Today I am looking at the investment prospects of three FTSE 100 leapers.
Centrica
Despite ongoing fears at both its upstream and downstream operations, ‘Big Six’ bruiser Centrica (LSE: CNA) saw its shares advance 3% last week. Market appetite for the business has been a tad erratic in recent months but the company remains locked in a broad downtrend. And I fully expect this pressure to continue, with next month’s interims potentially providing reason for a fresh collapse lower.
Watchers will be keen to see if Centrica’s update — due for release on Tuesday, December 10th — will reveal more customer seepage at British Gas. Total residential accounts fell by a further 45,000 between January and July, to 14,733, as Britain’s ‘tariff-switching’ culture went up a notch. Against this backcloth Centrica may have to keep the price cuts coming to keep its users on board.
With sluggish crude prices also weighing on its Centrica Energy arm, the London business is expected to see earnings drop 8% in 2015 before stagnating next year. Sure, a P/E rating of 12.8 times for 2016 may be reasonable on paper, but I do not believe such a reading factors in the lack of obvious growth drivers at the firm. And given the company’s poor revenues outlook and hulking debt, I reckon investors should give short shrift to yields of 5.4% for 2015 and 5.6% for 2016, too.
HSBC Holdings
I am far more optimistic concerning the growth picture over at HSBC (LSE: HSBA), however, even though the business faces problems of its own. Shares in the business ascended 1% between last Monday and Friday, and I believe the bank’s terrific emerging market bias makes it a great stock selection for the years ahead.
But whether the firm can keep last week’s run going in the near term remains to be seen — fears over cooling economies in Asia and Latin America continue to do the rounds, while HSBC also faces a steady stream of misconduct-related fines. And recent broker downgrades now suggest the bank will follow a 14% earnings rise in 2015 with a 3% dip next year.
Still, a consequent yield of 10.4 times for next year presents great value for more patient investors in my opinion, given HSBC’s ability to keep sales steadily rising — particularly in China — while massive cost-cutting should make it a more efficient profits generator in the years ahead. And monster dividend yields of 6.1% and 6.2% for 2015 and 2016 seal the deal, I believe.
Rolls-Royce Holding
Like HSBC, I believe that diversified engineering giant Rolls-Royce (LSE: RR) faces the prospect of further share price turbulence in the near-term. Indeed, a backcloth of steady revenues pressure — caused by a poorly outlook at its Marine oil and gas division, as well as lower sales of its aircraft engines — pushed shares to their cheapest since February 2010 just this month.
But stock values advanced 10% last week following news the business was embarking on huge restructuring to “simplify the organisation, streamline senior management, reduce fixed costs and add greater pace and accountability to decision making.” And investor appetite was given a further boost by news that aerospace industry veteran Sir Kevin Smith had been appointed as a non-executive director.
I have long been bullish over Rolls-Royce’s growth prospects as the prospect of galloping aircraft sales in the coming years drives engine demand. Still, the London firm is expected to chalk up a 45% earnings slip in 2016, following on from an anticipated 17% slide this year.
With next year’s projection resulting in a high P/E rating of 20.9 times, and Rolls-Royce embarking on what could prove a long and bumpy period of transition, this reading could be deemed a tad heady for many investors.
