MENU

Why Standard Chartered PLC, Randgold Resources Limited And WM Morrison Supermarkets PLC All Offer Terrible Value!

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.

So if you are looking for stocks with better investment prospects than those mentioned, I strongly recommend you check out this totally exclusive report that selects a broad range of FTSE winners waiting to deliver spectacular returns!

Our "5 Dividend Winners To Retire On" wealth report highlights a selection of incredible stocks with an excellent record of providing juicy shareholder returns. Among our picks are top retail, pharmaceutical and utilities plays that we are convinced should continue to provide red-hot dividends.

Click here to download the report -- it's 100% free and comes with no further obligation.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended shares in HSBC. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.