Today I am running the rule over three movers and shakers in Wednesday trade.
Unilever set to deliver the goods
Household goods leviathan Unilever (LSE: ULVR) is taking a pasting in midweek business following a negative report from Goldman Sachs, and the business was last 3.9% lower from Tuesday’s close. The broker cut its rating on the stock from ‘neutral’ to ‘sell’ after warning of the negative impact of Internet shopping, as well as intensifying competition in emerging markets, on Unilever’s top line.
Having bulked up my own holdings in Unilever during the past year I, for one, do not share such sentiments, and believe the company should enjoy brilliant sales growth amid improving economic conditions in traditional markets and rising personal income levels in developing regions. On top of this, the terrific brand power of Unilever’s products — from Dove soap and Axe deodorant through to Marmite spread — should allow it to neutralise its rivals.
This view is shared by the City, and Unilever is expected to see earnings expand 14% in 2015 and by a further 4% in 2016. Although P/E multiples for these years sail above the benchmark of 15 times that indicates attractive value — 2015 and 2016 clock in at 22.7 times and 21 times respectively — I believe Unilever’s ability to keep earnings rising in spite of recent structural weakness in critical markets merits this premium.
Put a cap on Tullow Oil
Oil giant Tullow Oil (LSE: TLW) has failed to hurdle the risk aversion sweeping across Wednesday’s session despite releasing a broadly-positive operational update, and shares were last 0.2% lower. The firm advised that it had restarted production at its Jubilee field in Ghana after completing work on a gas compressor, and that oil output had returned to previous rates.
Tullow Oil also announced that the Ugandan and Kenyan governments had agreed on a route for a regional crude export pipeline, a significant milestone for the company to begin tapping the massive resources in the region. Less promisingly, however, Tullow Oil has been forced to abandon the Spari-1 well in Suriname after failing to find any significant oil or gas.
While today’s release should naturally provide some reason for cheer, I believe the worsening market imbalance washing over the oil market should keep Tullow Oil’s share price under pressure — the business has shed two-thirds of its value during the past year alone. With OPEC defying calls to restrict pumping, US shale rigs restarting, and output from Russia also heading higher, I believe the oil price and consequently Tullow Oil’s revenues should continue heading lower.
Drive away with Lookers
Car retailer Lookers (LSE: LOOK) fared no better on Wednesday despite unveiling another bubbly financial release and was last 2.1% lower on the day. The company advised that new car registrations galloped 7% higher during January–June, up to 1.4 million, the best half-yearly performance in Lookers’ history. As a consequence the business elected to supercharge the interim dividend, hiking the reward 10% to 1.07p per share.
While sales of shiny new units continued to take off, Lookers’ used car and aftersales divisions have also enjoyed bumper demand and group revenues 9% higher during the period to £1.8bn. With steady wage growth, improving employment levels and low inflation helping to boost consumer spending power, I expect sales at Lookers — which operates some 124 dealerships the length and breadth of the UK — to keep on rising.
The result of heavy investment in recent times is expected to push earnings at Lookers 1% lower in 2015, although a 4% bounceback is predicted for next year. And these figures leave the business changing hands on ultra-cheap P/E multiples of just 12.4 times for this year and 11.9 times for 2016, brilliant value in my opinion given the underlying strength of the British car market.
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Royston Wild owns shares of Unilever. The Motley Fool UK has recommended Tullow Oil. The Motley Fool UK owns shares of Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.