Today I am looking at the investment prospects of two of the FTSE’s Tuesday risers.
Metals play still on shaky ground
Titanium producer Kenmare Resources (LSE: KMR) continues to defy the washout being endured across the commodities sector in Tuesday trade, the business adding an extra 3.5% to yesterday’s 33% share price advance.
Trader appetite has received a shot in the arm following news on Monday that SGRF — a sovereign wealth fund of the Sultanate of Oman — would pump $100m into the fossil fuel play provided it can raise an additional $75m through a fresh share placing. On top of this, Kenmare Resources is also talking with lenders over swapping some of its existing debt for equity, it advised.
The financing deal follows news that Kenmare Resources — whose flagship asset is the Moma mine in Mozambique — had rebuffed yet another advance from Iluka Resources. The Australian resources play was left disappointed for a third time after Prudential, which holds a 20% stake in Kenmare Resources, refused to endorse November’s takeover bid.
With titanium mineral prices still tanking as oversupply bites, it comes as little surprise that the City expects Kenmare Resources to remain in the red in 2015. Losses of 2 US cents per share are currently forecasts, a projection which, if realised, will represent a third consecutive negative result.
And as economic data from China continues to disappoint — exports slumped 3.7% in November, the fifth successive monthly slip — and Kenmare Resources’ plans to repair its battered balance sheet is yet to be signed off, I believe that the business remains a gamble too far.
Well past its sell-by date
While the commodities sector has taken the brunt of losses in Tuesday trading, Britain’s biggest grocer Tesco (LSE: TSCO) has quietly gone about its business and shares were last 2% higher from Monday’s close.
But I for one still wouldn’t consider investing my hard-earned cash into the firm given the terrible top-line outlook, and I believe the firm has further ground to concede. Indeed, insipid investor appetite pushed shares in the business to fresh decade-and-a-half troughs earlier this week.
Broker Morgan Stanley was the latest to take its red pen to the stock on Monday, citing strong competition in the UK supermarket sector and a stalling restructuring strategy.
And news that transformation director Jill Easterbook is leaving the company has added an additional level of intrigue, the company veteran departing as Tesco’s battle against the country’s discount and premium chains continues to flounder.
Tesco currently deals on an ultra-high P/E multiple of 34.4 times for the year to February 2016, prompted by an anticipated 40% earnings decline. Given the retailer’s persistent failure to pull itself out of the doldrums, I believe the risks continue to far outweigh potential rewards.