Today I am looking at the investment prospects of four London heavyweights.
Leave it on the shelf
News that mid-tier supermarket Morrisons (LSE: MRW) put in another insipid performance during the past quarter should, under usual circumstances, come as music to the ears of competitors such as Sainsbury’s (LSE: SBRY). The Bradford firm announced on Thursday that like-for-like sales slumped a further 2.6% during August-September, worsening from the 2.4% drop in the previous quarter.
The established chains’ strategy of introducing price cut after price cut continues to leave British shoppers cold, as operators like Sainsbury’s still cannot compete with the outstanding value offered by Aldi and Lidl. Meanwhile, more affluent customers are also leaving for the likes of Waitrose and Marks & Spencer, who also trump the fallen supermarket giants in terms of both quality and service.
With discount and premium outlets alike expanding their store networks at a rate of knots, and, equally worryingly, making tentative steps into the online segment, the City expects Sainsbury’s to endure an 18% earnings loss in the year to March 2016 alone. This figure leaves the business on a prospective P/E ratio of 12.4 times. Although not conventionally expensive, I would still consider this bad value given the firm’s poor growth prospects.
Oil plays continue to toil
Like Sainsbury’s, I believe that oil services plays Wood Group (LSE: WG) and Lamprell (LSE: LAM) should take note of the latest poor news from an industry peer. Amec Foster Wheeler reported on Thursday that, in line with its strategy of “managing the business on the assumption of an extended period of [oil price] weakness,” it was electing to slash the 2015 dividend by half.
The effect of a subdued oil price is prompting operators across the fossil fuel industry to take the hatchet to their capital expenditure plans. And further cuts are more than likely on the cards, as China’s economic struggles damage demand, and output from the US and OPEC heads steadily higher.
Wood Group inked a brand new subsea contract with BP late last month, but a backdrop of reduced customer spend is likely to slow the amount of new business flowing in during the coming years. Indeed, the business is expected to endure a 25% earnings slip in 2015, resulting in a P/E rating of 11.7 times. And Lamprell is predicted to suffer a 39% bottom-line dip, creating a multiple of 10.4 times. But given the worsening market outlook I reckon the firms are unattractive, even at these low prices.
Build up a fortune
Another day, another update on the rude health of the British housing sector. Building society Halifax was the latest body to give its verdict on the homes market on Thursday, advising that the average house price surged 9.6% higher in October, to £205,240, the highest rate of growth since last summer.
Halifax noted that “improving economic conditions and household finances, together with sustained low mortgage rates, have boosted housing demand during 2015,” and added that homebuyer demand should continue to outstrip supply in the months ahead.
Such news should naturally come as music to the ears of homebuilders like Persimmon (LSE: PSN), which would also have been boosted by the latest Bank of England meeting today — interest rates were held at 0.5% once again and, equally importantly, the MPC advised that the benchmark is likely to remain around current levels until the second quarter of 2016 at the earliest.
Against this backcloth Persimmon — which announced this week that sales have risen 12% since the start of July — is anticipated to see earnings surge 26% in 2015 alone, resulting in an ultra-attractive P/E ratio of 12.4 times. And when you chuck in a projected dividend of 99.6p per share, yielding a monster 5%, I believe the housebuilder represents great value for money.
