Today I am looking at whether investors should park their money in three Monday-morning headline makers.
Anglo American
Boosted by news of a successful Greek debt deal, diversified digger Anglo American (LSE: AAL) was helping to drag the FTSE 100 higher with a 0.9% advance in start-of-week trade. The stock has broken its broad downtrend over the past week, the company having climbed 5% since last Monday, but with chronic imbalances hanging over key markets I reckon shares should resume their dip.
Indeed, Chinese trade data overnight showed iron ore imports — an area from which Anglo American generates 40% of total earnings — decline 1% during January-June, to 452.9 million tonnes. Sales of coal have also soured in recent times as a slowing domestic steelmaking industry and Beijing’s emissions legislation has weighed, and imports of the black stuff dived by a third in June to 16.6 million tonnes.
With the outlook for such critical markets remaining sombre at best, the City expects Anglo American to print a fourth successive earnings decline in 2015, this time by a chunky 44%. So quite why the business changes hands on a P/E multiple of 14.2 times is beyond me, I’m afraid — I would consider a figure closer to the bargain benchmark of 10 times to be a fairer reflection of the risks facing the London firm.
SThree
Recruitment specialists SThree (LSE: STHR) greeted the market with a bubbly trading update in Monday’s session and was recently trading 3.3% higher on the day. The business advised that revenues leapt 18% during December-May, a result that propelled pr-tax profit 68% higher to £13.8m.
SThree noted it had made significant progress in its priorities of “contract, ongoing sector diversification and international growth,” and continues to pull up trees in foreign shores — indeed, revenues across The Americas alone climbed by almost a third during the six-month period. Given this success the abacus bashers expect the company to enjoy earnings growth of 13% and 24% for the years concluding November 2015 and 2016 correspondingly, driving a P/E ratio of 20.5 times for this year to just 16.2 times for the following period.
And SThree’s stunning growth prospects are expected to get dividends moving higher again, too, following four years of locking the payment at 14p per share. A predicted dividend of 14.5p for 2015 creates a chunky yield of 3.9%, and this moves to 4% for next year amid forecasts of a 15p dividend.
Aquarius Platinum
Precious metals producer Aquarius Platinum (LSE: AQP) has emerged as one of the darlings of Monday’s session and was recently 11.5% higher from Friday’s close. The bling behemoth was boosted by Credit Suisse’s affirmation of its ‘outperform’ rating, helping the company break the colossal slowdown of recent years — Aquarius has shed almost three-quarters of its share price since the same point in 2014 alone.
But like fellow resources play Anglo American, I believe today’s uptick is likely to prove a temporary respite as the platinum market remains on shaky footing. Indeed, prices have collapsed from around $1,500 per ounce as of last July to current levels around $1,030 as resilient supply and weak demand — particularly from the Chinese jewellery sector — has weighed.
These pressures are expected to have widened losses per share to 2.2 US cents for the 12 months ending June 2015 from 1.13 cents the previous year. A bounce to earnings per share of 1.2 cents is anticipated for 2016, leaving the business dealing on a low P/E multiple of just 8.3 times. This could be considered a decent punt for some, but not for me I’m afraid. In my opinion the supply/demand imbalance looks likely to worsen as carbuilders increasingly opt for cheaper palladium in their exhausts and above-ground supplies remain abundant.