Should You Buy Game Digital PLC, Randgold Resources Limited And Carillion plc?

Royston Wild reveals whether investors should plough their cash in Game Digital PLC (LON: GMD), Randgold Resources Limited (LON: RRS) and Carillion plc (LON: CLLN).

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Today I am running the rule over three FTSE headline makers in Tuesday business.

Game Digital

Videogame merchant Game Digital (LSE: GMD) cheered the market by its latest set of results and was last trading 1.9% higher from Monday’s close. The Basingstoke firm advised that “the second half of the year saw a robust trading for the Group,” a welcome turnaround after the profit warning that drove share prices through the floor back in January. Game Digital saw revenues, excluding hardware, advance 7% during February-July thanks to high-margin software sales.

However, Game Digital still has to tackle the problem of nosediving console revenues — these dropped 17% during the second half thanks to falling selling prices — while fierce competition from the likes of Amazon also casts a shadow over the firm’s long-term sales outlook.

The City expects earnings at Game Digital to edge fractionally higher in the 12 months to July 2015, before staging a 19% bump higher in the following year. Subsequently the tech retailer changes hands on very decent P/E multiples of 15.3 times for this year and 13 times for 2016. But given the difficult trading environment I believe these projections are in jeopardy of significant downgrades.

Randgold Resources

Thanks to an upward bump in the gold price, precious metals miner Randgold Resources (LSE: RRS) has received a welcome boost in Tuesday trading and was last 2.7% higher on the day. The yellow metal edged back above $1,100 per ounce as doubts over a potential Fed rate hike in September surfaced, while a weaker dollar provided further support.

Still, investors should not forget that gold’s prolonged downturn has seen the metal shed 16% of its value during the past year, and with concerns over fiscal tightening in the US set to persist — and physical demand in Asia tailing off — I believe today’s bold move higher could prove a short-lived phenomenon, a disastrous scenario for the likes of Randgold Resources.

Analysts expect Randgold Resources to punch a 5% earnings decline in 2015 before bouncing back with a 26% advance in the following period. But with gold’s lustre as an investment asset taking a sustained pummelling, quite why such a pronounced recovery is anticipated in 2016 is beyond me, even if Randgold’s output hit record levels during April-June. And with the company dealing on an super-high P/E ratio of 24.6 times for 2015, I reckon share prices do not fairly reflect the gold market’s risky outlook.

Carillion

Construction play Carillion (LSE: CLLN) was recently changing hands 1.1% higher on Tuesday thanks to yet more positive contract news. The Wolverhampton company advised it had been selected as the preferred bidder for the creation of the Midland Metropolitan Hospital, which will cost £297m to construct and deliver £140m of service revenues over the life of the 30-year concession contract.

The development follows hot on the heels of yet another positive announcement yesterday, which saw Carillion confirm up to £4.1bn worth of work for the UK Government under a new facilities management services agreement that will run up until 2019. And with the domestic economy continuing to click through the gears I expect Carillion’s contract wins to keep stacking up.

This view is shared by the City, who expect the business to recover from an expected 1% earnings dip in 2015 with a 4% rise the following year. Astonishingly these numbers leave Carillion dealing on ultra-low P/E multiples of just 10.1 times and 10 times for 2015 and 2016 correspondingly. And when you throw in projected dividends of 18.1p per share and 18.7p for these years — yielding a market-smashing 5.3% and 5.4% — I reckon the firm represents unmissable value.

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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