Today I am looking at the investment prospects of two London-quoted heavyweights.
Big is beautiful
Real estate investment trust (REIT) Tritax Big Box (LSE: BBOX) gave investors plenty of reason for cheer in Thursday business, following its latest trading update. The company advised that its portfolio was 100% let, providing it with contracted annual rental income of £68.2m.
And promisingly, Tritax Big Box, which specialises in acquiring and managing warehouses, distribution centres and other huge properties, noted that
“as we look forward to 2016, we believe the imbalance between supply and demand of big box assets is a theme which will continue to dominate the logistics sector, driving further market rental growth.”
The City expects Tritax Big Box to record earnings growth of 32% in 2015, and an extra 7% advance is pencilled in for 2016. As such the company changes hands on P/E ratings of 20.9 times and 19.7 times for these two years, which is decent value in my opinion, given the firm’s terrific growth potential.
On top of this, Tritax Big Box affirmed its desire to shell out a 6p per share dividend this year, a figure that yields a chunky 4.7%. And this reading rises to 4.9% for 2016, as analysts predict a 6.2p per share reward. I fully expect Tritax Big Box to continue delighting growth and income seekers as the British economy expands in the years ahead.
Oil giant on the ropes
As crude prices continue their relentless dive lower, I see no reason to invest in fossil fuel producer Tullow Oil (LSE: TLW) at the current time.
To many, Citi’s claim back in February that oil could fall as low as $20 per barrel seemed a prediction too far. But since the broker made its prediction, at which time Brent was trading around $63, the price has collapsed still further and is currently languishing around the $37 marker.
And the price looks set to keep dropping as the steady stream of poor data rolls in. Latest numbers from the US Energy Information Administration on Wednesday showed domestic inventories unexpectedly adding 4.8m barrels last week, driving total levels to a modern record of 490.7m barrels.
The news sent the Brent benchmark sinking to fresh six-and-a-half-year nadirs, and I fully expect the price to keep printing regular lows as the supply/demand imbalance worsens. OPEC remains deaf to calls to slow production as it seeks to build market share, while output from the US and Russia continues to creep northwards, too.
And while consumption is expected to tick modestly higher in 2016, the effect of a decelerating Chinese economy means that global supplies should continue to overshadow any demand improvements.
Such a scenario naturally bodes ill for the likes of Tullow Oil, a firm which saw net debt balloon to $4.2bn as of November, up from $3.1bn at the turn of the year.
The producer saw revenues tank 35% during January-July, to $820m, and Tullow Oil is likely to remain on precarious ground despite the impact of its hedging activities. With crude’s free fall showing no signs of abating, I believe the company carries too much risk to be considered a sound stock selection.