Political news has grabbed most of the headlines today. But there was plenty of stock market action behind the scenes, highlighting the opportunities that exist for investors in uncertain markets.
Banking blues
Royal Bank of Scotland Group kicked off proceedings by warning that a last-minute surge of claims in August is expected to take the bank’s total PPI compensation bill to between £5.5bn and £5.9bn. Management had previously expected a figure of £5.3bn.
However, the RBS share price edged higher anyway. With the claims deadline now past, the bank’s profits are expected to rise this year. RBS stock looks good value to me, trading at 35% discount to book value. Shareholders are set to receive a 2019 dividend yield of up to 12%, thanks to a special cash return.
Housing hero
FTSE 100 housebuilder Barratt Developments published an impressive set of results, with pre-tax profit up 9% to £910m. Current trading is said to be healthy, with forward sales of almost £3bn and stable profit margins.
However, wider economic risks appear to be spooking investors and the Barratt share price was down by 4%, at the time of writing. Economic data published this week show the UK economy is slowing and suggest we may be heading towards a recession. In my view, Barratt shares aren’t quite as cheap as they seem. For now, I’d rate them a hold.
Mixed results from retailers
We all know it’s tough on the high street. But figures from homewares retailer Dunelm show not all retailers are suffering. Dunelm said total sales rose 4.8% to £1,100.4m last year, with pre-tax profits up 35% to £125.9m. Like-for-like sales in stores were said to be 7.7% higher — an impressive achievement.
Despite this, the Dunelm share price was down by nearly 8% at the time of writing, after chief executive Nick Wilkinson warned of a “cautious” view on the outlook for the current year. Investors may have decided this was a good time to take profits on DNLM stock, which has risen by more than 50% in 2019, and now trades on 17 times forecast earnings.
Halfords Group CEO Graham Stapleton painted a much gloomier picture in his statement this morning. The cycle and motoring parts retailer has issued another profit warning, cutting pre-tax profit guidance for this year from about £59m to £50m-£55m.
Like-for-like sales fell 3.2% during the 20 weeks to 16 August and like-for-like sales of motoring accessories were particularly weak, down 5.9%. I’ve been cautious about Halfords for a while and my view remains unchanged. I think we could see more bad news from this company over the coming months, including a dividend cut.
Motoring ahead?
If you want to invest in motors, then I think the best place might be at the very top end of the market. Shares in upscale car dealership group Cambria Automobiles were up by 10% at the time of writing.
In 2017/18, the £58m firm added four dealerships — two for Bentley, one Lamborghini, and one McLaren — to its portfolio. As a result of this shift towards luxury brands, management said profits from new car sales have “improved significantly” over the last year.
This small-cap stock won’t be suitable for everyone. But if you’re interested in this sector, I think it could be worth a closer look.
