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Why I Would Buy Britvic Plc & Royal Mail PLC But Sell Quindell PLC

Today I am running the rule over three of the movers and shakers in Tuesday trade.

Britvic

Drinks leviathan Britvic (LSE: BVIC) has cheered the market in morning business on the back of a solid trading update, and shares are currently up 5.1% on the day. The company advised that although trading conditions remain challenging — a factor that saw group revenues slide 0.4% during the first quarter — that ongoing cost-cutting should allow it to meet full-year profit expectations.

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The impact of intensifying price wars in its critical UK division has caused the top line to stagnate in recent times. But a stepping up of marketing activities, steady stream of new product innovations, and entry into new markets including the US are all expected to boost revenues from the second half of the year.

City analysts expect Britvic to record a modest 1% earnings slide for the year concluding September 2015. But the business is anticipated to see the bottom line take off thereafter, with growth of 11% and 9% chalked in for fiscal 2016 and 2017 correspondingly.

As a result Britvic carries a P/E multiple of 15.7 times forward earnings for the current year, just above the watermark of 15 times or under which indicates attractive value for money. But strong earnings growth in the following years drive this figure to 14.2 times for 2016 and 13 times for 2017.

And the beverages giant can also be considered a tasty pick for those seeking chunky dividend growth. Although Britvic is anticipated to keep the payout locked at 20.9p per share this year — creating a yield of 3.2% — expectations of chunky rises in the medium term drive the yield skywards. An expected total payout of 22.8p next year produces a yield of 3.5%, while a dividend of 24.8p in 2017 results in a readout of 3.8%.

Royal Mail

Shares in British courier Royal Mail (LSE: RMG) enjoyed a boost at the start of the week on the back of rumours of a potential merger with the Netherlands’ PostNL. Prices have since reversed, however, and the UK firm was recently changing hands 4.1% lower on the day.

The business continues to report strong activity at its pan-European GLS parcels division which spans 37 countries, illustrating the huge riches on offer just across The Channel. Indeed, Royal Mail is enjoying excellent packages volumes across the business as the sphere of internet shopping keeps on accelerating, and its UK Parcels arm saw volumes rise 3% in April-December. Although revenues were flat due to competitive pressures, the firm reported that turnover has improved in recent months.

In my opinion Royal Mail offers terrific potential for both growth and income hunters, prompted by heavy restructuring and supportive long-term trends in the parcels market. The abacus bashers expect the company to deliver growth of 22% in the 12 months concluding March 2015, creating an appealing P/E multiple of just 14 times. And expansion to the tune of 5% and 10% in 2016 and 2017 pushes this figure to 13.7 times and 12.1 times respectively.

This steady growth is anticipated to underpin terrific growth in the dividend. A final payout of 21p per share for 2015, yielding a market-busting 4.8%, is estimated to rise to 21.6p next year, pushing the yield to 4.9%. And a predicted payment of 22.3p for 2017 drives the yield to an impressive 5.1%.

Quindell

To say that Quindell (LSE: QPP) has enjoyed a rip-roaring start to 2015 would be something of a huge understatement. Despite the swirls of uncertainty still ripping at the firm, the telematics play has gained 144% in the year to date and was recently 1.1% higher in Tuesday business.

However, I fail to share this buoyant enthusiasm for the Fareham-based business. Quindell commented earlier this month that it was in discussion with a number of parties over possible asset sales, although it failed to divulge which divisions were on the chopping block. But confirmation last week that Quindell is in talks with Australian law firm Slater & Gordon has fed speculation that the firm’s legal services arm could be cast adrift.

Quite why Quindell would be considering such a sale is baffling to say the least. Not only is the legal division responsible for 50% of total revenues, but cash flows from this division continue to climb owing to the progress of cases through to settlement.

However, with the firm advising that cash receipt growth during the final quarter “has not been as significant as previously anticipated,” perhaps Quindell’s capital position is weaker than thought and thus a prompt firesale is needed to raise much-needed cash. Accountancy firm PwC is still scrutinising the company’s books, a situation which could reveal more problems lurking in the background.

Given the swathes of uncertainty that continue to surround the business following 2014’s horror show — from Gotham City Research’s doubts over the firm’s profit forecasts, through to humiliating resignations following complicated share dealings by chief executive Rob Terry and other board members — I believe that investors should give Quindell short shrift.

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It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Britvic. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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