Today I’m taking a look at the share price prospects of three recent FTSE chargers.
Insurer heading north
Financial play RSA Insurance (LSE: RSA) enjoyed a 7% share price uptick last week, taking the firm further away from the multi-year troughs punched earlier this month. And I believe further gains could be in the offing.
RSA Insurance was helped by positive financials last week that showed an operating profits leap of 43% in 2015 to £523m. And the insurer believes that it has “good prospects of substantial further performance improvement” thanks to its improved core focusing on the lucrative UK, Scandinavian and Canadian markets.
With RSA Insurance also ratcheting up its cost-saving targets last week, the City expects the business to enjoy a 47% earnings improvement in 2016 alone, resulting in a very decent P/E rating of 13.7 times. And a projected dividend of 14.8p per share — yielding a chunky 3.4% — should come as further incentive for value hunters to jump in.
Beware of false dawns!
The breakneck ascent of mining colossus Anglo American (LSE: AAL) in recent weeks is showing no signs of slowing. The share has seen its value ascend a whopping 62% from the start of February to last Friday, including a 3% advance during the course of last week.
But I remain convinced this stellar performance is built on sandy foundations. The London firm has a mammoth amount of short covering to thank for its eyewatering rise, while a tentative uptick in commodity values has fuelled speculation that the worst could be over across material markets.
Still, I’m convinced the recent stabilisation of resources prices is likely to prove a temporary phenomenon. Data from China continues to steadily disappoint, while producers across commodity sectors continue to swamp the market with new material in spite of insipid underlying demand.
The City expects Anglo American to subsequently suffer a 60% earnings fall in 2016, a fifth successive drop if realised. I believe a consequent P/E rating of 25 times is ridiculously expensive given the terrible state of major commodity markets.
Turning the corner?
Oil services provider Petrofac (LSE: PFC) also saw its share price detonate last week, although I believe the 21% explosion between last Monday and Friday represents nothing more than a flash in the pan.
Petrofac assuaged concerns over future revenues by announcing that its order backlog surged 10% last year to a record year-end level of $20.7bn. And Petrofac noted that “we see continuing investment from our clients in our core onshore markets of the Middle East and North Africa, in both key upstream and downstream projects.”
But an environment of low oil prices has prompted producers the world over to introduce further capital expenditure cutbacks for the years ahead, and extra reductions could be in the offing should crude continue to fall.
The City expects earnings at Petrofac to surge to 124 US cents per share in 2016, resulting in a P/E rating of 10 times. Many would argue that this represents fair value given that the troubles of the firm’s Laggan-Tormore gas project are now behind it. Still, I believe the worsening supply/demand balance washing over the oil market could push Petrofac’s share price significantly lower once again.