Today I am looking at the future fortunes of three strong FTSE risers.
BHP Billiton
Diversified digger BHP Billiton (LSE: BLT) has enjoyed a solid bump higher in recent days along with much of the London mining index, and the business gained 2% in the five days to last Friday. But I see no reason for this modest upturn to continue as the wider supply/picture for the commodities space remains murky at best, leaving the business in danger of a fresh plunge lower.
Indeed, the World Bank has just revised down its 2015 growth predictions for the developing East-Asia and Pacific regions thanks to “China’s economic rebalancing and the pace of the expected normalisation of US policy interest rates.” The body now expects these territories to punch GDP expansion of 6.5% in 2015, down from 6.8% last year, and further slides to 6.4% next year and 6.3% in 2017 are anticipated.
The mining industry has failed to effectively address China’s predicted slowdown for some years now, and major players like BHP Billiton are poised to keep on steadily increasing output across commodity classes. So it comes as no surprise that BHP Billiton is expected to swallow a 43% earnings slide in the year to June 2016, resulting in an elevated P/E ratio of 24.9 times. Quite why anyone would buy a stock with such poor growth prospects at those prices escapes me, I’m afraid.
Quindell
In a desperate bid to wave goodbye to its checkered past, telematics specialist Quindell (LSE: QPP) reiterated plans to change its name yet again last week. The company’s stock gained 2% during the course of Monday-Friday, but I believe investors should continue to give the business short shrift — Quindell’s risk profile is likely to remain extremely high for some yet, regardless of what it decides to call itself.
The business announced last week that it had clocked up a pre-tax loss of £35.5m during January-June, a modest improvement from the £35.7m loss reported in the corresponding 2014 period. But thanks to “ongoing reputational issues” revenues at Quindell to slump to £35.3m in the first half, down from £42.8m a year earlier.
The company’s customers are not stupid, and until Quindell’s new board members begin to show signs of tangible progress I believe sales should continue to struggle. In the meantime new CEO Indro Mukerjee has to show how the restructured company will generate earnings following the sale of its Professional Services Division. With a £9m lawsuit from an undisclosed group adding another level of intrigue — Quindell is already facing a Serious Fraud Office probe, of course — I believe shrewd investors should continue to give the business a wide berth.
Rolls-Royce Holding
Engineering colossus Rolls-Royce Holding (LSE: RR) grabbed the headlines in Monday business following news that its Marine division had slashed a further 400 jobs from its workforce, adding to the 600 removals made back in the spring. The market responded by driving shares 3.2% higher from Friday’s close, and adds to the 11% advance punched last week.
Although the London firm kept revenues and profits estimates at its Marine arm frozen, Rolls-Royce is aware of the impact of fresh crude price weakness on sales as oil producers desperately scramble to conserve cash. Combined with the effect of moderating engine aircraft sales, and lower Trent 700 engine prices, the engineer is expected to endure earnings dips of 17% in 2015 and 19% next year.
However, I believe a consequent P/E rating of 12.8 times for 2015 provides a great entry point for more patient investors. New aircraft orders should continue to rise on the back of surging passenger numbers, with airline spend supported somewhat ironically by an environment of subdued oil prices. And thanks to the excellent reputation of its industry-leading engines, not to mention the strong barriers of entry enjoyed by its TotalCare aftermarket division, I believe Rolls-Royce should hurdle current problems and punch stellar earnings growth in the longer-term.