So many big-name stocks have been struggling lately that it’s nice to come across a trio whose outlook has brightened in recent weeks.
The right equipment
Equipment rental firm Ashtead Group (LSE: AHT) has enjoyed a buoyant few years so recent positive results are just a continuation of its successful run. The share price is up 508% over five years, although growth has slowed in the last 12 months. Things are picking up again with it posting a strong Q4 with profit margins hitting record highs. To complete the joy for investors, Ashtead announced a juicy dividend hike and a £200m share buyback at the same time.
With underlying earnings per share leaping 47% in the final three months of the year Ashtead is on a roll. Chief executive Geoff Drabble reckons it’s on course for both strong earnings growth and cash flow, giving investors the dream combination of rising profits and enhanced shareholder returns. Fears may be growing over the health of the US economy but that hasn’t harmed Ashtead’s key US division Sunbelt, which increased its market share after posting healthy like-for-like growth of 12%. Despite all the good news, Ashtead trades at just 12.19 times earnings. The company has already shown it has the right equipment, now it’s clear it knows exactly how to use it.
Toxic clear-up
The last five years have been a very different story for Barclays (LSE: BARC) but the share price is showing signs of life, rising 15% in the last three months. I’ve been flying the flag for Barclays for some time and now it doesn’t seem such a lonely occupation, especially as I have some support from broker Exane, which says the “fog is lifting” over the business.
Yes, cutting the dividend hurt, PPI and other scandals sting, Brexit casts a shadow and nobody knows whether Barclays is reducing risk by offloading its African operations or shooting itself in the foot by exiting potentially profitable emerging markets. However, the dividend will be repaired, PPI will one day fade from memory, the capital base will strengthen, and earnings will start rising. EPS may be forecast to drop 20% this year, but analysts reckon EPS will rise 62% in 2017, which isn’t far away. Securing a decent dividend may take longer, with the yield forecast to be just 1.9% by the end of next year, but eventually it must come.
Turning up the gas
These have all also been tough times for British Gas owner Centrica (LSE: CNA), with the company’s share price down 33% over five years, but now there are signs of hope with UBS just upgrading it from sell to buy, which is quite a leap.
UBS says the two factors driving down Centrica – the Competition and Markets Authority (CMA) enquiry into industry competition and falling commodity prices – have both eased. The CMA has resisted calls to break up British Gas, oil is above $50 a barrel and Centrica has raised the capital to shore up its balance sheet and free cash flow is on course to hit around £1bn a year.
That’s all good, especially if it means the generous dividend is safe, with Centrica forecast to yield 6.2% by the end of 2017. Trading at 12.42 times earnings now might be a great entry point for contrarians.
