Why I Would Buy Henry Boot plc And Associated British Foods plc But Sell Enquest Plc

Today I am running the rule over three FTSE headline grabbers.

Henry Boot

Construction specialists Henry Boot (LSE: BHY) have failed to fire up the market in Thursday trade in spite of a bubbly trading update, and the stock was last dealing 0.7% lower on the day. The business advised that trading has been “encouraging” in the year to date, with decent performances across its three land, construction and commercial development segments.

And Henry Boot advised that it expects the Conservative Party’s majority win in this month’s general election to herald a return to normal trading levels after a recent mild slowdown. And with British economic growth stepping up a notch, the City expects the company to record earnings growth of 7% and 10% in 2015 and 2016 correspondingly.

Such figures create appetising P/E ratios of 13.2 times and 11.5 times for these years — any reading below 15 times is widely considered exceptional value. And Henry Boot’s bubbly outlook is anticipated to keep the firm’s progressive dividend policy ticking over, with prospective payments of 6p per share for 2015 and 6.2p for next year creating handy yields of 2.7% and 2.8%.

Associated British Foods

I believe that Associated British Foods (LSE: ABF) is on course to keep on delivering robust earnings expansion in the years ahead, underpinned by the rampant expansion of its Primark brand across Europe and scheduled launch in the US later this year. And latest ONS retail data released today boosted the sales outlook for its core British markets — these showed retail sales leap 1.2% in April, bouncing from March’s 0.7% slide and marking the highest reading since November.

The vast cost of Associated British Foods’ investment programme, combined with the impact of adverse currency movements, is expected to drive earnings 5% lower for the year concluding September 2015, resulting in an elevated P/E reading of 29.6 times. And even though the bottom line is expected to bounce back next year, a 7% improvement still leaves the company dealing on a high multiple of 28.4 times for next year.

And Associated British Foods cannot be considered the most attractive income pick in town either. It is true that dividends are expected to keep ticking higher in the medium term, but forecast payouts of 34.5p and 37.2p per share for 2015 and 2016 correspondingly produce low yields of 1.2% and 1.3%. Despite this, I am convinced that Primark’s global roll-out should blow earnings through the roof in the coming years, while conditions are also improving for Associated British Foods’ Grocery, Ingredients and Agriculture divisions.


Another day, another example of severe share price volatility at Enquest (LSE: ENQ), the fossil fuel explorer was last dealing 5.5% higher in Thursday business. I have long argued against investing in the company owing to the perilous state of the oil market — US crude inventories dropped for the third successive week last week, but remain close to 80-year highs, and resilient production from the US, Russia and OPEC promises to keep oversupply in check.

Enquest cheered its investors last week when it advised production during January-April clocked in at 30,768 barrels per day, up more than 20% on the corresponding 2014 period as the strength of its Malaysian assets paid off. And the company affirmed its belief that full-year output will clock in at between 33,000 and 36,000 barrels per day.

But in the long term I believe the business remains a perilous pick, with the prospect of another crude price dive remaining a very real possibility. North Sea-focussed Enquest is looking to get its Alma/Galia project in the region producing in the coming weeks, while first oil at its gigantic Kraken asset is scheduled for 2017. But should oil stage another collapse, and cost pressures across its North Sea operations continue to chip away at the bottom line, Enquest could see the economic viability of these projects come under scrutiny.

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Royston Wild has no position in any shares mentioned. 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.