Why I Would Buy RSA Insurance Group plc, Mondi Plc And Avon Rubber PLC

Royston Wild looks at the investment prospects of RSA Insurance Group plc (LON: RSA), Mondi Plc (LON: MNDI) and Avon Rubber PLC (LON: AVON).

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Today I am running the rule over three headline makers in Thursday trade.

RSA Insurance Group

Shares in RSA Insurance (LSE: RSA) have enjoyed a splendid boost since industry rival Zurich mooted a potential bid for the British firm, and shares have ascended 18% since chatter emerged late last month. The business has conceded 1.9% in Thursday’s session despite the release of consensus-beating numbers, however, but some profit-booking can be expected following recent strength and wider risk aversion during today’s trading.

RSA advised that pre-tax profit advanced from £69m in January-June last year to £288m in the same period this year, prompting the firm to comment that “the intense pace of change over the last 18 months to make RSA better, stronger and more focused is now producing strong results.” With massive divestments allowing the firm to double-down on key developed and emerging markets, and massive cost-cutting still delivering, the City expects RSA to swing from losses of 14.4p per share last year to earnings of 29.1p in 2015. And this is expected to advance 10% in 2016 to 32p.

Consequently RSA changes hands on P/E multiples of 17.8 times and 16.3 times for 2015 and 2016 correspondingly, decent readings in my opinion given the firm’s vastly-improved earnings picture. And the firm’s restructuring plan is also expected to turbocharge dividends, with an estimated payment of 10.5p per share for this year — yielding 2% — expected to rise to 14.9p in 2016, yielding 2.4%.

Mondi

Like RSA Insurance, Mondi (LSE: MNDI) also released decent full-year figures during Thursday trading but suffered the wrath of broader market weakness — the company was last down 1.1% from Wednesday’s close. Still, the stock has given scant reason for disappointment in recent times thanks to a 50% advance since the turn of 2015, and I believe further share-price strength can be expected.

Mondi saw profit before tax rocket 30% during January-June, to €490m, fuelled by an 10% revenues uptick to €3.5bn. The packaging specialists advised that it enjoyed “improvements in underlying profit in all business units, driven by generally positive selling price and volume developments, coupled with good cost control and the contribution from recently completed capital projects,” setting it up nicely for the second half of 2015.

The City expects Mondi’s brilliant earnings story to keep trucking during the medium term at least, and growth of 22% and 9% is pencilled in for 2015 and 2016 respectively, leaving the firm dealing on P/E ratios of 16.8 times and 15.6 times. Against this bubbly backdrop a dividend of 42 euro cents per share last year is expected to march to 51.4 cents in 2015 and 57.3 cents next year. These projections produce handy yields of 2.3% and 2.6% correspondingly.

Avon Rubber

And defence giant Avon Rubber (LSE: AVON) completed the set in Thursday trade with a cheery announcement of its own, although the market greeted the release with much more fanfare than those of its London peers — the stock was last dealing 5% higher on the day.

The Wiltshire business advised that it had acquired Italian dairy specialists InterPuls for €25.75m, boosting the geographical range and product catalogue of its already-exceptional agricultural operations. The Albinea-based business manufactures a wide array of products including pulsators, milk meters and vacuum pumps, while its expansion into high-technology sensors and devices to assist farm management also provides plenty of upside potential.

With Avon Rubber’s critical defence markets also on the mend, the number crunchers expect the business to enjoy earnings expansion of 5% and 9% for the years concluding September 2015 and 2016 correspondingly. These figures leave the business on reasonable P/E multiples of 17.5 times and 16.3 times. And Avon Rubber’s improving outlook is also expected to keep driving dividends higher — last year’s 5.61p per share reward is anticipated to rise to 7.2p in 2015 and 9.4p next year, yielding 0.9% and 1.2%.

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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