Yesterday saw the FTSE 100 ease past the 6,000-point resistance that has dogged any signs of a recovery for some time now. However, as we head into another busy week of companies reporting their results to the market, it’s anyone’s guess where the blue-chip index will end up at close of play on Friday afternoon.
As you will read in more detail below, I’ve handpicked three companies due to release results this week. I’ve selected an outperformer, an index-hugger and a laggard. Will their fortunes change for the better or worse following their results? Let’s take a closer look…
Shares on sale?
A quick glance at the chart shows that investors in Lloyds Banking Group (LSE: LLOY) have needed nerves of steel as the market fretted about another looming financial crisis. The shares have recovered a fair amount of ground from recent lows, however they’re still currently trading nearly 30% below recent highs. Has the market become too negative on the shares?
For the year ending in December 2015 analysts’ consensus EPS is 8.26p – that puts the shares on a 2015 PE ratio of less than eight! That looks rather cheap to my mind. However, one should remember that the market can always take a turn for the worse in these unpredictable times.
Priced for perfection?
Cheap is not a word I would use to describe the next company under review today. Merlin (LSE: MERL) the UK-headquartered entertainments company, reports its full year numbers on Thursday.
Analyst expectations have been adjusted down to EPS of 17.5p per share for the year ended 2015 following a profit warning in September and management providing a further ‘in-line’ trading statement in December.
However, even though there have been no more profit warnings, the shares currently change hands on a rather punchy 25 times 2015 earnings and around 22 times forecast earnings for 2016. To my mind that doesn’t leave too much room for error, even though the company is seen as a quality operator.
Safe as houses?
Last up is blue-chip housebuilder Persimmon (LSE: PSN). Named after the 1896 Derby-winning horse, this housebuilder has grown organically and by acquisition since being founded by Duncan Davidson in 1972.
And grow it has, currently with a market capitalisation of around £6bn, this is the UK’s largest housebuilder by market cap.
As can be seen from the chart above, the shares have been volatile of late along with a number of other housebuilders as investors have begun to worry about whether the market has topped out and the only way is down from here. However, in my view, there’s still lots to like about the sector given the need for more houses to be built, a supportive framework for first-time buyers and low interest rates.
Indeed, all of the housebuilders that I follow are indicating that current trading is going well, giving good visibility for the future and allowing the board to continue to increase dividends to shareholders.
And in Persimmon’s case, analysts have been upgrading their earnings forecasts since July, leaving the shares trading on a 2015 PE of around 12 times earnings with a further return of capital expected to total around £1 per share. That’s good for a yield of over 5% at current prices, according to data from Stockopedia.