Why I’d Buy Senior plc & CVS Group Plc But Sell Vedanta Resources plc

Royston Wild analyses the investment prospects of Senior plc (LON: SNR), CVS Group Plc (LON: CVSG) and Vedanta Resources plc (LON: VED).

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Today I am looking at whether investors should check out these Monday morning headline makers.


I have been bullish over the defence sector for quite a while now as recovering Western economies provide defence budgets with a welcome shot in the arm, and the rising might of emerging nations underpins weapons acquisition elsewhere. With this in mind, I believe Senior (LSE: SNR) is a great pick for those seeking brilliant earnings growth this year and beyond.

The Hertfordshire firm was last dealing 1.5% lower in Monday trade despite furnishing the market with a positive trading release — group revenues advanced 9% during January-June to £434.5m, and advised that it expects trading to improve looking further down the line “as new Aerospace and Flexonics programmes and products enter production“. This view is shared by the City, and earnings growth of 3% and 7% is chalked in for 2015 and 2016 correspondingly.

Such figures make the business sterling value for money, with P/E multiples of 13.7 times for this year and 12.7 times for 2016 coasting inside the barometer of 15 times that indicates exceptional bang for one’s buck. Prospective dividends of 6.1p per share for 2015 and 6.7p for next year create market-lagging dividends of 2.2% and 2.4% respectively, but with Senior having hiked the interim dividend 10% today — to 1.84p — these forecasts could be in line for a swift upgrade.

CVS Group

Veterinary care provider CVS Group (LSE: CVSG) was last trading flat on the day despite also releasing positive results in start-of-week trade. The pooch and pussycat specialists advised that like-for-like sales leapt 6.8% in the 12 months to June 2015, helping it to meet expectations, and predicted “further like-for-like growth over the coming year.”

CVS Group’s busy acquisition drive has paid off handsomely in recent times, and the company now boasts 291 animal surgeries up and down the country. On top of this, schemes such as its Healthy Pet Club are also driving organic growth higher, and subscription this scheme advanced 32% last year to 213,000 members. With the business clearly on the rise the number crunchers have pencilled in earnings growth of 26% for the outgoing year and 14% for fiscal 2016.

Consequently a P/E ratio of 25.4 times for 2015 collapses to 21.7 times for the current period, and although this remains heady I believe these readings should keep falling as the bottom line expands, with improving household budgets boosting pet healthcare demand. Projected dividends of 3p per share for 2015 and 3.4p for 2016 are handy-if-unspectacular, yielding 0.5% and 0.6% correspondingly.

Vedanta Resources

Unlike the firms I have mentioned above, however, I reckon energy and mining giant Vedanta Resources (LSE: VED) is on course for further share-price pain as commodities markets keep on sinking. The resources giant has seen its value decline by more than a third during the past two months alone, including an additional 5.5% markdown in Monday’s session.

Today’s weakness has been prompted by fresh worrying economic data from commodities glutton China. Firstly, on Friday HSBC/Markit manufacturing PMI numbers for July registered at 48.2, the sixth monthly contraction since January and the worst reading since April last year. And today it was revealed that profits across the country’s industrial firms slipped 0.3% last month.

With output across the oil and many metals segments also ratcheting steadily higher, it appears nailed-on that Vedanta Resources and its peers are set to remain underwater for some time longer — indeed, the City expects the business to record losses of 7.3 US cents per share in 2015. Although an improvement from last year’s losses of 14.2 cents, I expect brokers to keep downgrading these already-insipid numbers as projected balances continue to worsen.

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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