Today I am looking at the investment case for three of the FTSE’s midweek laggards.
Pets At Home Group
Animal emporium Pets At Home (LSE: PETS) has suffered a disappointing performance in Wednesday business and was last 4.1% lower from the prior evening’s close. This is despite the Wilmslow firm advising that total sales jumped 6.4% during April-June, to £224.2m, while like-for-like sales crept 1.7% higher during the period. While these numbers may have missed estimates, the release confirmed the upward momentum of the firm, underpinned by solid vet and grooming service demand.
The City expects Pets At Home to enjoy earnings growth of 15% in the period ending March 2016, resulting in a P/E rating of 18.3 times. And predictions of an extra 9% increase in 2017 pushes this reading to 16.7 times, peeking just above the benchmark of 15 times that indicates great value for money.
And these solid earnings projections are expected to keep the pet shop’s dividend policy firing higher, too. A total dividend of 6.2p per share is pencilled in for 2016, up from 5.4p last year and yielding a handy 2.2%. And this rises to 2.4% for next year amid estimates of a 6.8p reward. And I fully expect dividends to keep marching higher in line with bubbly earnings expansion.
Like Pets At Home, catering provider Compass (LSE: CPG) has suffered a significant share price reversal after releasing disappointing numbers, and was last 4.9% lower. Although the business printed organic revenue growth of 5.1% during April-June, this represents a slowdown when viewed against the 5.5% rise punched during the nine months from September. As well, investor sentiment was soured when Compass advised it will suffer costs of £20m-£25m in 2015 and 2016 related to restructuring plans.
Still, I believe Compass remains a terrific long-term pick as its pan-global presence delivers solid demand growth — the firm saw organic sales in “fast growing and emerging” regions climb 6.9% in the last quarter, with sales to developing markets sprinting 12% higher. Consequently, the City expects Compass to enjoy earnings growth of 12% and 8% for the years ending September 2015 and 2016 respectively.
These projections drive a heady earnings multiple of 20 times for this year to 18.6 times for 2016, and underpin expectations of further growth in the dividend. A payment of 26.5p per share last year is anticipated to rise to 28.6p in 2015, and to 30.8p next year. These numbers create decent-if-hardly-exciting yields of 2.6% and 2.8% correspondingly.
With copper prices continuing to tank, I believe that red metal miner Antofagasta (LSE: ANTO) is in line for enduring earnings pain. These fears are currently shared by the market, and an 1.8% decline on Wednesday continues the significant downtrend of recent years — the Chilean digger has fallen 29% during the past three months alone.
The firm has seen its value ebb away in line with an eroding copper benchmark, and three-month copper at the London Metal Exchange tumbled to six-year troughs around $5,200 per tonne just this week. And trader appetite for Antofagasta received a further pounding today following news that it expects group 2015 production to register at 665,000 tonnes from 695,000 tonnes previously, caused by technical problems at its Antucoya project.
This release compounds Antofagasta’s already-murky sales outlook, with the number crunchers already projecting a third consecutive earnings decline in 2015 — a 15% drop is currently pencilled in. But with the market beset by a worsening supply/demand imbalance, one which is likely to depress metal prices for some time to come, I believe a huge P/E ratio of 23.6 for 2015 is outrageous given the lack of tangible growth drivers.
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.