Today I am examining three of the 2015’s London-listed favourites, and looking at whether investors can expect further stunning share prices increases.
Taylor Wimpey
The housebuilding industry has been by far the London stock market’s main success stories during the initial six months of 2015. Indeed, Barratt Developments, Persimmon and Taylor Wimpey (LSE: TW) comprised three of the FTSE 100’s five top movers during January-June, with the latter comfortably leading the pack — shares in the Buckinghamshire firm leapt 35% during the period.
The solid sector performance transpired with good reason: consumer confidence remains buoyant, and has picked up further since the UK general election. Meanwhile the Bank of England looks likely to keep interest rates on hold at record lows until well into 2016 at least, while the nation’s major mortgage lenders remain locked in an arms race to lend to new homebuyers, another supportive factor for housing demand.
Despite Taylor Wimpey’s stratospheric share movement during the first half, it could be suggested that the homebuilder remains undervalued by the market, however. With earnings expected to grow 31% and 14% in 2015 and 2016 correspondingly, the company trades on P/E multiples of just 12.9 times and 11.6 times, well below the threshold of 15 times that signals decent value.
And Taylor Wimpey remains a great value pick for income chasers, too. A prospective dividend of 9.2p per share for this year yields an exceptional 4.8% — blasting the FTSE 100’s forward average of 3.4% clean out of the water — and this moves to 10.3p for 2016, driving the yield to 5.4%.
ITV
Broadcasting giant ITV (LSE: ITV) has also been a major shaker so far in 2015, with shares in the business ascending a terrific 22% during the first six months of the year. And I wouldn’t bet against London’s entertainment goliath recorded further hefty gains in the weeks and months to come.
The business remains committed to expanding output at its ITV Studios division, and late last month agreed to purchase a majority stake in drama and factual TV producer Twofour for £55m. This follows the purchase of Talpa Media in March, producer of hit shows such as ‘The Voice’ and underpins ITV’s commitment to expanding its presence across the globe. Meanwhile TV advertising revenues continue to outperform the market and rose 6% last year to £1.6bn.
Unlike Taylor Wimpey, however, it could be suggested that ITV’s heady price ascent is already factored in at present levels. Expected earnings growth of 14% in 2015 and 9% in 2016 leaves the business dealing on P/E multiples of 17.4 times and 16 times for these years, while yields of 2.1% and 2.6% for 2015 and 2016 respectively — produced by dividend forecasts of 5.7p and 7p per share — fall below the market average.
Still, for a business that is rapidly expanding its presence in white-hot television categories, not to mention the lucrative North American market, I believe shares in ITV could continue to charge. And when you throw in the broadcaster’s excellent record of earnings growth and ultra-progressive dividend policy I believe the firm can still be considered stellar value.
Royal Mail
Despite the impact of tough competition, investor sentiment in Britain’s oldest courier Royal Mail (LSE: RMG) has remained buoyant in recent months and the stock has jumped 20% during January-June. With rival City Link going bust before Christmas, and more recently Whistl exiting the direct delivery letters market, the playing field has become more open for Royal Mail to generate excellent revenues growth.
Although the latter’s withdrawal has prompted an Ofcom investigation into Royal Mail’s stranglehold on the market, I believe the threat of draconian action is unlikely to transpire as the regulator will be reluctant to damage the country’s mail service. On top of this, Royal Mail is also enjoying splendid sales growth in continental markets, while back at home a programme of significant restructuring continues to strip costs out of the machine.
The result of enduring market pressures are anticipated to push earnings at Royal Mail 19% lower in the year concluding March 2016. However, this still results in a very decent P/E multiple of 13.9 times, suggesting that the stock remains anything but overbought. And with a bottom-line bounceback of 5% predicted for the following year this readout moves to an even-better 13.4 times.
And Royal Mail also remains a great value selection for dividend seekers, too, with a prospective payout of 21.6p per share for this year translating to a yield of 4.1%. And the reward is expected to rise to 22.6p in 2016, pushing the yield to 4.3%. I reckon now is a great time to stock up on the parcels play given these stellar projections.