Everywhere you look, stocks are crashing to earth, and these two FTSE 250 companies have been falling faster than most.
If you believe in buying shares when they are down and then waiting for the recovery, these two could make highly tempting buys. So is now the time to invest in the Signature Aviation (LSE: SIG) share price, down 20%, and the Playtech (LSE: PTEC) share price, down almost 40%?
Any company that has anything to do with the airline industry is having a grim time, and Signature Aviation is no exception. Signature, formerly BBA, provides refuelling, cargo handling, and maintenance services to the industry.
Tuesday’s full-year results delivered only temporary respite, even though there were some positive numbers in there. The £2bn group completed its sale of Ontic for $1.37bn, and returned $833.6m of capital to shareholders over the 2019 calendar year. The dividend is up 5% and CEO Mark Johnstone promises further progression.
Total group underlying operating profit hit $441.1m, which fell to $320.8m on a continuing group basis. Free cash flows remain strong, totalling $187.2m.
Signature Aviation looks like a good company caught out in a sector sell-off due to problems beyond its control. The coronavirus is giving it a mighty wallop that could continue, even after the panic recedes. Long-term attitudes toward travel could change, especially if businesses discover they can work just as well remotely. Growing concerns about the effect of air travel on climate change will also likely grow.
The group has drawn praise from my fellow Fool writers for its resilience, shrewd acquisitions, and generous dividends, if not for its share price growth. Signature Aviation offers a forecast yield of 5%, with cover of just 1.1. It is surprisingly pricey at 18.5 times forward earnings, given recent events. There is too much uncertainty around for me to buy at that price.
Playtech (LSE: PTEC) was in trouble well before the current sell-off. When I wrote about it last summer, its stock had fallen 60% in just two years, as profits disappointed. Now, the gambling software provider has got caught up in the coronavirus sell-off.
Last week’s final results warned that large-scale global events such as pandemics, political unrest, and climate change can hurt its key markets, particularly if they affect live sporting events. Unfortunately, two of Playtech’s key markets, China and Italy, are in the eye of the coronavirus storm.
The gambling sector also faces regulatory risk, as it comes under pressure to make products “safer, fairer, and crime free”, as Playtech puts it, while licensing requirements in regulated markets are regularly reviewed.
After starting the year strongly, the COVID-19 impact means “results for 2020 are likely to be below existing market expectations”.
In contrast to Signature Aviation, the shares look dirt cheap trading at just 5.9 times forward earnings. The generous 6.9% yield is covered 2.4 times, while shareholder returns rose 4% last year, boosted by a €40m share repurchase programme. This is a risky income play, but if China and Italy get a grip on the coronavirus, now could prove a good time to buy it. Feeling brave?
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.