Today I am looking at the share price potential of two battered FTSE stalwarts.
The one with the wonky wheel
2015 was always likely to prove another disastrous year for embattled grocery chain Morrisons (LSE: MRW) — the supermarket has seen its share price haemorrhage 22% of its value since January, and the firm is currently dealing at levels not seen since 2000.
Britons’ surging demand for cut-price grub continues to play into the hands of the discounters, and so it has proved. From a combined market share of 8.3% at the start of the year, Aldi and Lidl’s total take as of November now stands at a record 10%, according to research Kantar Worldpanel.
And with the new entrants embarking on ambitious store expansion programmes, as well as dipping their toe into the high-growth online segment, the situation is only likely to get worse at Morrisons in my opinion.
Despite introducing round after round of price-slashing, initiating expensive store-refits, launching its own internet service, and revamping its loyalty schemes, the Bradford chain’s has shown that it simply doesn’t have the mettle to stop sales falling through the floor.
The City currently expects Morrisons to punch a 16% earnings decline in the year to January 2016, a result that would mark a third successive fall if realised. And with the firm dealing on an elevated P/E rating of 16 times, I would not even consider the firm a punt on which bargain hunters should descend.
No longer a cut above
Precious stones producer Petra Diamonds (LSE: PDL) has hardly had a year to fondly remember, either, as fears over diving demand has sent investors heading for hills. Consequently the London business has seen its share price scuttle 68% lower during the course of 2015, and I believe further pain could be in store.
Industry experts Rapaport gave the industry rare reason for cheer today, its latest RapNet Diamond Index (RAPI) showing prices of polished one-carat, GIA-graded diamonds rise 0.7% in November. But this was the first advance in six months, and was underpinned by busy buying ahead of the busy Christmas period.
Indeed, Rapaport cautioned that overall market appetite remains weak, and that De Beers should lower prices by a further 30%-50% to jolt demand, Jewellery Today reported. Such steps are likely to prove a necessity given that accelerating economic cooling in China continues to smack sales of luxury products from Burberry handbags to sports cars and jewellery.
Arguably Petra Diamonds’ long-term sales outlook is in better shape, a steady decline in global mine supply — combined with a rise in disposable income levels across emerging markets — potentially providing the fuel for prices to chug higher again beyond next year.
Still, Petra Diamonds faces the prospect of flat revenues growth for some time yet thanks to the chronic supply/demand imbalance, and a 9% earnings drop is currently forecast for the year to June 2016. And with the business carrying net debt of $306.2m as of October, I believe the firm remains on shaky ground, making a conventionally-low P/E rating of 11.1 times still unattractive.