Rolls-Royce
Shares in Rolls-Royce (LSE: RR) fell to a two-year low, as the company reported yet another profit warning yesterday. Underlying pre-tax profit in 2015 is now expected to come between £1,325 million and £1,475 million, having been lowered from its previous guidance of between £1,400 million and £1,550 million.
Its commercial aviation engine division, which had until now remained unscathed, suffered from a larger than expected decline in sales of its Trent 700 engines, as customers held off new orders in anticipation of the introduction of its replacement Trent 7000 engine model in 2017.
Although it is extremely difficult to time the bottom of the market for Rolls-Royce’s shares, it seems we are getting near to the bottom. Long term fundamentals for the company’s commercial aviation market continues to be attractive, because demand for widebody aircraft continues to be buoyant; and the widebody engine market is effectively a duopoly between Rolls-Royce and GE Aviaition.
Speedy Hire
Last week, Speedy Hire (LSE: SDY) reported a profit warning, stating full year results are likely to be “materially below the Board’s expectations” and worse than last year. The equipment hire company had last year reported adjusted EPS of 3.23 pence; but since then it had suffered from a lack of available equipment following the implementation of its network optimisation programme, which lost it customers.
But, given strong growth in the construction sector in the UK and Ireland, the company is in a strong position to turnaround the business. In addition, finding the right replacement CEO could give rise to a short boost in its share price.
EnQuest
EnQuest (LSE: ENQ) has seen the value of its shares fall 71% over the past year, following the recent fall in the oil price. The North Sea oil producer’s key advantage is the scale of its £4 billion Kraken oil field development, which is set to begin production in 2017.
Enquest’s current production portfolio of mature North Sea wells are relatively less competitive, as older wells tend to have higher average production costs. But with net debt of $933 million, the company could struggle to find the necessary funding to continue development of Kraken if the oil prices fall further.
The oil producer will not benefit from the recently announced cuts in the North Sea tax regime in the short to medium term, as the low oil price means it is not expected any taxes over the next few years. With oil prices likely to remain low for longer, it is perhaps too early to get into EnQuest’s shares.
Sirius Minerals
Shares in Sirius Minerals (LSE: SXX) have risen 115% since the start of the year, as the company is getting closer to seeing its potash mining development near Whitby, North Yorkshire become a reality. Last week, Sirius Minerals won planning permission from the North York Moors National Park Authority.
The area of interest has an inferred reserve of 2,660 million tonnes of 85.7% polyhalite, which makes it one of the largest and highest grade polyhalite resources in the world. The prospective cost of production is expected to be as low as $30 per tonne, which compares very favourably to the market price of over $200 per tonne. But, the company still needs to find more than £1.5 billion to fund the development of the mine.
Sirius Minerals is still many years away from commercial production, but progress with planning shows it is moving steadily in the right direction. Its shares could still climb further, but investors should expect a bumpy ride.
