Do today’s updates make these big fallers a buy?

Are today’s big losers buying opportunities, or falling knives?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares of Hikma Pharmaceuticals (LSE: HIK) fell by 13% to around 2,300p this morning, after the group sneaked out a serious profit warning after the market closed on Wednesday night.

Sales from Hikma’s generics division were below expectations during the first half of the year. Although full-year generics revenue is still expected to be within previous guidance of $640m-$670m, profits will be substantially lower.

Hikma said on Wednesday that core operating profit from Generics for the full year is now expected to be $30m-$40m. This implies a core operating margin of about 5%.

The firm’s previous guidance in May was for a core operating margin “in the low double-digits”. Based on last year’s core operating profit of $409m, my calculations suggest this means Hikma’s core operating profit will fall by about 10% this year.

I expect analysts to reduce their full-year forecasts based on this new guidance. With the shares trading on about 26 times earnings, Hikma looks a little too expensive for me.

A 74% profit drop looks bad

Adjusted pre-tax profits at mechanical parts group Brammer (LSE: BRAM) fell by 65% to £5m during the first half of 2016. The slump in profits came despite sales remaining almost unchanged, at £372.3m.

Brammer shares only fell by around 6% following today’s results. Most of the bad news was already in the price after June’s profit warning, which triggered a stunning 56% collapse. Indeed, since hitting a low of 57p at the end of June, Brammer shares have climbed 40% to 87p.

Brammer’s rapid expansion seems to have coincided with falling sales. The firm said this morning that sales per working day fell by 3% during the first half of the year. Sales in the Nordic region and the UK were hardest hit, thanks to the oil market downturn.

The company is now dangerously close to breaching its lending covenants and has suspended dividend payments. Stock levels are being reduced to generate cash and the group’s new chief executive, Meinie Oldersma, is leading a strategic review.

Although Brammer could be an interesting turnaround, I suspect a rights issue may be necessary to reduce debt. I plan to wait for further news before considering an investment.

Another oil casualty?

Consulting firm RPS Group (LSE: RPS) works with customers in the construction, energy and environmental sectors, but the oil market is a key element of the mix.

RPS shares fell by 8% this morning after the firm said that adjusted pre-tax profits fell by 29% to £20.2m during the first half of the year. The firm said it would freeze the interim dividend at 4.66p and would adopt a more cautious approach to acquisitions until conditions improve.

The group’s energy business slumped to a loss of £0.9m during the first half of this year, compared to a profit of £9.6m in 2015. Rising profits elsewhere in the business weren’t enough to offset this big fall.

Acquisition activity meant that net debt rose from £79m to £95m. Although RPS has plenty of headroom left on its lending facilities, this does concern me. With the shares trading on around 14 times forecast earnings and the 5% dividend yield under pressure, I think it’s too soon to buy.

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.

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

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »