The Motley Fool

One 6% yielder I’d trade for Imperial Brands plc

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.

One of the investing lessons I’ve learned over the years is that cyclical businesses usually take longer to hit rock bottom than you’d expect.

Pub groups are a good example of this. Shares of Greene King (LSE: GNK) have now fallen by 25% so far this year. They’re worth around 45% less than when they peaked at the end of 2015.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Is this stock finally cheap enough to buy? Perhaps. But today’s figures suggest to me that trading is likely to remain tough as we head into 2018.

Mixed figures

Adjusted pre-tax earnings fell by 8% to £127.9m during the 24 weeks to 15 October, while revenue fell by 1.2% to £1,031.4m. This may not seem like a big drop in sales, but it’s important to remember that to keep pace with inflation, sales should be rising by a few percent at least.

Group costs are expected to rise by £60m this year, but management expects “to deliver £40m-£45m of cost savings,” to offset some of these increases.

One concern for me is that Greene King is still in the process of integrating and optimising its pub brands, following the 2015 acquisition of Spirit Pubs. This process inevitably carries upfront costs and some risk, even if the end result is successful.

A turnaround opportunity

The Suffolk-based group’s net debt is now 4.2x times earnings before interest, tax, depreciation and amortisation (EBITDA), up from 4 times at the end of last year. Management expects this ratio to be “relatively stable”, but I’m concerned it could rise further.

The interim dividend has been left unchanged at 8.8p. Assuming the final dividend is also flat, the stock now offers a yield of 6.3%. Greene King says that this is “attractive and sustainable”, but I’d caution that if trading remains difficult next year, this payout could come under pressure.

The opinion coming out of the City after today’s results seems to be that analysts’ earnings forecasts are now likely to fall. So the stock’s forecast P/E of 8 may not be quite as cheap as it seems.

I expect Greene King to deliver a medium-term recovery. But I don’t think there’s any rush to buy just yet.

A Woodford pick I’d buy

If you’re happy to invest in sin stocks, then I believe tobacco giant Imperial Brands (LSE: IMB) could prove a more profitable alternative to Greene King.

The group’s share price dipped earlier this week after wholesaler Palmer & Harvey went into administration. P&H was one of the main distributors of tobacco products in the UK, and Imperial was forced to admit that this situation is likely to result in a one-off loss of £160m of operating profit.

However, the group has contingency plans in place for distribution and this loss looks small when measured against last year’s adjusted operating profit of £3,761m. The group’s overall valuation also looks modest when compared to key rivals.

Imperial stock currently trades on a forecast P/E of 11, with a prospective yield of 6.1%. In contrast, British American Tobacco trades on 17 times forecast earnings with a yield of 3.8%.

In my view, there’s no obvious reason for Imperial to trade at such a big discount. That’s a view shared by fund manager Neil Woodford, who bought more shares in October at what he described as an “appealing and unjustified share price”.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.