Shares in Go-Ahead Group are down by 5% as I write, after the group said that pre-tax profits fell by 14% to £78.7m last year.
However, I feel that this weakness could be a good buying opportunity.
Go-Ahead’s full-year revenues rose by 19% to £3,215m, but profits were lower than expected. This was due mainly to problems relating to exceptional congestion caused by road works and the Thameslink programme in London.
I’d argue that most of these issues are temporary and will eventually fade away, boosting profits in a couple of years’ time. I’m also attracted to Go-Ahead’s 3.8% yield, which is comfortably backed by free cash flow.
I think the shares could be an attractive long-term hold with decent growth prospects.
Dart operates a package holiday firm, airline (Jet2.com) and a major haulage business (Fowler Welch).
Dart shares are up by 10% at the time of writing, after the firm said that this year’s profits are expected to “materially exceed expectations”, after a strong holiday season.
Dart also announced an order for 27 new aircraft, as part of a fleet renewal and expansion deal.
Dart shares have risen by 550% over the last three years, and there’s no doubt this is an impressive business. If I was a Dart shareholder I would certainly keep hold of my shares, but I’m not sure I’d buy more.
Dart is taking on new debt to help pay for its new aircraft and the dividend yield is less than 1%. Earnings growth is expected to flatten out next year and my feeling is that the current valuation provides little downside protection.
Car dealership chain Lookers was another big riser today, climbing 7% after announcing the purchase of rival chain Benfield for £87.5m in cash, funded by new borrowing facilities.
Benfield operates a chain of 30 dealerships in northern England and Scotland. Lookers currently has 124 dealerships, so this deal represents a significant expansion.
The £87.5m purchase price is 12.5 times Benfield’s 2014 pre-tax profits of £7m, which seems fairly reasonable.
However, car retailing is a cyclical business with low profit margins. While Lookers’ forecast P/E of around 11 doesn’t seem expensive, the shares are at an all-time high. I’m not sure now is the best time to buy.
Cash-and-carry retailer Booker has just received approval for its acquisition of UK Londis and Budgens stores. Today, the firm issued a pre-acquisition trading update.
Like-for-like sales fell by 1.8% over the 10 weeks to 28 August 2015, due to a 6.6% fall in tobacco sales. Excluding tobacco, like-for-like sales were 0.5% higher.
Tobacco sales have been depressed by the ban on tobacco displays in small stores. I’m not sure what the profit margins are on tobacco, but Booker says that the firm remains “on course to meet expectations” for the full year.
Booker shares aren’t cheap, though. They’ve risen by 42% over the last twelve months and now trade on a 2015 forecast P/E of 25, with a yield of less than 3%.
Smaller convenience stores like Londis are facing strong competition from the big supermarkets. I think Booker is fully valued.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Booker. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.