5 Opportunities for the Week Ahead
LONDON -- Next week will again be dominated by interim results from companies on the FTSE 100 and other FTSE indices, and we'll get feedback from some important sectors.
Some of those are, in my opinion, undervalued (with a long-term view, of course), so here's a handful that I think warrant some investigation, and you might like to take a look at them before their figures are revealed.
I've liked Morgan Sindall (ISE: MGNS.L) , which reports its interims Monday, for a while, and I think the construction firm with a speciality in regeneration is trading at a bargain price now.
It's still a tough market, but 2011 full-year results looked promising, and though current economic problems are holding back the business, especially with government spending being cut back, forecasts for Morgan Sindall are solid.
We have two effectively flat years expected, but at the current price of 668 pence, the shares are on a forward price-to-earnings ratio (P/E) of a mere 8.7 for this year, falling to 8.3 next year. And there are dividends forecast of 6.2% and 6.3% respectively, which should be almost twice covered.
I'm expecting Monday's report to tell us of an uncertain second half due to challenging economic conditions, and I wouldn't be surprised if the shares should fall back a little -- but watch out for what I think is a good bargain.
Interims from Greggs (ISE: GRG.L) on Tuesday should signal a further progression in the high-street baker's dividend policy. Greggs has an enviable record of beating the FTSE 100 in terms of annual payouts for the past five years, and if forecasts are accurate, this year will be no exception.
May's interim update told us that overall sales were up 4.3%, though like-for-like trading was down 1.8%. But on the current price of 509 pence, forecasts still put dividend yields at 3.9% and 4.3% this year and next. They should be twice covered by earnings, and certainly do not look risky at this stage.
Premier Foods (ISE: PFD.L) has been struggling, with net debt of 1billion pounds on its books at its last year end, and the shares have lost around 60% in the past few months to stand at 68 pence today.
The firm's recovery strategy is to concentrate on its core brands and dispose of non-core ones, and we saw news of that this week when it announced it had sold off its pickles division to Japan's Mizkan for 41million pounds, saying goodbye to Sarson's, Hayward's, Dufrais and other brands. The firm will now focus on brands like Hovis and Oxo.
But that 41million pounds won't make much of a dent in its debt, so plans to tackle that and progress with the turnaround plan are what we should be looking for -- even the current forward P/E of only 2.3 isn't necessarily cheap under such debt pressure.
This choice is miners in general, as we have Xstrata reporting on Tuesday, and Rio Tinto (ISE: RIO.L) on Wednesday, and they're both victims of the slump in demand for metals and minerals, with fears that Chinese demand is set to fall further as its economic growth falters.
But with Rio on 3,000 pence and Xstrata on 868 pence, both miners' shares have looked like they might be perking up a bit of late. And forecasts do look attractive.
Analysts are expecting a fall in earnings this year, but a recovery back to current levels for 2013. There are also decent dividends expected for the next two year-ends -- 3.2% and 3.7% for Xstrata, and 3.6% and 3.8% for Rio Tinto.
Analysts' tips are also heavy on the "buy" side for both, with an almost exclusive "strong buy" rating for Rio Tinto. Analysts' tips are often not worth much, but in this case I'm with them -- I see great bargains across the sector.
We have several engineering firms reporting interims next week, with aerospace and defense engineers Meggitt on Tuesday and Cobham on Wednesday, and I'll be interested to hear how the sector as a whole is going -- it's another of those that's looking good value to me.
But I'm particularly interested in figures from oil and gas equipment engineer and consultant Amec (ISE: AMEC.L) , due on Thursday. Amec shares have climbed about 20% in the past couple of months, to 1,127 pence, but that comes after an earlier climb to similar levels commenced in January but fell back.
Forecasts are very strong for the next two years, with double-digit earnings growth, and we should be looking at dividend yields of around 3.1% and 3.6% for this December and next. In fact, earnings growth forecasts put the shares on a PEG of 0.6 for 2013, which is a good growth indicator. There was net cash on the books at the last year-end, so debt isn't a problem, and we could well have a nice "picks and shovels" entry into the oil and gas business here.
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