Today I am looking whether these three market movers are worthy investment candidates.
UK Mail Group
Delivery specialist UK Mail (LSE: UKM) has lit up the FTSE in Tuesday business and was up as much as 5.3% earlier in the day. Indeed, the company has enjoyed a sterling run during the past week, after last week’s trading update showed UK Mail once again juggle record parcel volumes during the Christmas period.
The business is investing heavily in order to profit from ever-increasingly parcels traffic, underpinned by galloping e-commerce activity, and is on course to open its brand-new, state-of-the-art automated hub in May. And the timing could not come at a better time as it aims to attract customers from the now-defunct City Link.
City analysts expect UK Mail to record a meagre 1% earnings slip in the year concluding March 2015. But the courier’s bottom line is expected to snap higher from next year onwards, with advances to the tune of 8% and 9% chalked in for fiscal 2016 and 2017 respectively.
Such projections leave the company dealing on P/E multiples of 14.7 times and 13.7 times for these years, falling inside the benchmark of 15 times that marks attractive value for money. And income chasers will be encouraged by the firm’s progressive dividend policy, which throws up delicious yields of 4.5% for 2016 and 4.7% for 2017.
Vedanta Resources
Like UK Mail, natural resources giant Vedanta Resources (LSE: VED) has enjoyed a stellar performance in Tuesday business and is up 8.4% as I write, leading the FTSE higher. However, I believe that this bubbly rise is nothing more than a deadcat bounce, and expect prices to train lower again on the back of declining commodity prices — Vedanta’s share price has shed around 50%% over the past three months alone.
Despite fears of worsening oversupply in key markets, the fossil fuel and metals giant remains committed to ramping up output and plans to prioritise investment in its zinc and oil and gas divisions. On top of this Vedanta is also looking to boost capacity across its aluminium assets and is looking to get production from its iron ore and copper projects flowing higher again.
This strategy mirrors actions by the world’s other major mining and oil plays, and hardly does the chronic oversupply problem besetting natural resources markets any favours. The business is expected to record a 5% earnings decline in the year concluding March 2015, but improvements to the tune of 69% and 82% are anticipated for 2016 and 2017 correspondingly.
Still, I reckon that these forecasts are fanciful at best given the precarious state of the global economy, and that P/E multiples of 9.6 times and 7.4 times for these years are a fair reflection of the huge risks facing Vedanta rather than representing good value for money.
Enquest
And, like Vedanta, I believe that Enquest (LSE: ENQ) is also a precarious proposition for those seeking dependable earnings growth. This view is shared by patchy investor sentiment in Tuesday trading, with the company trading down around 1.7% at the time of writing.
The oil explorer continues to mirror movements in the oil price, with Brent sliding again to around $48.60 per barrel recently. Enquest is anticipated to get production at its Amla/Galia asset on stream next year, but should the commodity price continue to lag — exacerbated by persistent cost pressures — then the business may be forced to re-evaluate the economics of the project.
News today that natural resources glutton China saw growth slow to 7.4% in 2014 — the lowest rate of growth for almost a quarter of a century — did nothing to assuage these concerns. The company is expected to see earnings dip 60% in 2015, although a 179% upswing is anticipated for 2016 as group production spews forth.
These figures push the P/E multiple from 131.1 times for this year to 5.6 times for 2016. Investing in oil has always been a high-risk, high-reward game, but I believe the colossal structural problems facing the market should make investors think twice about buying the likes of Enquest.