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Banco Santander SA, SSE PLC And Marks and Spencer Group Plc: Hot Bargains Or Value Traps?

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Today I am looking at three FTSE stars that could be considered exceptional value for money.

Banco Santander

I am convinced that banking giant Santander (LSE: BNC) provides brilliant bang for one’s buck. With lending activity still rising across both developed and emerging economies, the City expects the business to chalk up a 4% earnings advance in 2015, resulting in an ultra-low P/E multiple of 10.2 times. And this figure dips to just 9.7 times for next year amid expectations of a further 5% rise.

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Fears over the strength of the global economy, and in particular worrying inflation and cooling economic activity in Brazil, have weighed on Santander’s stock price in recent months. But I reckon the low stock price more than factors in these fears, and believe the bank should see revenues pick up further once economic conditions in these growth regions normalise, and bulging income levels bolster banking product demand in the coming years.

Santander’s shares first took a pasting in January when it elected to slash the full-year dividend for 2015 to just 20 euro cents per share, a huge climbdown from rewards of 60 cents in recent years. This reading still creates a jumbo 3.9% yield, however. And although the firm’s capital pile is only gradually improving — the firm’s CET1 ratio came in at 9.85% as of September — I believe dividends should continue to outstrip those of the wider FTSE 100 as solid top-line growth boosts the cash pile.


I am not so optimistic concerning the earnings and payout prospects over at SSE (LSE: SSE), however. Utilities plays were traditionally an oasis for income-hungry investors, the terrific profits visibility afforded by their defensive operations making them the ideal dividend stock. But as Britain’s tariff-switching culture takes off, and Ofgem keeps a close eye on the charging practices of the so-called ‘Big Six’, I believe returns over at SSE could come under serious pressure.

SSE advised last week that its subscriber base slipped once again more recently, to 8.41 million as of the close of September from 8.49 million just three months earlier, and down from 8.51 million in March. With the aggressive pricing strategies of new, independent suppliers dragging customers away from established power plays, SSE is expected to see earnings dip 10% in the year to March 2016, although a 3% advance is currently pencilled in for fiscal 2017.

These figures leave the business dealing on P/E ratings of 12.4 times and 12.2 times for 2016 and 2017 respectively, reasonable readouts on paper but multiples I do not feel totally take into account the huge problems denting SSE’s growth prospects. And although projected dividends of 90.1p per share for this year and 91.5p for 2017 create massive yields of 6.3% and 6.4%, I reckon the long-term risks at the power firm outweigh the near-term rewards.

Marks and Spencer Group

British retail giant Marks and Spencer (LSE: MKS) once again worried the market this month with news that its Womenswear range remains very much out of fashion. Like-for-like sales slipped 1.2% during April-September thanks to unseasonable weather patterns and reduced discounting, although some would argue that a focus on margin building rather than increasing volumes provides the battered division with a stronger outlook.

Regardless of the state of its General Merchandise division, however, Marks & Spencer can still rely on its Food arm to deliver the goods and underlying sales here advanced 0.2% in the first half. With the firm expanding rapidly in this area — M&S opened another 32 Simply Food outlets in the period — not to mention spreading its wings in hot emerging regions like China and India, the City expects the retailer to deliver earnings expansion of 8% and 7% in the years to March 2016 and 2017 correspondingly.

Such readings create very decent P/E ratios of 14.4 times for 2016 and 13.5 times for the following period, while Marks and Spencer’s robust growth outlook is expected to keep dividends cantering higher, too. Last year’s predicted dividend of 18p per share is expected to leap to 19p in the current year, and again to 20.6p in 2017. Consequently the shopping play carries chunky yields of 3.7% and 4% for this year and next.

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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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