Today I am looking at the investment prospects of four FTSE-listed fallers.
SSE
Thanks to the rising trend of tariff switching, I believe electricity and energy play SSE (LSE: SSE) is not a stock selection for the feint hearted. Even though predictions of a long, hard winter in the UK could provide the bottom-line with a welcome boost, investors continue to give the business short shrift and shares fell 4% last week alone, taking the shine off recent meaty gains.
Like fellow energy giant Centrica, SSE continues to haemorrhage customers to the growing army of independent suppliers — companies that offer juicy signing-on incentives to customers sick of being overcharged by the so-called ‘Big Six.’
Sure, SSE’s monster dividends may prove irresistible to many, but I believe a worsening revenues outlook, allied with the vast costs associated with keeping the lights on for its customers, could put both earnings and payouts under heavy pressure in the years ahead.
Smith & Nephew
Medical giant Smith & Nephew (LSE: SN) also performed poorly, its share price falling 4% during the course of last week. The dip was caused by disappointing financials that revealed only a 4% advance in underlying revenues during July-September, to $1.1bn, missing consensus estimates by some distance.
Still, I believe Smith & Nephew remains a hot growth selection as demand for the firm’s joint implants continues to climb, particularly in the US — its single largest market — and emerging regions. Indeed, underlying sales in these destinations rose 4% and 8% respectively in the last quarter. And I expect Smith & Nephew’s rolling acquisition drive to deliver sterling returns, too — the firm also purchased surgical robotics play Blue Belt Technologies for $275m last week.
easyJet
Thanks to improving economic conditions across Europe, I believe budget flyer easyJet (LSE: EZJ) should reap the rewards of surging passenger numbers in the years ahead. The Luton business — whose shares drooped 1% during the last week — kept its positive momentum going with a 7.6% up-tick in traveller numbers in September, to 6.6 million.
All eyes will be on easyJet’s latest release due this week but, regardless of the shape of these numbers, I believe the company’s steady route-and-hub expansion drive should deliver resplendent returns in the years ahead. Indeed, easyJet is taking on an additional 1,400 cabin crew and pilots to service its rising route calendar, reflecting the strength of underlying travel demand.
Petra Diamonds
I am not so bullish concerning the investment prospects of African digger Petra Diamonds (LSE: PDL), however, and expect the company to extend last week’s 13% share price decline. The stock has rebounded 7% in Monday trade, as dip-buyers have ploughed in, but I certainly don’t believe the worst could be over as diamond prices lag and the prospect of further operational issues hovers.
Petra Diamonds saw revenues flat-line at $100.8m during July-September, it announced last week, even though quarterly production edged 1% higher in the period, rising to a record 842,796 carats. Worryingly the firm advised that diamond values were 8.8% lower versus the previous three months, and that net debt leapt to $306.2m versus $171.7m a year earlier, forcing it into discussions with its bankers concerning loan covenants.
With Chinese diamond off-take falling, and market supply remaining plentiful, I do not expect the outlook at the mining play to improve any time soon.