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Glencore PLC, Investec plc & Aberdeen Asset Management plc: Value Traps Or Value Plays?

Beaten down

Glencore (LSE: GLEN) has lagged behind the other big mining players in cutting costs and conserving capital, with management previously expecting commodity prices not to have fallen so far. Consequently, the miner has had to cut harder at a later stage, and conserve capital by scrapping its dividend entirely and raising fresh equity.

Because of this, its shares have been heavily punished by the market, as evidenced by the 72% decline in its value since May last year. Glencore also appears beaten down from a valuations perspective, with basic fundamentals showing a price-to-book ratio of 0.37 and a P/E of 6.3, well below its large-cap mining peers.

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However, looking forward, these valuation multiples seem to be justified. The so-called cheapness in the stock must be in part be due to the turmoil in the commodity markets. As underlying EPS is expected to fall some 64% this year, its forward P/E is forecast to rise to 17. What’s worse is there are no visible signs that catalysts or the green shoots of recovery will present themselves over next 12 months.

Maintaining momentum

Investec (LSE: INVP) will report its 2015 full-year results in May, and city analysts expect the company’s financial performance will remain resilient. Operating income before impairment losses is forecast to total £1.99bn and adjusted net income is expected to come at £452 million. These forecasts represent a 2.0% rise in operating income before impairment losses and a 13.3% increase in adjusted net income.

Looking further forward, analysts expect operating income before impairment losses for 2016 will rise a further 7.5%, to £2.15bn. Adjusted net income is forecast to grow another 12.5%, to £509m, which means its shares trade at a very attractive forward P/E of 8.6. What’s more, its shares have appealing income prospects. Its dividend currently yields 4.8%, but as analysts expect the payout to grow by 14.5% this year, its yield should rise to 5.3% this year.

Tough economic headwinds have certainly put pressure on the valuations of the Africa-focussed group, but its specialised strategy and asset management focus should mean the group would maintain momentum in earnings growth even as macro fundamentals worsen. And, as its financial performance is very healthy, Investec seems like a great value play.

Rushing to the exit

Meanwhile, massive fund outflows have taken a heavy toll on Aberdeen Asset Management‘s (LSE: ADN) share price. It’s shares have fallen in value by 46% over the past year, and things will likely get much worse for Aberdeen before they eventually to improve.

Aberdeen has been particularly hard hit because it is more heavily focussed on equities, as opposed to less risky fixed income investments. Asset values for equities have fallen more rapidly in the recent sell-off, prompting investors to rush to the exit in fear of further declines. Net outflows totalled £21.8 billion in the last six months and the outlook remains difficult as market volatility continues.

Aberdeen’s adjusted net income is estimated to fall another 24% this year, after a 5% decline already recorded in 2015. This puts its shares on a forward P/E of 13.4, which seems inexpensive, but given the worrying trend in earnings, Aberdeen does resemble a value trap.

Moreover, Aberdeen yields 8.4%, which suggests a dividend cut is likely. Its dividend may have been covered 1.6x by earnings last year, but with forecasts of a 24% decline in earnings, its dividend cover is forecast to fall to less than 1.2x. With growing uncertainty about its dividend, its shares are likely to remain out of favour with investors.

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