Today I am looking at a cluster of London lovelies following recent news releases.
Drugs giant GlaxoSmithKline (LSE: GSK) has seen its share price rise since releasing its half-year report on Wednesday, and this positive trend was continuing in Thursday’s session with a further 0.9% gain. The business advised that core revenues had advanced 6% during April-June, to £5.9bn, thanks to accelerating strength in its Vaccines and Consumer Healthcare divisions.
While patent lapses remain a huge problem, GlaxoSmithKline’s R&D team continues to deliver the next raft of sales drivers, and currently has 40 new drugs in mid-to-late-stage development. On top of this, its new Tivicay and Triumeq HIV-combating drugs are already proving extremely lucrative, and generated £294m of sales during the six-month period. Given GlaxoSmithKline’s red-hot development pipeline, the City expects the firm to bounce from a 19% earnings decline this year — the fourth successive fall if realised — to punch an 11% advance in 2016.
Consequently the Brentford firm sees a P/E rating of 17.4 times for 2015 fall to just 15.7 times for 2016, just above the benchmark of 15 times that marks decent value for money. And GlaxoSmithKline’s vow to pay out dividends of 80p per share through to the close of 2017 produces a hefty yield of 5.8%. With healthcare demand galloping across the globe I reckon GlaxoSmithKline’s rejuvenated pipeline should provide brilliant earnings growth.
Metallurgical services provider Bodycote (LSE: BOY) has seen its stock price shuttle lower during the past six weeks as a declining oil price has whacked investor appetite. However, the Macclesfield-based business has seen shares tick higher in Thursday trade as its latest trading release beat expectations, and the business was last 3.5% higher on the day.
Bodycote advised that revenues dropped 4% during January-June, to £299.8m, a result that drove pre-tax profit to just £30.6m from £52.6m in the corresponding 2014 period. The business put this down to ongoing weakness in the fossil fuel industry, and worryingly advised that “no upturn is anticipated in the second half in oil and gas.” With general industrial activity also predicted to remain “soft” Bodycote could be set for more significant pain.
The number crunchers expect Bodycote to experience a 4% earnings slip in 2015, leaving the business dealing on a P/E rating of 15.7 times. Although this number is far from outrageous I believe it fails to reflect the massive weakness in Bodycote’s key markets. Consequently I reckon investors should give the business short shrift in the current climate.
Like Bodycote, energy and environment consultancy RPS (LSE: RPS) has suffered harshly from the effect of weakening crude prices and today’s latest release drove shares 2% lower from Wednesday’s close. The London company advised that pre-tax profit dropped 18% in January-June to £17.9m, although strength across the rest of the business helped it to mitigate weakness in the fossil fuel segment and actually pushed revenues 1.7% higher.
Still, with the oil and gas segments under intensifying pressure — both Shell and Centrica announced further rounds of job cuts just today — I believe the prospect of falling expenditure could heap more pressure on RPS.
The City expects RPS to bounce back from a 3% earnings decline in 2015 with a 9% rise in 2016, figures that produce P/E ratios of just 10.3 times and 9.4 times correspondingly — any number below 10 times is widely regarded as terrific value. But in this case I believe the current share price is a fair reflection of the troubles facing the business rather than indicative of a blistering bargain, and that risk-intolerant investors should give the firm short shrift.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.