We’d all like to be able to pick bargain shares when they reach rock bottom, wouldn’t we? Well, I’ve been looking round shares that have been plunging to new lows of late, and wondering what’s gone wrong and whether it’s time to buy.
Investor distrust?
I was surprised to see Aberdeen Asset Management (LSE: ADN) shares scraping two-year lows last week, having shed 34% from April’s high of 510p to just 338p in so short a time. As I write, the shares are trading at 341p.
Part of the problem has been cautious investors withdrawing funds, with assets under management falling from £330.6bn at the end of March to £307.3bn at 30 June, due partly to a net outflow of £9.9bn in the quarter. But at the earlier halfway stage in March, underlying EPS had been up 13% and the company lifted its interim dividend by 11%.
The full-year dividend is forecast to grow by 8% to yield 5.6%, though there must surely be some who doubt that. But it would be covered around 1.6 times by forecast earnings, and there’s plenty of free cash flow, so I reckon it’s likely to be safe enough — and it makes Aberdeen Asset Management look like a bargain to me.
Wobbly bank
One I’m less impressed by is Standard Chartered (LSE: STAN), whose shares crunched to a five-year low of 856p, after losing 29% in 12 months and 45% over the past two years. Standards Chartered’s problems are manifold, with the internationally overstretched bank struggling in some territories (notably Korea) and its management team coming in for much criticism — until we eventually got a new board in July.
The new broom is sweeping clean, and the first thing to go was the dividend that the bank simply could not afford — the first-half cash has been slashed by 50%, and I wouldn’t be surprised to see a further cut in the final payment.
On top of that, around 20% of Standard Chartered’s loan book is tied in some way to plunging commodities prices. That’s already led to some write-offs, and there are likely to be more. Not one for me.
Cheap oil?
Then we come to an oily whose shares have lost two thirds of their value over the past 12 months, and it’s SOCO International (LSE: SIA), with a fall to 136p. I confess I find it hard to value oil companies, and I’m torn over SOCO. On the one hand, a forward P/E of 12 based on forecasts for 2016 coupled with a relatively low dividend yield of 2.8% doesn’t excite me, even if it’s not obviously overpriced.
But a net asset value per share of around 189p for shares at this price looks attractive (although it does depend on when those assets were last valued and at what prices). And SOCO is sitting on plenty of net cash, and is nicely profitable even with oil at around $50 a barrel.
SOCO will be a survivor, I’m sure. But there could be more pain in the short term before things get better.