Should You Invest In Unilever plc, Majestic Wine PLC Or Afren Plc?

Royston Wild looks at whether Unilever plc (LON: ULVR), Majestic Wine PLC (LON: MJW) and Afren Plc (LON: AFR) are worthy of your consideration.

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Today I am looking at three London-listed stocks vying for your investment.

Unilever

I have long been convinced of Unilever’s (LSE: ULVR) terrific growth potential, a quality that encouraged me to bulk up my own holdings in the firm last month. The household good leviathan’s terrific emerging market exposure is no secret — Unilever generates around six-tenths of aggregate sales from such places — so signs of improving performance in these lucrative destinations comes as cause for much cheer.

Indeed, the business saw underlying sales to developing markets tick 5.4% higher during January-March, speeding up from the 4.1% advance punched during the prior three months. The tremendous pricing power of Unilever’s brands, from Persil detergent through to Magnum ice cream, enabled sales to stride higher during the first quarter. And I expect demand for such labels to continue soaring as cyclical headwinds soften.

Unilever has long been a solid pick for those seeking reliable earnings growth, and the business is not expected to disappoint investors any time soon, with the City expecting expansion of 13% and 8% in 2015 and 2016 correspondingly. As a consequence I believe Unilever provides decent value for money at the current time, even if P/E multiples of 21 times for 2015 and 19.5 times for next year register above the benchmark of 15 times that usually indicates stellar bang for one’s buck.

Majestic Wine

Alcohol house Majestic Wine (LSE: MJW) disappointed the market in Monday business and was recently dealing 4.1% lower on the day, the company having released a disappointing set of full-year results. Majestic Wine saw adjusted pre-tax profit slip 12% during the 12 months concluding March 2015, to £20.9m, with competitive pressures and climbing distribution costs crimping the bottom line.

The retailer has acknowledged the need to get back to the drawing board, and is planning a raft of measures to get profits chugging higher again, from investing more in its staff through to revamping the supply chain and overhauling its customer service proposition. Worryingly Majestic Wine advised that “these investments will initially suppress profit in the short term,” however.

The City currently expects the booze vendor to record earnings growth of 4% and 5% for 2016 and 2017 respectively, but I believe these expectations can be taken with a pinch of salt, certainly until Majestic Wine outlines its turnaround plans in detail in the autumn. So given that the business trades on slightly elevated earnings ratios of 17.9 times and 16.8 times for these years, I reckon investors can find more attractive stock candidates elsewhere.

Afren

Similarly, I believe that investors should steer clear of oil producer Afren (LSE: AFR) as the supply/demand imbalance washing across the market could send crude prices plummeting at any point. The stock was recently changing hands 1.6% higher in start-of-week business, but I for one wouldn’t touch the business with a bargepole.

Broker Jefferies warned today that the “fundamental data indicates that the oil market is oversupplied by over 2 million barrels per day,” adding that resilient production from the US — combined with the possibility of flowing Iranian output should sanctions be lifted — could push prices to the downside once again.

Afren saw revenues slump 51% lower in January-March to $130.3m, and concerns continue to swirl over how the business can rejuvenate its battered earnings outlook given persistent crude price weakness. The business is also struggling to ease its £1.2bn net debt pile, and last week’s resignation of chief financial offer Darra Comyn added another layer of uncertainty to the battered firm. With Afren also announcing plans to default on an upcoming interest payment last Wednesday, I believe the fossil fuel play is a risk too far for savvy investors.

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 owns shares of Unilever. The Motley Fool UK has recommended Majestic Wine. The Motley Fool UK owns shares of Unilever. 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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