Today I am looking at the investment prospects of three London-quoted heavyweights.
Oil play in serious peril
Another day, another piece of bad news for the oil industry. Today brokers at Morgan Stanley soured the mood still further by advising that the ‘black gold’ price is in danger of sinking as low as the $20 marker thanks to the steady appreciation of the US dollar.
Fellow financial experts Goldman Sachs have already tipped crude to reach these levels as the supply glut washing over the sector worsens. Indeed, the Brent benchmark’s slide to fresh 11-year lows of $32.16 per barrel last week again suggested that the worst could be far from over.
Such a scenario naturally bodes ill for support services plays such as Wood Group (LSE: WG). Fossil fuel producers the world over are frantically scaling back their operational plans in a bid to conserve cash and, with crude prices continuing to sink, investors should be prepared for fresh cash-conserving measures.
Wood Group is expected to see earnings tank 12% in 2016, following on from an expected 26% decline last year. And I believe a consequent P/E rating of 12.1 times for the current period fails to fully reflect the rising risks facing the business.
Recruiter on the rise
On a cheerier note, recruitment consultants Robert Walters (LSE: RWA) eased investor nerves in Monday business with its latest trading update.
Despite hiring in the banking sector currently experiencing cyclical weakness, and the impact of adverse currency movements also hitting the top line, Robert Walters saw total net fee income advance 5% between October and December, to £59.1m, with European fees leaping 8% in the period.
For the whole of 2015, Robert Walters is expected to have kept its double-digit growth story rolling with a 25% advance, the City advises. And a further 18% rise is anticipated for this year, driving the P/E rating to a decent-if-unspectacular 16.4 times. I expect this multiple to keep on sinking as Robert Walters’ broad geographical and sector diversification strategy pays off.
Keep it shelved
Supermarket colossus Sainsbury’s (LSE: SBRY) has seen its share price rattle lower again in recent days following the release of worrying M&A news.
The firm’s proposed £1bn takeover of Home Retail Group has caused many to scratch their heads in astonishment — quite why would the grocer wish to suck up the battered Argos operator as the trading environment worsens is a puzzle too far for many analysts and commentators.
Besides, Sainsbury’s has its own crippling competitive pressures to deal with. Sure, till activity at the firm may have improved in recent months, as massive brand and product investment has paid off. But as discounters and premium chains alike accelerate their investment plans, and the critical online growth segment becomes more and more congested, I fully expect sales to trek lower again.
Sainsbury’s is expected to suffer a 16% earnings fall in the year to year to March 2015, resulting in a conventionally-attractive P/E rating of 11.3 times. But given the hard work the supermarket must adopt just to stand still, I believe the business is likely to endure prolonged earnings pain looking ahead.