Interim updates from Vedanta Resources (LSE: VED), Persimmon (LSE: PSN) and Legal & General Group (LSE: LGEN) proved a very mixed bag this morning.
Are any of these firms’ shares worth buying — or selling — after today’s updates?
Vedanta Resources
Shares in India’s largest natural resources company, Vedanta Resources, slipped this morning, after the company revealed a $324.5m first-half loss and suspended its dividend. All of the firm’s key commodities — oil and gas, zinc, silver, iron ore, copper and aluminium — are currently suffering from depressed prices.
The loss of the dividend will be a blow to Vedanta shareholders, many of whom expected the $0.65 forecast payout to be delivered. At today’s share price, this would have represented a yield of more than 8%. Too good to be true, as it turns out.
There was some good news, however. Free cash flow of $1.3bn helped reduce net debt by $0.9bn to $7.5bn. If Vedanta can continue to maintain or reduce its debt, then the firm’s low cost assets could make it a very profitable way to play a commodity recovery, when prices do start to rise.
I’m not sure we’re there yet, though. In my view, there’s no rush to buy Vedanta shares at the moment.
Persimmon
Housebuilder Persimmon delivered a solid third-quarter trading update this morning. The group said that the private sales were 12% higher than during the same period last year, while visitor numbers to development sites were up by 5% on last year.
There was no mention of profit, but the firm said that its operating margin is expected to rise above the first-half level of 20.5% during the second half of this year. Net cash is also expected to be higher than at the end of 2014, when Persimmon had £378.4m in cash.
Despite this positive update, Persimmon shares are down by 2.5% as I write. One reason might be the growing feeling that housebuilders are throttling back growth in order to sustain the current housing boom. After six consecutive years of double-digit profit growth, Persimmon’s earnings per share are expected to rise by less than 10% next year.
Indeed, I think it’s fair to say that Persimmon’s main attraction is now income, rather than capital gains. So far, Persimmon has returned £733m of a planned total of £1.9bn to its shareholders.
Analysts expect a payout of 113p per share in 2016, giving a prospective yield of almost 6%.
Legal & General
Legal & General’s good run of form appears to be continuing. The insurer and asset manager said that net cash generation rose by 14% to £943m during the third quarter. The firm’s investment management business received net inflows of £21.7bn, a sharp contrast to the net outflows seen at firms such as Aberdeen Asset Management.
For income investors, Legal & General remains very attractive, in my view. The firm offers a well covered 5% prospective yield and a strong balance sheet.
Investors looking for capital gains may need to be more cautious. Legal & General shares now trade at 2.6 times net asset value and 14 times forecast earnings.
Further upside could be limited, especially as earnings per share growth is expected to halve from 14% to 7% in 2016.