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Why I Would Buy Royal Mail PLC, Ted Baker plc And Countrywide PLC But Sell Weir Group PLC

Today I am looking at the investment case for four FTSE movers in Tuesday business.

Royal Mail

British courier Royal Mail (LSE: RMG) has excited the market and was recently dealing 3.3% higher on the day. The business has been boosted by an upgrade from broker Cantor Fitzgerald, and with good reason — restructuring continues to ratchet through the gears, and cost savings of £42m in the year concluding March 2015 are expected to rise to £80 per annum from the current period.

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The effects of intense competition are expected to push earnings 30% lower in 2016, however, a result that creates a P/E multiple of 17.4 times, just above the benchmark of 15 times which represents attractive value for money. But this reading slides to 14.6 times for 2017 amid expectations of an 11% flip higher, bolstered by expectations of sterling parcel volume growth as e-commerce activity rises.

And this promising earnings outlook is expected to keep Royal Mail’s dividend prospects bubbling away, too. The company is anticipated to raise last year’s 21p per share reward to 21.1p in 2016, creating a chunky yield of 4.2%. And next year’s predicted bottom-line rebound is expected to drive the dividend to 22p, resulting in a 4.4% yield.

Ted Baker

Fashion house Ted Baker (LSE: TED) has also been one of the best performers today and was recently 2.4% higher. I have long sung the company’s praises on the back of its terrific brand power, not to mention its aggressive store expansion programme across the globe — total retail sales leapt 18% last year to £306.9m, also helped in no small part by a near-60% improvement in online business.

Ted Baker has a long and distinguished record of generating double-digit earnings growth, year after year, and the firm’s massive investment plan looks set to keep this trend rattling along. Indeed, the City expects expansion of 19% and 16% for the years concluding January 2016 and 2017 correspondingly. And although these figures generate high P/E multiples of 29.1 times and 25.1 times, I believe the excellent growth potential at the London firm fully justifies this premium.


Property surveyors Countrywide (LSE: CWD) have also taken off during the Tuesday session and the company was recently 3.2% higher. And in my opinion a backcloth of solid housebuying activity, supported by increasingly-generous mortgage products and supportive government initiatives for first-time buyers, looks set to undergird solid earnings expansion at the firm.

And I believe Countrywide provides exceptional bang for one’s buck. Firstly, predicted earnings advances of 11% and 12% for 2015 and 2016 produce tasty earnings multiples of 14 times and 12.8 times for these years. And expectations of huge profits and cash growth are expected to propel the dividend to 24.1p per share this year, resulting in a juicy 4.2% yield, and a prospective payment of 27.3p next year drives this reading to 4.7%.

Weir Group

Unlike the other firms I have mentioned, I reckon that specialist pump builder Weir (LSE: WEIR) is likely to face increasing revenues woes in the coming years. Critical customers across the mining and energy sectors continue to scale back spending in the face of deteriorating commodity markets, a situation which is likely to persist for some time to come. The engineer’s shares have failed to reflect these concerns in recent weeks, however, and Weir was recently up 4.1% in Tuesday trade.

Still, the City expects the company to record a 30% earnings slump for 2015 as weakness in its key end markets smashes new order activity, leaving Weir trading on an unappealing P/E ratio of 19.3 times. This figure improves to 17.4 times for next year amid a projected 12% earnings uptick, but I reckon that such a rating still fails to account to the chronic risks facing the group due to worsening oversupply across the natural resources sectors.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Weir. 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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