets of UK and Ireland, Scandinavia, Canada and the growth regions of Latin America.

City brokers expect the company to bounce from an expected 33% earnings dip in 2014 — results for which are due on Friday, February 27 — and post strong growth in the coming years. Indeed, expansion to the tune of 54% and 10% is pencilled in for 2015 and 2016 respectively.

As a consequence RSA Insurance deals on a P/E multiple of just 12.5 times prospective earnings for this year and 11.4 times for 2016 — any reading below 15 times is widely considered thumping value for money.

And the insurance giant is also a great value pick for dividend hunters, with projected payments of 16.9p per share in 2015 and 22.2p per share next year creating mammoth yields of 3.7% and 4.9%.

Supergroup

Unlike RSA Insurance, fashion house Supergroup (LSE: SGP) has enjoyed a solid bump in Monday trading and was last trading 4% higher. Investor sentiment has been boosted by January’s bubbly trading statement, which revealed a terrific 12.4% like-for-like sales improvement and which was driven primarily by record levels of web traffic.

Needless to say the firm’s terrific performance in e-commerce, combined with aggressive acquisition activity in Western Europe, bodes well for long-term earnings growth.

The company is expected to see bottom line expansion decelerate in the year concluding April 2015, however, and a 1% advance marks a rapid slowdown from growth in the mid-20s punched in the past two years. But Supergroup is expected to see the bottom line ignite again from next year, with improvements of 15% in fiscal 2016 and 10% next year currently forecasted.

Consequently the clothes emporium’s P/E multiple of 17.5 times for this year slips to just 14.9 times and 13.7 times for 2016 and 2017 correspondingly.

Serco Group

To say that Serco Group (LSE: SRP) has endured a torrid 12 months would be something of a massive understatement. The share price has haemorrhaged more than half of its value since the turn of 2014, and although shares are currently 6.4% higher in Monday’s session, I believe that traders can expect the business to resume its downtrend in the near future.

The business advised in November’s worrisome update that the impact of contract write-downs and trading difficulties had forced it to slash its profit forecasts for both last year and this, as well as forcing it into a £550m rights issue.

Serco is expected to announce its third successive year of earnings declines in 2014 when it reports in March, and a 56% drop is currently anticipated by City brokers. And the picture is not expected to improve any time soon, with drops of 41% and 8% chalked in for this year and next. As a result Serco changes hands on hugely-unappealing P/E ratings of 22.1 times for 2016 and 25.2 times for 2016.

Serco still has to complete its strategic review, under which it plans to become a pure ‘business-to-government’ company covering the justice and immigration, defence, transport, citizen services and healthcare sectors. I believe the firm still has plenty of strenuous work to complete before it can be considered an attractive stock proposition.

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 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.

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