Why I Would Buy Barclays PLC But Sell Kingfisher plc And Tate & Lyle PLC

Today I am looking at the investment case for three of the FTSE’s headline makers.


I am convinced that the labours of recent years makes Barclays (LSE: BARC) (NYSE: BCS.US) a terrific bet to deliver exceptional shareholder returns. Shares have marched 11% higher since the turn of the year, even though fears of crippling regulatory action has stemmed the advance — the bank was fined a staggering $2.4bn just this month for fixing foreign exchange markets, and faces further heavy penalties as the number of PPI and interest rate-product mis-selling cases stack up.

Although these issues are obviously a massive concern, I believe that Barclays remains a solid long-term growth pick as solid UK economic growth boosts activity across its retail operations. Accordingly the City expects the bank to punch earnings growth of 35% and 22% in 2015 and 2016 correspondingly, figures which create ultra-low P/E ratios of 11.7 times and 9.3 times for these years. Any reading around or below 10 times indicates terrific value.

And this effervescent growth profile also bodes well for Barclays’ dividend prospects, not surprisingly. The bank is expected to finally get its progressive payout policy back on track after holding the dividend at 6.5p per share for the past three years, with rewards of 8p and 10.7 currently expected for this year and next. Such projections push a decent yield of 3% for 2015 to a juicy 4% for 2016.


Retail colossus Kingfisher (LSE: KGF) boosted the market in Thursday trading following a positive trading statement and was recently dealing 2.7% higher on the day. The company advised that like-for-like sales advanced 0.8% during February-April, to £2.6bn, a result that drove retail profits at constant currencies 1.4% higher to £150m.

This performance was driven by exceptional performance at its British Screwfix outlets, where underlying sales leapt 15.4% during the period. However, demand at Kingfisher’s flagship B&Q stores keep on suffering and sales here dropped 1.1% during the quarter, while its overseas operations also continue to drag — like-for-like transactions in France, the firm’s second largest market, fell 1.2%. Meanwhile the impact of adverse currency movements are also casting a shadow.

Consequently I believe that expectations of a 4% earnings uptick for the year ending January 2016, followed by a 9% uptick in the following year, are in danger of disappointing investors. And I do not believe Kingfisher’s P/E multiples of 16.7 times and 15.3 times for these years — outside the watermark of 15 times which represents decent value — fairly reflect the ongoing risks facing the business.

Tate & Lyle

Sugar play Tate & Lyle (LSE: TATE) disappointed investors once again today and shares were recently dealing 3% lower from Wednesday’s close. The business announced that pre-tax profits slumped 84% during the year concluding March 2015, to £51m, as restructuring costs weighed and sales continued to slump — intensifying competition causes revenues to drop 14% during the period to £2.7bn.

With these issues set to keep rumbling for some time to come, the City expects Tate & Lyle to follow last year’s 33% earnings collapse with a further 3% decline for fiscal 2016, a scenario that would mark a third successive earnings fall. A 10% flip higher is expected for 2017, pushing a P/E multiple of 16.3 times for the current period to 15 times.

Still, I believe that a reading closer to the bargain benchmark of 10 times would be a better reflection of the sugar house’s ongoing travails, particularly as any meaningful bounceback from next year is a highly-speculative scenario. With sucralose prices looking set to keep declining — Tate & Lyle sources around a fifth of profits from this one area — and the company’s prolonged drive to create a speciality food ingredients failing to spark into life, I reckon investors should brace themselves for further bottom-line pain.

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