Today I am looking at the investment case for four of London’s largest movers.
PayPoint
Shares in payment collectors PayPoint (LSE: PAY) have carried on their bumper run of recent weeks and were recently changing hands 4.5% higher in Thursday trading. The business announced late last month that revenues rose 3% in the year concluding March 2015, to £218.5m, a result that drove pre-tax profit 7.7% higher to £49.6m. And with the firm doubling-down on its retail operations, I expect sales to surge higher on the back of galloping online shopping activity.
PayPoint is expected to record a 4% earnings advance for 2016, and a further 8% rise is pencilled in for the following year. Consequently a P/E ratio of 15.7 times for this year falls to 14.6 times for the following period, below the threshold of 15 times that indicates splendid value. On top of this, expected dividend hikes to 40.6p per share in 2015, and 43.7p for 2016, create market-busting yields of 4.3% and 4.6%.
Afren
I have long urged caution to those considering ploughing their cash in oil producers like Afren (LSE: AFR), with signs of a prolonged supply/demand imbalance threatening to drive crude prices through the floor again. Against this backcloth Afren alone was recently dealing 4.4% lower on Thursday, with investor optimism in the natural resources sector struck again after the OECD slashed its global growth forecasts for 2015, to 3.1% from 3.7% previously.
With pumpers across the US, Russia and the OPEC cartel of nations expected to maintain production at elevated levels during the next few years at least, questions continue to rise over how this excess material will be mopped up. And with Afren facing an ongoing battle just to keep its head above water as net debt rises — this climbed to $1.2bn as of March — and output for this year set to decline from 2014 levels, the odds look increasingly stacked against the firm.
Ladbrokes
Bookmaker Ladbrokes (LSE: LAD) has seen shares shoot higher since the start of April and the firm was recently 2.5% higher in today’s trading, with investor appetite no doubt boosted by the appointment of online head Jim Mullen in recent weeks. Although his expertise in internet gambling is a critical area looking ahead, much head-scratching is bound to persist over how to turn around its ailing High Street operations.
Consequently Ladbrokes is expected to record a third straight earnings decline in 2015, and a 39% dip is currently chalked in by the number crunchers. But a 16% rebound is anticipated for 2016, improving the P/E ratio from 17.4 times for the current year to a much-better 14.8 times. And although the bookie is expected to cut last year’s 8.9p per share dividend to around 7.2p this year and next, this still creates a blockbuster yield of 6%. But with much work still to be undertaken to turn around its ailing fortunes, I believe that Ladbrokes remains a risky bet.
easyJet
With demand for budget airline seats still taking off, I reckon easyJet (LSE: EZJ) is a terrific selection for those seeking solid earnings growth. And this promising trend was confirmed in Thursday trading after the Luton firm advised passenger numbers climbed 7.2% in May to almost 6.5 million, a result that drove shares in the carrier 1.2% higher.
Bubbly passenger activity is expected to drive earnings at easyJet 13% and 11% higher for the years concluding September 2015 and 2016 correspondingly, projections that create attractive P/E multiples of just 12.5 times and 11.3 times. And a strident bottom line is expected to light a fire under dividends for this period, with last year’s 45.4p-per-share payout expected to rise to 52.5p this year and 58.6p for 2016. Consequently the business sees a handy yield of 3.2% for 2015 leap to 3.6% for next year.
