Today I am taking a look at three London stocks currently on the ropes.
Moving lower
The market reacted badly to insurance play Beazley’s (LSE: BEZ) announcement on Thursday that it plans to relocate its headquarters from Dublin to London. Shares in the business were last dealing 5% lower from Wednesday’s close.
Beazley — which moved to the ‘Emerald Isle’ six years ago — advised that the plan “will simplify the management and decision making of the group and allow new Beazley shareholders access to a UK dividend stream.” The firm added that there should be no changes to its tax rate following legislative changes in the Finance Act 2012.
A vote will be held on the issue on 24 March. But regardless of the outcome of next month’s meeting, I believe a backcloth of rising competition and falling rates in its markets makes Beazley a risk too far at the present time.
Indeed, the City expects the insurer to endure a 23% earnings slip in 2016 alone, and further dips are predicted further out. I do not believe a consequent P/E rating of 13.8 times sufficiently reflects Beazley’s high risk profile.
Supermarket struggles
The newsflow surrounding embattled grocer Morrisons (LSE: MRW) just keeps getting worse and worse.
Discounter Aldi pulled its tanks directly onto the Bradford firm’s lawn this month with its new ad campaign, which claimed it undercuts the so-called ‘Big Four’ supermarkets on price by as much as 40%. The German giant also announced plans to open a further 80 stores by the end of the year as part of its aggressive expansion scheme.
Morrisons has persistently failed to stem the march of both Aldi and Lidl, with price reductions of its own failing to dent the rising popularity of its discount rivals. Indeed, the supermarket has introduced little more than token initiatives — like the rollout of wi-fi ‘hotspots’ and discounted coffee in its stores this month — to draw back customers.
Unsurprisingly the City expects Morrisons to have suffered yet another earnings fall in the year to January 2016, and while a 21% bounceback is predicted for the current period, I believe such predictions are fanciful at best amid rising competitive pressures. Besides, a consequent P/E rating of 17.9 times is far too expensive for a stock with such a poor long-term earnings outlook, in my opinion.
Stuck in a hole
Iron ore digger Beowulf Mining (LSE: BEM) also fell foul of the market in Thursday’s session following news of a capital raising, and the stock was last dealing 30% lower from yesterday’s close.
Beowulf advised that it was planning to generate £1.25m through the issuance of shares at 3.25p each. The company commented that “low metal prices and a broad lack of confidence has led to an unfavourable environment for exploration and development companies to raise capital and advance with project development”.
And worryingly Beowulf added that “we expect market conditions to remain difficult for the mining sector,” a view that I cannot disagree with.
Sure, iron ore prices may have ticked up more recently, but I believe cooling Chinese steelmaking activity — combined with rampant production activity from industry giants like Vale and BHP Billiton — should prompt a severe reversal and keep Beowulf running at a loss in 2016 and beyond.
