Today I am looking at the investment case for three of the FTSE’s headline makers.
Barclays
Not surprisingly shares in banking goliath Barclays (LSE: BARC) (NYSE: BCS.US) have followed the rest of the sector lower in recent days, and the business was recently dealing 0.3% lower in Tuesday business. While it is true that the shockwaves created by a potential ‘Grexit’ would hamper earnings for the world’s major financial institutions, I believe Barclays’ renewed focus on its British retail operations makes it a particularly-attractive pick for those seeking to invest in the banking sector.
On top of scaling back its risky ‘Investment Bank’ division, Barclays continues to strip costs out of the business — total operating expenses slipped 2% in January-March, to £3.9bn — while it is also leading the technological charge across the industry. Just this week the bank announced a new range of bPay contactless key fobs, stickers and wristbands, keeping it at the forefront of cash- and card-less payments.
With these things in mind, the City expects Barclays to punch meaty earnings growth of 34% and 23% in 2015 and 2016 respectively, figures that create exceptional P/E multiples of 11.9 times and 9.4 times — any reading around or 10 times is widely considered brilliant value. And these strong earnings prospects are expected to drive the dividend higher, too, from 6.5p per share in the past few years to 8p in 2015 and 10.6p for 2016. Consequently Barclays’ yield leaps from 2.9% this year to 3.9% in the following period.
Carpetright
House furnishings play Carpetright (LSE: CPR) cheered the market with its latest financial update and was last changing hands 6% higher on the day. The Purfleet firm’s turnaround has been nothing short of spectacular, with like-for-like UK revenues flipping 7.3% higher in the year to April 2015 compared with the 0.2% dip punched in the previous period. Consequently Carpetright swung to a pre-tax profit of £6.6m last year from losses of £7.2m in 2014.
The business is pulling out all the stops to keep this positive momentum rolling and plans to launch a major revamp of the brand to attract wealthier customers, including trialling new ‘concept‘ stores in London to shake-up the customer experience as well as rolling out a fresh new advertising strategy. With consumer spending power improving I believe these measures could pay off big time.
The number crunchers are in agreement, and Carpetright is expected to see earnings flow 26% higher in 2016 and 15% higher in 2017. These projections leave the business dealing on elevated P/E multiples of 32.2 times and 28.4 times for 2016 and 2017 respectively, but I still believe that with the travails of recent times now put behind it, t the floors specialists’ perky earnings profile still makes the business an attractive pick.
Enquest
Fossil fuels explorer Enquest (LSE: ENQ) has been under pressure in today’s session and was last 1.2% down from Monday’s close. Indeed, shares have been trekking steadily lower again in recent weeks following a positive April, the impact of a stagnating crude price once again illustrating ongoing fears over a worsening supply/demand imbalance washing through the oil sector.
On the one hand, rising production at its Malaysian assets has caused much reason for cheer, and Enquest expects group output to rise to 33,000-36,000 barrels per day this year from just under 28,000 in 2014. But with abundant supply threatening to drive oil prices lower again, and consequently the economic viability of its promising-yet-hugely-expensive Alma/Galia and Kraken assets in the North Sea, investors should be prepared for further pain in the near-term at least.
Analysts expect the capital-based business to record a third successive earnings slump in 2015, and a colossal 62% slip, to 6.8 US cents per share, is currently forecast. And things are anticipated to get a whole lot worse in 2016, with Enquest predicted to book losses of 6.6 cents per share. Given the poor state of the oil market — not to mention Enquest’s growing debt pile — I believe investment in stocks such as this are a perilous business.