MENU

Are British American Tobacco plc, Pennon Group plc & Balfour Beatty plc Set To Soar?

Shares in water services company Pennon (LSE: PNN) are up by more than 3% today after it released a positive set of first half results. In fact, its pretax profit was almost 7% higher than in the same period last year, with a better than expected contribution from its recently acquired Bournemouth Water unit being a key reason for this.

Of course, the performance of Pennon’s core South West Water division was behind that of last year, but this was expected and offset somewhat by the contribution of Energy Recovery Facilities.

Looking ahead, Pennon is on-target to meet its full year expectations and, encouragingly, increased dividends per share by 4.8%. This indicates that it remains a relatively sound income play even though its yield has been compressed by strong recent share price performance so that it now stands at 3.9%.

With Pennon offering relatively stable performance and the global economic outlook being rather uncertain, it seems likely that demand for its shares will remain buoyant. This could help its share price to continue its recent rise which has seen it soar by 18% in the last three months. And, with the company moving towards a more homogenous risk profile across its operations, it appears to offer an appealing risk/reward profile.

Also releasing news today is Balfour Beatty (LSE: BBY). It has won a £104m contract to undertake works on a new road in Norfolk, with a completion date of 2017 being planned. This is clearly positive news for the company and is further evidence that its turnaround plan is having an impact on its ability to win new contracts.

Despite this, the company is still forecast to remain a loss-making entity in the current year. However, in 2016 Balfour Beatty is due to return to having a black bottom line, with its share price having risen by 19% since the turn of the year as the market begins to price in next year’s results. While improved financial performance would be good news for the business, Balfour Beatty’s price to earnings (P/E) ratio of 19.6 indicates that much of its future prospects are already priced in. As such, it may be prudent to wait for a pullback before considering a purchase.

Meanwhile, British American Tobacco (LSE: BATS) continues to offer strong, reliable growth prospects at a very reasonable price. Certainly, its P/E ratio of 17.5 is higher than for most of its index peers, but with consumer goods rivals trading at considerable premiums to this, British American Tobacco appears to offer good relative value for money.

That’s especially the case when the reliability of its top and bottom line growth figures are taken into account, with British American Tobacco due to increase its earnings by 7% next year. Looking ahead, there is the potential for pricing increases as well as further growth from the sale of e-cigarettes. As such, and while regulations are getting tougher for smokers and for tobacco companies, British American Tobacco remains a top notch long term buy.

Of course, Pennon and British American Tobacco aren't the only companies that could be worth buying at the present time. With that in mind, the analysts at The Motley Fool have written a free and without obligation guide called 5 Shares You Can Retire On.

The 5 companies in question offer stunning dividend yields, have fantastic long term potential, and trade at very appealing valuations. As such, they could deliver excellent returns and provide your portfolio with a major boost in 2016 and beyond.

Click here to find out all about them - it's completely free and without obligation to do so.

Peter Stephens owns shares of British American Tobacco and Pennon Group. 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.