Today I am looking at whether investors should plough their cash into three bombed-out FTSE beasts.
Tullow Oil
With crude prices stepping steadily lower yet again — the Brent benchmark struck fresh multi-year lows around $42.50 per barrel last week — I expect Tullow Oil (LSE: TLW) to endure worsening share price pressure in the weeks and months ahead.
The fossil fuel giant has already conceded 12% during the past four weeks thanks to the recent commodities rout, with investors shrugging off news of a production restart at its Jubilee asset in Ghana, as well as an accord between Kenya and Uganda concerning the route for a critical oil pipeline. Instead, markets remain preoccupied with newsflow surrounding the wider market, most notably a steady increase in the US rig count, and Chinese manufacturing activity hitting the buffers.
The result of hedging has allowed Tullow Oil to avoid the worst of the oil price decline since last summer, and the firm reported an average realised price just below $71 per barrel during January-June. Still, the collapsing crude price caused revenues to slump 35% during the first half to $850m. And with Tullow Oil creaking under a $3.6bn net debt pile — soaring from $2.8bn a year ago — I believe the business is in an increasingly-precarious position as oil revenues look set to drag.
Lonmin
Thanks to the murky state of the platinum market, I believe mining colossus Lonmin (LSE: LMI) should also continue to suffer from severe share price weakness. Fears over the state of the Chinese economy pushed metal prices to their cheapest for some six years below $1,000 per ounce last week, and I reckon a worsening market imbalance should keep shoving prices south — such concerns have pushed Lonmin’s share price a staggering 41% lower since the start of August.
Back in July, Lonmin — which has just tumbled out of the FTSE 250 — announced it was laying off 6,000 of its workers as a result of enduring market pressures, while also noting it was halting all work at its Hossy and Newman shafts. The digger aims to cut total production by some 100,000 ounces per annum by the close of fiscal 2017.
Although Lonmin is making decent progress in slashing its cost base, these efforts are not expected to offset the effect of slumping demand from the critical jewellery and automotive sectors. Consequently the number crunchers expect the miner to swing from earnings of 5.4 US cents per share in the year ending September 2014 — itself a 74% decline from the prior period — to losses of 12.4 cents in 2015. And I do not expect the bottom line to pick up any time soon as the market swims in excess material.
Halfords Group
Shares in car and cycle retailer Halfords (LSE: HFD) suffered a hammerblow in Wednesday trading, the effect of a disappointing trading update sending shares in the business almost 9% lower. And with a relief rally failing to kick in during today’s session, I reckon investors could snap up a bargain — in total, Halfords has fallen 16% during the past four weeks.
Halfords advised that like-for-like bicycle sales have fallen 11% so far in the current quarter, as a consequence driving total underlying retail revenues 1.3% lower. Still, the poor performance of its bike department should be considered in context of poor weather, not to mention strong comparatives during the corresponding 2014 period. Meanwhile, performance at the retailer’s car accessories and service department remains exceptionally strong.
Following yesterday’s release, the City expects Halfords to record a 2% earnings rise in the year ending March 2016, and an impressive 8% advance is predicted for 2017. Consequently an attractive P/E rating of 14.9 times for the current period falls to just 13.8 times for 2017. On top of this, projected dividends of 17.6p per share for 2016 and 19p for the following year produce juicy yields of 3.4% and 3.6% respectively. I reckon Halfords is a very decent choice for savvy dip buyers.
