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Can Diageo plc, Johnson Matthey PLC & Safestore Holdings Plc Add To November’s Gains?

Today I am looking at the investment case of three recent FTSE risers.


Drinks giant Diageo (LSE: DGE) continued to pull away from August’s three-year troughs last month, a 2% share price advance in November meaning the firm has added 17% since the summer’s lulls. While concerns over rampant inflation and economic cooling in emerging markets could stem gains in the immediate future, however, I reckon the business remains a terrific long-term selection.

Diageo advised last month that “momentum has improved” in recent months, with trading during the first four months of the current period “in line with our expectations.” The company affirmed that it expects volume growth to push revenues skywards in fiscal 2016, and this comes as little surprise to me — Diageo continues to invest heavily in popular labels like Smirnoff, Guinness and Johnnie Walker to bolster sales and offset problems like currency headwinds.

On top of this, I believe Diageo’s ongoing expansion scheme across developing regions also promises to deliver strong returns as consumer spending power in such territories clicks through the gears.

For the year to June 2016 the City expects Diageo to punch a modest 1% earnings rise, although this represents a vast improvement from chunky dips in each of the past two years. And even though the business sports a slightly-heady P/E rating of 21.1 times, I reckon Diageo’s position at the drinks industry’s top table fully merits this premium.

Johnson Matthey

Like Diageo, autocatalyst builder Johnson Matthey (LSE: JMAT) has also enjoyed a solid bump higher in recent weeks and the firm’s share price ascended 10% last month. It was not all plain sailing, however, and the engineer had a sprint in the latter part of November to thank for these gains. And given the precarious state of key end markets, I reckon expectations of further share prices rises may be premature.

Johnson Matthey’s advance was thanks to bubbly interims which showed sales at its critical Emission Control Technologies arm rise 8% in April-September.

There is no doubt that the London firm’s expertise in autocat building provides plenty of earnings potential as galloping global car demand drives revenues. Still, concerns over the future of the diesel engine — a hugely-profitable sub-segment for Johnson Matthey — is casting a cloud over the long-term profits outlook at the division.

On top of this, chronic supply imbalances in the platinum market threatens to damage performance at the company’s Precious Metal Products refining division as metal prices collapse. Sales here ducked 15% in the latest six-month period.

Johnson Matthey is expected to recover from a 5% earnings duck in the 12 months to March 2016 with an 8% advance in 2017, driving the P/E rating from 16 times to a very decent 15.1 times for next year. There is no doubt Johnson Matthey is a top-quality engineering stock, but I believe potential investors should be prepared for fresh share price weakness in the near term.

Safestore Holdings

I reckon that storage specialist Safestore Holdings (LSE: SAFE) is in great shape to add to last month’s 11% share price advance. With the steady improvement in the UK economy helping to drive consumer spending power higher, the need for extra space is becoming greater for Britons who are increasingly-reluctant to throw out their old bits and bobs.

Safestore announced last month that like-for-like revenues advanced 8.3% during July-September, with underlying occupancy rates leaping 5.9% in the period to 3.58 million square feet. With the country’s largest storage provider still boasting 1.4 million square feet of unlet space, not to mention scouring the country for fresh property acquisitions, I reckon Safestore still offers plenty of upside.

The City expects the Hertfordshire business to chalk up earnings advances of 12% and 8% in the years to October 2015 and 2016 respectively, resulting in elevated P/E ratios of 21.6 times and 20.2 times. Still, I believe Safestore’s exceptional earnings record in recent times — not to mention ample growth opportunities — make it a great stock selection even at current prices.

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Royston Wild has no position in any shares mentioned. 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.