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Is It Time To Buy August’s Losers Petra Diamonds PLC, SABMiller PLC & Premier Oil PLC?

Today I am looking at the investment prospects of three London ‘losers.’

Petra Diamonds

Precious stones play Petra Diamonds (LSE: PDL) conceded 17% during the month of August as the wider commodities space suffered a colossal sell-off. While it is true the diamond market may not be suffering the same imbalances affecting most other natural resources markets, I reckon Petra Diamonds remains in danger of further weakness looking ahead.

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Investors were spooked at the end of August after the digger advised that sales dipped 10% in the year concluding June 2015, to $425m, even though produced volumes edged 2% higher to 3.2 million carats. Petra Diamonds put the sales weakness down to a lower quantity of large stones and reduced ore quality.

This is not the first time the company has spooked the market this year thanks to the transitional status of its Cullinan project. So although Petra Diamonds affirmed its output target of 3.3-3.4 million carats in 2016, further operational problems cut put paid to these forecasts. With cash costs also expected to rise by 8% and 4% in South Africa and Zimbabwe respectively this year, and diamond prices steadily falling, I believe earnings at Petra could experience fresh pressure.

SABMiller

Beer behemoth SABMiller (LSE: SAB) had clocked up a 9% stock price decline during the past month as rising concerns over China weighed on the firm’s emerging market outlook. Still, I believe the firm’s July update should help to shore up investor confidence — total net producer revenues edged 3% higher during April-June, with sales rising at a double-digit rate in Latin America and Africa.

Group performance was particularly astonishing given that aggregate volumes stagnated during the period. Still, the company’s ability to churn out revenues growth in this climate underlines the terrific pricing power of its brands, which include the likes of Castle, Peroni and Coors. And helped by a bubbly acquisition drive — the firm snapped up Britain’s Meantime in May — I expect sales to keep chugging higher.

SABMiller is expected to record an 4% earnings duck in the period concluding March 2016 thanks to prior turbulence in developing regions. But improving spending power here is expected to power the bottom line 8% higher the following year, pushing the earnings multiple from 20.6 times in 2016 to a respectable 19 times. I believe this is a decent price given SABMiller’s strong growth prospects.

Premier Oil

Thanks to the oil sector’s murky outlook, I believe Premier Oil (LSE: PMO) should extend the downtrend seen during the past month — the explorer’s share price fell 21% during August. The Brent price has charged back above the $50 per barrel marker in recent days as buoyant buying activity has washed over markets, and US stockpiles experienced an unexpected fall.

But a swallow doesn’t make a summer, after all, and the 5.45-million-barrel decline marks a rare departure from the steady material build recorded over many months — total inventories still stand at a colossal 450.8 million barrels, according to the Energy Information Administration. With shale drillers going back to work across the country’s oilfields, and total global output still on the rise, I believe oil prices should continue to fall in the months ahead.

For Premier Oil this would represent a disaster, the business having already having advised last month that weak prices caused it to punch a $214.7m pre-tax loss during January-June, swinging from a profit of $50.7m in the same 2015 period. And the poorly outlook for the oil industry puts the economic viability of its Catcher and Sea Lion projects under renewed scrutiny, exacerbating the stock’s high risk profile.

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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.

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