Rail, bus and coach transport operator Firstgroup (LSE: FGP) said a month ago that bus passenger volumes had reached 65% of pre-pandemic levels. And, back then, the directors expected further volume recovery as the autumn terms for schools and universities “get fully underway.”
A strong earnings recovery predicted
Meanwhile, City analysts have pencilled in a strong recovery in earnings for the current year to March 2022. And they expect a leap higher the following year, worth around 170%. If the business hits those expectations, earnings will then exceed the 2019 level.
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With the share price near 91p, the forward-looking earnings multiple is just above 12 for the trading year to March 2023. That’s a reasonable valuation to my eyes. However, there’s a fair amount of debt on the balance sheet, which could be problematic if we see another economic downturn.
But there’s little sign of economic weakness affecting laser-guided concrete-levelling equipment maker Somero Enterprises (LSE: SOM). In September, the company delivered an impressive half-year results report with revenue, cash flow and profits all shooting much higher.
The directors reckon the progress was driven partly by customers catching up with projects delayed by the pandemic. Looking ahead, Somero also expects a strong second half. Beyond that, chief executive Jack Cooney said the company is making “strategic investments to deliver healthy profits and cash flows … in the years to follow.“
Meanwhile, shareholders have been rewarded with a 125% lift in the interim dividend. And the company’s also engaged in a programme of buying back some of its own shares. But despite the progress, the valuation looks modest to me. With the share price near 500p, the forward-looking earnings multiple is near 12 for 2022. And the anticipated dividend yield is about 5.5%.
There’s some risk that trading in future years could ease back after customer workflows normalise. But Somero has been expanding its business for several years and the trend looks set to continue.
Investing in corporate debt
And strong trading for businesses is good for Blackstone Loan Financing (LSE: BGLF). The company aims to invest directly in floating rate senior secured loans and bonds, typically representing debt taken on by companies and other organisations. And it also invests in such debts indirectly through Collateralized Loan Obligation (CLO) securities and investments in loan warehouses — a CLO is a single security backed by a pool of debt. And the process of pooling assets into a marketable security is called securitization.
In September’s half-year report, the directors said there’d been reduced “actual and expected investment downgrade and default expectations.” And that led to a positive performance for the business. But looking ahead, the company is cautious about the way the pandemic could play out. However, the outlook for the rest of 2021 is “optimistic”.
There are clear risks with this one. That’s because the company’s exposed to the possibility of other firms defaulting on their debts. However, I think the valuation helps to compensate for such higher risks. And, of course, defaults aren’t certain.
With the share price near 81 euro cents, the price-to-asset value is near 0.9 and the shareholder dividend yield is running near 9%.