Can Anglo American plc, Rolls-Royce Holding PLC And BHP Billiton plc Bounce Back After A Cruel Summer?

Today I am looking at the share price prospects of three London laggards.

Anglo American

As one would expect, diversified miner Anglo American (LSE: AAL) has endured a torrid time in recent months, a backdrop of collapsing commodity prices prompting the entire mining sector to rail lower. Anglo American’s share price has fallen a whopping 29% since the start of the summer and I do not envisage a robust turnaround any time soon.

Prices of iron ore — a segment from which Anglo American sources 27% of group earnings — dropped to its lowest for around a decade last month as fears over Chinese demand weighed. And the outlook for the coal sector, the miner’s second-largest market, looks equally perilous, with the price of minerals also affected by rising environmental legislation across the globe. As such, the City expects Anglo American to suffer a 13% slip this year alone, resulting in a P/E multiple of 12.3 times, a figure I consider too high given the firm’s muddy outlook.

Like many of its mining peers, Anglo American is locked in a desperate bid to conserve cash, and the business hived off its Norte copper asset just this week in a deal worth up to $500m. But with revenues likely to keep lagging, and Anglo American nursing a massive $13.5bn debt pile, I think expectations of a dividend freeze at 85 US cents per share for 2015 and 2016 — yielding a very tempting 7.1% — are nailed on to disappoint.

Rolls-Royce Holding

Diversified engineer Rolls-Royce Holding (LSE: RR) has seen share prices hurtle south since the sunny season kicked off, thanks in large part to fears over future demand from the oil sector — the Crewe firm has fallen 27% since the start of June. Indeed, Rolls-Royce issued its third profit warning in a year during July as revenues slid 15% at its Marine division, to £818m.

On top of this, Rolls-Royce’s Civil Aerospace division is also being hit by slowing sales and prices of its soon-to-be-replaced Trent 700 engine. As a result of these troubles, earnings are expected to fall 17% in 2015 and 18% in 2016, pushing a reasonable P/E multiple of 13.5 for the current period to 18.5 times next year. Meanwhile, deteriorating cash flows are also expected to reduce the dividend from 23.1p per share to around 22.7p in both 2015 and 2016, although these figures still yield a decent 3.1%.

Still, I believe Rolls-Royce is in great shape to deliver stonking returns on the years ahead, and the group order book rose a further £2.8bn during the first half, to £76.5bn. There is no doubt that aircraft demand is set to head higher despite current turbulence, and Rolls-Royce’s expertise in engine manufacturing and servicing puts it at the front of this market — indeed, the firm inked its biggest ever order with Emirates back in April, worth a staggering $9.2bn. Although the oil price problem looks set to plague ‘Double R’ for some time yet, I reckon the company’s leadership in many engineering markets makes it a terrific play for patient investors.

BHP Billiton

Like Anglo American, I reckon diversified digger BHP Billiton (LSE: BLT) is in line for more pain as production across key markets continues to rise and insipid demand from the likes of China fails to pick up the slack. This view is shared by the investment community, and the stock has shed 19% during the past three months alone.

The steady fall in commodity values prompted underlying profit at the firm to slip 52% during the 12 months to June 2015, to $6.4bn, a move that prompted BHP Billiton to scale back planned capital expenditure from $11bn last year to $8.5bn in 2016 and $7bn to 2017. Such cutbacks are of course a positive step in addressing chronic supply/demand imbalances, but I believe the industry has much more to do before the revenues outlook at BHP Billiton and its peers begins to improve.

The City expects BHP Billiton to punch a 25% earnings decline in the current fiscal year, leaving it trading on a ridiculously-high P/E multiple of 18.9 times — I would consider a reading closer to 10 times to be a fairer reflection of the problems the miner faces. And expectations of a 124 US cent per share dividend, in line with last year’s reward and thus putting paid to the firm’s progressive payout policy, underline the growing stress on the firm’s balance sheet. I believe a subsequent 7.4% yield looks too good to be true.

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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.