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Why I Would Buy Banco Santander SA And GKN plc But Sell Enquest Plc

Today I am looking at the investment case for three London-listed stalwarts.

Banco Santander

I have long championed the growth case for Spanish banking giant Santander (LSE: BNC) owing to its terrific pan-global exposure and vast operations in the growth nations of Latin America. And the resurgent firm continues to perform exceptionally across all of its major marketplaces, and punched profits growth in nine of the 10 major regions in which it operates during January-March.

A surge in lending during the period helped to drive revenues 13% higher, a result which pushed attributable profit 32% higher to more than €1.7bn. With economic conditions in its many of its markets improving, and the company aggressively rolling out new products in its territories, the City expects Santander to enjoy earnings growth of 11% and 12% in 2015 and 2016 correspondingly.

These figures create P/E multiples of 12.4 times and 11.1 times for these years — a reading below 15 times is widely considered tremendous value. And even though the bank has vowed to keep the full-year dividend frozen at 20 euro cents per share this year, such a payment still creates a decent-if-unspectacular yield of 3%.

GKN

Despite the release of a bubbly trading update in Wednesday business, shares in GKN (LSE: GKN) have failed to take off and were last dealing just 0.7% higher. The Redditch firm announced that its auto-related operations “continue to outperform the market,” no doubt helped by its focus on the high-demand premium car segment, and organic sales at its Driveline and Powder Metallurgy departments edged 4% and 3% higher respectively during January-March.

Meanwhile its Aerospace division also remains resilient and organic sales here also edged higher during the quarter. The City currently expects GKN to break its unbroken record of earnings growth in 2015 with a 5% dip, however, although a solid 10% bounceback is predicted for 2016 as car sales shoot higher and civil aircraft demand rises.

And these figures leave the business dealing on attractive P/E ratios of 12.3 times and 11.5 times for 2015 and 2016 correspondingly. On top of this, GKN is also expected to lift the full-year payout from 8.4p per share in 2014 to 8.9p this year, producing a yield of 2.6%. And predictions of a further hike in 2016, to 9.6p, pushes the yield to 2.8%.

Enquest

Shares in oil explorer Enquest (LSE: ENQ) have taken off again in midweek business and were recently changing hands 4.9% higher on the day. This pattern follows the broad uptrend seen since the start of the year — the stock has gained 55% over the past month alone — but quite why investor sentiment remains quite so perky beats me, I’m afraid.

Sure, it is true that a recovering Brent price has shored up appetite for the firm, the benchmark having touched its highest since early December above $67.50 per barrel just this week. But with supply from the US, Russia and OPEC continuing to flow at a rate of knots, and sluggish global growth failing to suck up the excess material, I believe that the risks facing Enquest remain stubbornly to the downside.

On top of this, Enquest also remains on shaky financial ground — net debt currently stands at around $933m — and desperately needs crude prices to keep on trucking to get its Alma/Galia and Kraken projects in the North Sea steaming ahead. The company received good news yesterday when noteholders agreed to changes to the terms of some of its long-term debt, but this development is likely to prove a mere sticking plaster unless wider market conditions improve substantially and the economic viability of its projects consequently improves.

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