Why I’m still avoiding shares of these three companies despite today’s good results

Even solid results won’t make me buy these Brexit-exposed shares.

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Housebuilder Taylor Wimpey (LSE: TW) partially dampened investor’s post-Brexit fears this morning as half-year results saw a 12% rise in pre-tax profits alongside reassuring words from management that trading hadn’t been affected by the referendum result. Of course, with results only covering the week following the vote the issue remains what will happen in the next year or two during what most companies and economists are predicting will be a period of lower consumer confidence and economic instability.

While Taylor Wimpey is one of the healthiest housebuilders around, with strong margins and low debt, the highly cyclical nature of the industry scares me. With analysts expecting earnings growth to slow for the second consecutive year and a post-Brexit hangover likely to be on the way, I don’t believe this is the best time to begin a position in Taylor Wimpey.

Challenges for the challenger

Challenger bank Shawbrook (LSE: SHAW) also posted solid half-year results with a 14% year-on-year rise in pre-tax profits and an increase in return on tangible equity to 21.2% on an annualised basis. Despite these positive results the market is always forward-looking and judging by the mere 1.3% rise in share prices this morning, a good six months doesn’t compensate for the bank’s high exposure to any Brexit-related slowdown.

That’s because Shawbrook focuses entirely on lending to small and medium sized enterprises, the largely domestic-oriented firms that are most at risk from several years of economic turbulence. On top of this macro challenge is the £9m impairment charge the bank took late last month due to irregularities in its lending practices at one division. These are exactly the type of internal problems that challenger banks were supposed to improve on compared to larger rivals. Internal risk management issues, a slew of new C-suite executives and exposure to any economic slowdown are reason enough for me to avoid Shawbrook shares right now.

Debt load

The latest trading update from pub chain Marston’s (LSE: MARS) revealed like-for-like sales rose at least 2% across all divisions over the past 42 weeks. This improvement came despite Euro 2016, which was supposed to lead to sales decreasing at the food-centric pubs Marston’s is known for.

However, this good news can’t make up for the elephant in the room, which is net debt of £1.2bn that was five times EBITDA at half-year results. While property-focused companies such as pub chains can afford to have relatively higher levels of debt, this is still enough to worry me.

The main reason is that there’s little prospect for runaway growth in the pub sector. Footfall is decreasing across the industry, which is why Marston’s has focused so heavily on food service. Without incredible growth ahead of it, dividend growth and expansion is likely to slow in the future as interest payments require greater attention. While income investors may find Marston’s 5% yield and relatively stable business attractive, I’ll be looking elsewhere due to spotty growth prospects and high debt.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ian Pierce 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.

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