Ace fund manager Neil Woodford holds Legal & General (LSE: LGEN) as a high-yield pick, and he’s usually pretty good at spotting sustainable cash payments. With the insurance firm’s 2015 full-year results due on 15 March, is now a good time to join him?
The predicted dividend yield of 5.9% would only be a little more than 1.4 times covered by EPS, but rising earnings forecasts should be enough to justify that — analysts suggest a 15% gain for 2015, putting the shares on a suggested P/E of under 12 on today’s 226p share price. With the yield set to rise to 6.7% based on 2017 forecasts, there’s not much of a safety margin should the company suffer an unexpectedly bad year or two — but forecasts would also drop the P/E to around 10.3 by then, which is not stretching.
The firm’s Q3 update reported a 14% rise in net cash generation, and chief executive Nigel Wilson opined that “by aligning our strategy to macro trends we have created a high degree of resilience in our business model and are well positioned for further growth“, so things look good for results on the 15th.
There’s a reasonably strong ‘buy’ consensus out there at the moment, and I go along with it — although I do think there are better bargains in the insurance sector right now.
Mining recovery?
Also on 15 March, we’ll have 2015 results from Antofagasta (LSE: ANTO). Now, many will think my suggestion that the mining giant could be one of March’s best picks is insanity — and they might be right. But the share price slump has been reversed of late, and since 20 January we’ve seen a 40% recovery to 491p!
Antofagasta’s snapping up of a 50% interest in the Zaldívar copper mine from Barrick Gold for $1bn, at a time when commodity prices were are a low and bargains were to be had, could be a master stroke — the asset still has an expected life of 14 more years and produced around 100,000 tonnes of copper in 2014.
There’s a big fall in EPS expected for the year just ended, but analysts see 2016 as the start of a strong earnings recovery for Antofagasta. One for the brave, certainly, but it could turn out very nicely.
Steady cash
Another company that could be on the cusp of a turnaround is Gulf Keystone Petroleum (LSE: GKP), whose 2015 results should be with us on 17 March. Gulf’s biggest problem of not getting paid for the oil it has been exporting through the Kurdistan Regional Government has been addressed and the firm is now receiving monthly payments. But there are downsides.
Firstly, a recent change away from fixed payments means that the firm will actually receive a little less in the short term (although there is some progress being made towards the payment of around $280m in arrears). And there won’t be enough cash coming in to meet this year’s debt repayments, so some sort of debt restructuring looks like it will be needed.
Will Gulf be able to pull it off? If it does, there could be a nice long-term upside with the firm’s assets currently very lowly valued on today’s share price of just 14p. But if not, well, the company could even go bust.
