Today I am looking at three London plays that offer shocking bang for one’s buck.
Standard Chartered
Until battered Standard Chartered (LSE: STAN) begin to make headway in tackling its problems in Asia, I reckon investors should steer well clear of investing their cash in the firm. The banking leviathan saw pre-tax profit tank by almost half in January-June, to $1.8bn, thanks mainly to continuing impairments, adverse currency movements and soggy commodity markets. And these factors are expected to result in a 36% earnings slide in 2015 alone, creating a P/E ratio of 13.3 times.
Sure, this figure may fall below the watermark of 15 times that indicates decent value. But I would consider a number around or below the bargain barometer of 10 times to be a better reflection of the risks facing the firm. And besides, fellow emerging market plays such as HSBC and Santander are performing much better than StanChart, and which trade on cheaper P/E ratios of 10.1 and 11.5 times correspondingly.
And I believe Standard Chartered is also in danger of missing current dividend estimates, too. Disappointing first-half results prompted the bank to slash the interim payout by 50%, to 14.4 US cents per share, and I reckon the firm’s wafer-thin balance sheet could result in further cash-saving action. Consequently a projected dividend of 44 cents per share, yielding a decent 3.6% but down from 86 cents in 2014, is at risk of falling way short.
Randgold Resources Limited
Shares in precious metals play Randgold Resources (LSE: RRS) have spiked 12% during the past month as gold prices have rallied. The yellow metal’s ascent has been fuelled by a steady weakening of the US dollar, the result of Fed inaction concerning interest rate rises, and the commodity is within striking distance of reclaiming the psychologically-critical $1,200 per ounce milestone.
However, I believe Randgold Resources remains a risky proposition as the precious metals sector is far from out of the woods. Indeed, gold remains 8% lower from levels seen at the start of the year, and a variety of other factors — such as reduced physical buying in key markets China and India, and the likelihood of sustained low global inflation — threatens to keep gold locked in its multi-year downtrend.
The effect of weak gold prices is expected to push earnings at Randgold Resources 17% lower in 2015, a third consecutive earnings dip if realised. And this projection leaves the miner dealing on a relatively-high P/E multiple of 32 times. Furthermore, a predicted dividend of 58 US cents per share, yielding just 0.8%, also lags the market average by some distance. I reckon far more appetising growth and income prospects can be found elsewhere.
WM Morrison Supermarkets
Make no mistake: the earnings picture at Morrisons (LSE: MRW) is likely to remain under considerable pressure for some time yet. Discounters Aldi and Lidl are hammering the Bradford firm on price; high-end outlets like Waitrose are making a mockery of the company’s premium ranges; and the likes of Tesco and Sainsbury’s are happy to keep the earnings-busting price wars rolling across the grocery sector’s middle tier.
As if this wasn;t bad enough, Morrisons shot itself in the foot again this month by announcing changes to its already-misfiring Match & More loyalty card scheme, which essentially require customers to spend more to qualify for a ‘money off’ voucher. The relaunch marks the newest of a variety of initiatives that have failed to reignite revenues, with other failed measures having included extending trading hours and rolling out expensive store refits, a scheme that featured the now-infamous ‘mist machines’ in its fruit and veg sections.
Thanks to a clear lack of growth catalysts, the City expects Morrisons to clock up yet another earnings drop in the 12 months to January 2016, this time by a chunky 10% and leaving it changing hands on a highly-unattractive P/E rating of 18.9 times. And a predicted dividend of 5.2p per share yields a handy-if-unspectacular 2.9%. Until Morrisons begins to show it has the nous to take the fight to its new and established rivals, I for one will be steering well clear of the battered chain.
