Today I’ll be discussing the outlook for utility company National Grid (LSE: NG), publishing group Informa (LSE: INF) and building materials supplier Travis Perkins (LSE:TPK). Is it the right time to buy any of these FTSE 100 giants?
Energy company National Grid has seen its share price reach all-time highs recently, and is now within touching distance of 1,000p. So are the shares over-extended and should we expect a correction anytime soon? I don’t think so. Earnings have been on a steady upward trend for many years, and the share price has naturally followed suit.
This slow-but-steady growth is set to continue with analysts predicting a 6% improvement in earnings for the year just ended, with a further 2% earmarked for each of the next two years. The shares trade on 15.8 times forecast earnings for the year to 31 March 2017, falling slightly to 15.6 for fiscal 2018. This is on a par with recent years and represents fair value.
Utility companies are primarily income plays, and National Grid is no different. The company pays out solid dividends, with 43.77p per share forecast for the last financial year, rising to 44.81p for FY 2017, and 45.79p in FY 2018. This means prospective yields of 4.5%, 4.6% and 4.7%, respectively. This is a solid defensive income play suitable for investors seeking inflation-proof dividends with relatively low risk.
Also reaching all-time highs this year is media business Informa, with the shares punching the 700p mark in recent weeks. Growth has been steady and consistent in the recent past, with single-digit rises over the last five years, and this is expected to continue in the medium term. Consensus forecasts suggest 5% earnings growth for the current year, with a further 4% pencilled-in for next year.
The company is paying respectable dividends, with 20.81p per share forecast for this year, rising to 21.7p next year, meaning prospective yields of 3.0% and 3.2% for the next two years. In fact, you can still get your hands on the latest final dividend for fiscal 2016, before the 28 April ex-dividend date, with the 13.55p per share payout due on 26 May.
So what about the valuation? Informa trades on a forward P/E ratio of 15.6 for this year, falling slightly to 14.9 for the year ending 31 December 2017. The shares look fully-priced to me, given the slow growth, and I can’t see any reason for significant upward movement any time soon. What’s more, the dividends aren’t attractive enough to tempt income hunters.
Builders merchant Travis Perkins reported strong full-year results last month, with revenue rising 6.5% to £5.94bn, coupled with underlying earnings growth of 4%. The last three years has seen steady growth for the company that also owns DIY chain Wickes. Is this trend going to continue?
Well, according to the suits in the Square Mile, very much so. They’re talking about a 10% rise in earnings this year, followed by a further 12% improvement next year. Dividend payouts have also been increasing steadily each year, with 50.69p per share forecast for this year, rising to 58.35p next year, offering prospective yields of 2.9% and 3.3% for the next couple of years.
Travis Perkins trades on 13.2 times forecast earnings for the current year, falling to 11.8 for the period ending 31 December 2017. I think the shares are undervalued given the growth outlook, and value investors might want to take advantage of the recent weakness in the price.
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Bilaal Mohamed 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.