Is Now The Time To Invest In BAE Systems plc, WS Atkins plc & Norcros plc?

It’s time to look at BAE Systems plc (LON: BA), WS Atkins plc (LON: ATK) and Norcros plc (LON: NXR) as they report to the market.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Among the companies updating the market today we had BAE Systems (LSE: BA), WS Atkins (LSE: ATK) and Norcros (LSE: NXR).

An improving business environment

It seems intuitive that in today’s troubled world there will be good business to be had in the area of security and defence. BAE Systems is one firm doing well supplying the world with many of its fighter planes, radar, attack missiles, warships and munitions, and has ambitions to become the world’s leading defence, aerospace and security company.

The firm updated the market today saying that, overall, BAE Systems is operating in an improving business environment and continuing to win new orders, with good prospects for the future. The company’s biggest customers are the US and the UK. In Britain, the firm says, “government budget commitments to defence spending provide greater certainty and stability ahead of the forthcoming 2015 Strategic Defence and Security Review”. In the US, the firm reckons “the recent Congressional budget approval is expected to result in defence spend increasing above the previous Budget Control Act caps”. 

BAE Systems has a £37.3 billion order backlog, which it describes as robust, and which goes quite some way to reassure me that the firm’s dividend might be safe for some time to come. At today’s share price of 456p, the forward dividend yield runs at 4.7% for 2016. City analysts following the firm expect forward earnings to cover the payout about 1.8 times. The forward price-to-earnings (P/E) ratio sit at 11.5, which looks undemanding although earnings lack visibility, at least for me, and the industry moves to the whims of government policy makers and budget holders on both sides of the Atlantic.

Good longer-term prospects

Design, engineering and project management consultancy WS Atkins put out a good set of interim results this morning. Compared to a year ago, revenue rose 8.8%, underlying profit lifted by 11.3% and underlying earnings before tax surged by 19%. Sounds good, but I would expect a cyclical firm like Atkins to be doing well at this, arguably, mature stage of the macro-economic cycle. If the cyclicals don’t thrive now, when will they?

That said, the firm is upbeat about its longer-term prospects saying, “as urbanisation increases, infrastructure spending across the globe is predicted to grow significantly in the medium-term and we are well placed to benefit from this investment”.

At today’s 1366p share price, the forward dividend yield runs at 3% for year to March 2017. City analysts following the firm expect forward earnings to cover that payout a healthy-looking 2.6 times and the forward P/E sits at just under 13. The shares have been essentially flat since the beginning of 2014, and there’s a fair chance that situation could continue as the market adjusts the firm’s valuation down to account for cyclicality, just as earnings continue to rise

Trading well

Norcros supplies the Triton shower brand as well as taps, bathroom accessories, tiles and adhesives. Today’s interims reveal the firm as another cyclical outfit bathing in the sunshine of benign economic conditions. Compared to a year ago revenue is up 9.3%, underlying operating profit rose 34% and underlying profit before tax elevated by 40%. The firm is growing both organically and through acquisitions.

Today’s 192p share price puts the firm on a forward P/E rating of just under eight for year to March 2017 and the forward dividend yield runs at around 3.5%. City analysts expect earnings to cover the payout a decent 3.6 times. The valuation seems reasonable, but I can’t help thinking the best and perhaps easiest investor total returns might already be behind us for Norcros in the current macro-cycle.

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.

Kevin Godbold 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.

More on Investing Articles

Investing Articles

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

7.7% yield and going cheap! Why is this unknown FTSE 250 stock flying?

It's no household name, but there's one FTSE 250 stock with a high dividend yield and booming profits that looks…

Read more »

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »

Black father and two young daughters dancing at home
Investing Articles

A £3K investment buys me 632 shares in 2 stocks for a second income!

This Fool explains how a second income is possible through dividend-paying stocks and details two picks that could help her.

Read more »