Solid results
Shares in public transport company Stagecoach (LSE: SGC) have risen by around 3% today, after it announced a solid set of results for the financial year to 30 April. Adjusted earnings per share rose by 3.7% and this has allowed Stagecoach to increase its dividend by 8.6%.
This puts the company on a yield of 5.1% and with the dividend covered 2.4 times by profit, there is scope for further rises ahead of profit growth in the coming years.
Since the referendum result, Stagecoach’s shares have fallen by around by 13%, due to its significant exposure to the UK economy. Uncertainty is high and there are concerns that an economic slowdown in the UK will lead to a downgrade in Stagecoach’s growth outlook.
However, Stagecoach also operates in the US (accounting for 11% of sales) and this provides it with a degree of geographic diversity. Furthermore, it is seeking to stimulate its UK Bus division through a combination of a low fares strategy, digital improvements and continued investment.
Stagecoach currently trades on a price-to-earnings (P/E) ratio of only 8.5. This indicates that it offers a sufficiently wide margin of safety to merit investment despite the uncertain outlook for its UK operations.
Bright outlook
Also reporting today is Homeserve (LSE: HSV). The international home emergency business has confirmed that it is trading in-line with expectations. and it believes that it is well-placed to meet the challenges of the UK’s exit from the EU. That’s at least partly because of Homeserve’s international exposure and the potential for it to benefit from continued weakness in the value of sterling.
Due to this, Homeserve’s share price is now down by just 1.8% since Thursday and its outlook remains bright. It has signed five new affinity partnerships in the US, as it seeks to accelerate growth there.
Homeserve is forecast to increase its bottom line by 6% this year and by a further 17% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 1, which indicates that now could be an excellent time to buy it.
Somewhat risky
Meanwhile, Sirius Minerals (LSE: SXX) has risen by around 6% since Thursday’s referendum.
On the one hand, its share price performance is closely linked to commodity prices. So its outlook has improved significantly in recent months as the prospects for resources companies and the confidence of the investment community have risen.
But, on the other hand, Sirius Minerals is UK-based and requires significant investment from a wide range of investors and lenders in order to get its £1bn+ potash project up and running.
Sirius Minerals therefore remains a somewhat risky buy. It is expected to record pretax losses of £65m over the next two years alone and its shares could come under pressure if commodity prices fall and the outlook for the UK economy worsens. At a time when a number of other smaller companies offer high levels of profitability and low valuations, there seem to be better options available elsewhere.
