Today I am running the rule over three of Friday’s major headline makers.
Halfords Group
Bike and car specialists Halfords (LSE: HFD) cheered the market yet again in end-of-week trading, and the business was recently up 1% following another bubbly trading update. Shares have ascended more than 8% during the past month and with good reason — the Redditch firm advised today that terrific cycle demand blasted revenues above £1bn for the first time for the year concluding March, a result that pushed pre-tax profits 11.3% higher to £83.8m.
With Halfords successfully cottoning onto Britain’s cycling renaissance, and sales of its car-related accessories and services also rising steadily, the City expects the company to follow 2015’s 18% earnings uptick with rises of 2% and 8% in 2016 and 2017 correspondingly. These numbers leave the company dealing on attractive P/E multiples of 13.9 times and 13 times for these years — a reading below 15 times is widely considered exceptional value.
And the number crunchers expect Halfords to keep delivering terrific dividend rises following 2015’s 15.4% hike, to 16.5p. Indeed, rewards of 17.2p and 18.6p are pencilled in for 2015 and 2016 respectively, creating chunky yields of 3.6% and 3.9%.
Anglo American
Mining colossus Anglo American (LSE: AAL) has been boosted by a recent jump in iron ore prices, as well as news of surging metal sales to India — indeed, iron ore sales to the country have more than trebled during the past 12 months, the company’s divisional chief David Trotter told Reuters. As a result Anglo American was recently leading the FTSE 100 higher and shares were dealing 1.5% higher.
However, today’s flip marks a rare cause for celebration after months of continued stock price weakness. And I expect prices to trail lower again as market imbalances across the company’s key markets worsen. These troubles are expected to push earnings 39% lower in 2015, resulting in a P/E ratio of 14.9 times — I would consider a reading closer to the bargain barometer of 10 times to be a fairer reflection of the firm’s elevated risk profile.
There is no doubt that Anglo American remains a popular pick for income seekers, with a prospective dividend of 85 US cents per share for 2015 and 2016 — matching the payouts of the past three years — resulting in a jumbo yield of 5.4%. But with revenues set to drag, and net debt climbing to an eye-watering $12.9bn last year, I reckon such projections are ultra-optimistic.
Fuller, Smith & Turner
Like Halfords, Fuller, Smith & Turner (LSE: FSTA) released a bubbly trading update in Friday trading. But unlike its FTSE peer the brewing giant has failed to take off and shares were last changing hands 0.3% lower on the day. Fuller’s saw revenues leap 12% during the year ending March 2015, to £321.5m, a result that propelled pre-tax profit 7% higher to £36.4m.
And with the firm investing vast sums into pub redevelopments and new openings, not to mention the galloping success of its craft beers, the number crunchers expect the bottom line to continue to swell. Indeed, growth of 4% is currently anticipated for 2015 and 5% the following year. These result in slightly-heady earnings multiples of 19.1 times and 18.2 times for these years, although I reckon the terrific track record of Fuller’s on the earnings front merits this premium.
On top of this, I believe that investors can look forward to increasingly-lucrative income flows from the firm. Fuller’s lifted the dividend 10% last year, to 16.60p, and further rises — to 17.4p in 2016 and 18.5p for 2017 — are currently forecast. Such projections create handy-if-unspectacular yields of 1.7% and 1.8% correspondingly.
