Are Royal Bank of Scotland Group plc, Tullow Oil plc And Sports Direct International Plc Poised For Comebacks?

Is the worst over for Royal Bank of Scotland Group plc (LON: RBS), Tullow Oil plc (LON: TLW) and Sports Direct International Plc (LON: SPD)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In recent years I’ve thought Royal Bank of Scotland (LSE: RBS) shares too expensive, mainly because they’ve attracted valuations similar to those of Lloyds Banking Group, while at least a year behind in terms of recovery from the banking crisis. But a long correction starting in February 2015 has sent the price down 43% to 237p, putting the shares on a prospective P/E of 12 for 2016, dropping to just over 10 based on 2017 forecasts — so has the slide been halted and is RBS set for recovery?

Full-year results released on 26 February didn’t help, with the shares losing 7% on the day, after the bank announced a £2bn loss — although it did shoulder restructuring costs of nearly £3bn during the year. But RBS’s recovery should start gathering strength in 2017 with a 19% rise in earnings per share on the cards, and restructuring costs should start to drop off that year after another £1bn charge expected in 2016.

There will be a 2016 stress test to get through, but the bank reckons it should be back to distributing capital to shareholders “later than Q1 2017“. I see RBS as on the mend and with a good long-term future, but right now I think the shares a still a little overvalued compared to Lloyds on a P/E of nine and with 6% dividend yields on the cards.

Oil strengthening?

Shares in Tullow Oil (LSE: TLW) are down 85% over five years, to 224p, but since a low on 20 January this year they’ve managed an 83% recovery. That’s closely related to the recovering price of oil, which is up to $42 per barrel from a low of below $30 in mid-January, and any further rise in Tullow Oil shares will surely be dependent on a further strengthening of the black stuff.

But the company did get an extra boost on 16 March, when an update on its Cheptuket-1 well in Kenya reported strong oil flows over an interval or more than 700 metres, with exploration director Angus McCoss calling it “the most significant well result to date in Kenya outside the South Lokichar basin“.

Production from other African assets should ramp up this year too, and while an investment in Tullow would still be risky now, I’m cautiously optimistic.

Bad publicity

Sports Direct International (LSE: SPD) boss Mike Ashley has been in the news for the wrong reasons recently, having been summoned to appear in front of a committee of MPs regarding allegations surrounding the company’s employment practices.

That comes on top of January’s Christmas trading update that reported poor trading — which the company blamed on the unseasonal weather. It led the firm to say it was “no longer confident of meeting our adjusted underlying EBITDA target […] of £420m for the full year“. On the day, the shares lost 15%, and they’ve since fallen to 437p for a 45% drop since the beginning of December.

The company has dropped out of the FTSE 100 now, but I can’t help thinking its fundamentals are starting to look attractive again. After years of double-digit gains, EPS is expected to fall slightly this year. But two subsequent years of modest recovery would drop the P/E to only 9.4 by April 2018, and that just seems too low to me.

Index trackers selling off the shares will have contributed to the fall, but with the price up 9% so far today they might have given us a nice buying opportunity.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Sports Direct International and Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Despite rising 152% in a year, is Rolls-Royce’s share price still a bargain?

While Rolls-Royce’s share price has shot up recently, it still looks very undervalued against its peers, and the business looks…

Read more »

Investing Articles

Could Nvidia stock be a bargain in plain sight?

Nvidia stock has surged 252% over the past 12 months, but that doesn't mean it's expensive. In fact, it may…

Read more »

Investing Articles

Here’s why I think the Vodafone share price should be 110% higher

Reflecting on speculation, our writer believes there’s a case to be made for the Vodafone share price being more than…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Is this dividend star also the best bargain in the FTSE 100?

This FTSE 100 stock pays a whopping 8%+ yield, looks very undervalued against its peers, and is set for stellar…

Read more »

Investing Articles

2 FTSE 100 stocks. One sublime, the other ridiculous

Our writer doesn’t understand the appeal of Ocado. But looking at the grocer’s latest results makes him see the attraction…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Down 18% in a year, what’s next for the Greatland Gold (GGP) share price?

The Greatland Gold share price has disappointed over the past 12 months. Our writer asks whether the company’s latest update…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

With 30% annual returns for a decade, I’m buying this for my Stocks & Shares ISA

Oliver Rodzianko has been looking for a new investment for his Stocks and Shares ISA. Here's one he's decided is…

Read more »

Investing Articles

These were the FTSE 100’s dogs and stars in February

The FTSE 100 limped along last month, but some Footsie shares soared while others slumped. Here are February's winners and…

Read more »