Why the IWG and RBS share prices look set to storm back against the FTSE 100

IWG plc (LON: IWG) and Royal Bank of Scotland Group plc (LON: RBS) could deliver outperformance of the FTSE 100 (INSEXFTSE:UKX) after difficult periods.

| 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.

With the IWG (LSE: IWG) share price falling by 20%+ on Monday, investors may feel nervous about buying a stake in the workspace provider. However, the main reason for the share price fall is that the company has terminated talks with potential bidders. The stock market had included a bid premium, which now seems to have been removed following the news that there is unlikely to be a bid approach.

Of course, IWG is not the only stock which has recorded a disappointing share price performance of late. RBS (LSE: RBS) is down by 15% since the end of May 2018. Both companies, though, could beat the FTSE 100 over the medium term.

Growth potential

Alongside news that it has terminated discussions with potential suitors, IWG also released a positive set of interim results. They show a rise in revenue of 7.4%, with it reaching £1,204m. While operating profit moved 29% lower to £60m, this was partly due to the major investment that the business is making in growth opportunities and marketing spend. It expects to meet forecasts for the current year, with the stock due to record a rise in earnings of 13%. And with further growth of 21% due next year, the business appears to be moving in the right direction.

Of course, there has been continued weakness in the UK. This contributed to its falling operating profit, and is rather unsurprising given the lack of confidence among businesses ahead of Brexit. Further underperformance within the UK could be ahead, although in the long run the prospects for the wider group appear to be impressive.

Since IWG trades on a price-to-earnings growth (PEG) ratio of around 0.9, it seems to offer good value for money. Although likely to be volatile, it has the potential to beat the FTSE 100 in the long run.

Improving outlook

Also having the capacity to deliver a successful share price turnaround is RBS. Its recent update showed that its underlying performance is improving, and the bank remains on track to deliver a rise in earnings of around 9% next year. This could stimulate investor sentiment and lead to a higher share price – especially with the stock having a PEG ratio of 1.2 at the present time.

Of course, the big news regarding RBS in recent weeks has been its decision to recommence dividends after a decade of no payments to shareholders. This has been expected for some time, but what the stock market may not be pricing-in is the company’s ability to hike dividends at a fast pace over the next few years.

For example, in the 2019 financial year the stock is due to pay out 15.4p in dividends per share versus 8p in 2018. This puts it on a forward yield of 6.2%. With dividends set to be covered 1.9 times by profit next year, they appear to be sustainable and highly attractive. As such, now could be the right time to buy the stock.

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.

Peter Stephens owns shares of Royal Bank of Scotland Group. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

2 cheap dividend stocks I’d snap up in a heartbeat!

This Fool is on the look out for quality dividend stocks and earmarks these two firms as great options to…

Read more »