Safestyle: Cheap Enough
Safestyle is a UK-focused retailer and manufacturer of PVC windows and doors for the homeowner replacement market. It has a market cap of about £180m, which has risen by more than 3% today in the wake of an upbeat trading update for the six months ended 30 June 2015.
Its shares are up almost 40% this year, and currently trade at 235p — they hit a record high of 238.75p in early trade today. In spite of a rising valuation, its stock trades on lowly 13x, 12x and 11x net earnings multiples for 2015, 2016 and 2016, respectively.
Its balance sheet is solid, with a net cash position, and management has proved it can deliver growth and income from dividends, while maintaining financial discipline — all of which points to value. Finally, consider that its forward yield stands between 4.2% and 5%.
Experian: Cautious Optimism
Its shares currently trade at 1,210p, having risen about 10% so far this year and 17% over the last 12 months.
I like Experian’s business model and I think this is an equity investment that should belong to a diversified portfolio, but its relative valuation — at 22x forward earnings — also suggests that taking a cautious approach could pay off if you are chasing value.
Its growth forecasts are in line with expectations, although currency trends may be less supportive, its first-quarter results showed today. The group is likely to deliver rising earnings and dividends on the back of steady margins that will likely boost its rich free cash flow yield over time.
Net leverage, meanwhile, is around 2x and looks manageable.
Its equity valuation is not far away from its record highs, and could receive a fillip if management decided to return cash to shareholders, which is a distinct possibility.
Rio Tinto: One To Watch
Rio released today its second-quarter production results, which essentially did not move the needle.
Chief executive Sam Walsh said: “We have maintained our emphasis on efficiency and protecting returns.” I see little evidence of that but it appears clear that, at around 12x forward earnings, Rio Tinto is one name to keep on the radar.
What also caught my attention today in the mining world was the announcement that Anglo American had decided to write down up to $4bn of assets, which is a good sign for Anglo, Rio and their competitors as miners have no choice but to clean up their balance sheets in this environment.
Is that a case of short-term pain for long-term gains?
Historically, hefty write-downs tend to signal the bottom for equity valuations in cyclical sectors; as far as Rio is concerned, we may not be there yet, although decent news for China’s GDP growth earlier this week were encouraging…
To be honest, Rio does not represent the kind of risk that I'd be prepared to take in this market.
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Alessandro Pasetti 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.