Standard Chartered
Standard Chartered (LSE: STAN) has been facing fresh claims of breaching Iranian sanctions and renewed fears that it may have to raise equity soon. The bank has already halved its dividend to save around $1 billion a year, but that does not seem to go far enough to shore up its balance sheet.
With its shares trading at just 0.63 times tangible book value, the market has already priced in a very high probability that the bank would seek to raise equity soon. And this should mean an equity call should have a relatively mute impact on Standard Chartered’s share price. But it’s still to early to call the bottom for its shares. Standard Chartered’s sizeable exposure to slowing emerging market economies and collapsing commodity prices should mean much larger loan impairments are yet to come.
RSA Insurance Group
Zurich Insurance broke off takeover talks with RSA Insurance Group (LSE: RSA) following an unexpected deterioration of profitability in the Swiss general insurer, which had been caused by the August explosions in Tianjin, China. Shareholders in RSA hoping to make a quick buck from the takeover would no doubt be disappointed, but the breakdown in talks could be positive in the long term.
The timing of Zurich’s offer was opportunistic given that RSA had just been recovering from recent corporate governance issues and financial problems. Robust consolidation activity in the insurance sector and RSA’s large list of commercial clients could mean the insurer could fetch a better takeover offer in the near future.
RSA is already showing genuine progress that it is on the mend, with operating profits rising 84% to £259 million in the first half of 2015 and the insurer set to return to profitability for the first time in two years. Shares in the insurer currently trade at just 1.0 times book value, which should mean RSA is worth a buy, even in the absence of a potential takeover bid.
G4S
A loss of some major UK security contracts and restructuring cost caused G4S‘s (LSE: GFS) earnings to more than halve in the first half of 2015, to £35 million. But there has also been upbeat news from the security company, including the securing of £1.4 billion worth of new contracts, productivity gains and underlying margin growth.
The security company’s low valuation multiples means its shares seem like an appealing buy. The company trades at a forward P/E of 15.9, and 0.5 times its annual sales. Whilst its shares may not in bargain territory, shares in G4S are attractive from an income standpoint with a prospective dividend yield of 4.2%.
Allied Minds
Shares in Allied Minds (LSE: ALM) have fallen by 30% since the start of the week, following a scathing attack from US hedge fund Kerrisdale Capital. In its report, the hedge fund suggested the venture capital firm, which invests in early stage innovations, trades at inflated multiples and its portfolio of businesses held little promise. Kerrisdale claimed many of these companies already have strong competitors and generate very little revenues.
However, a few analysts have spoke out in defence of Allied Minds, describing the report as ‘self-serving’ and ignoring Allied Mind’s track record of commercial developments and its relationships with many US universities and government research bodies. This week’s share price movements certainly proves investing in early stage innovation is very risky, but we should not ignore the enormous potential rewards.
