Today I am running the rule over three London-listed newsmakers.
Software star
Shares in software specialists Kainos (LSE: KNOS) have exploded back above the 200p marker in Wednesday business, the release of an encouraging trading update driving shares 6% higher on the day.
Kainos advised that it expects trading to be in line with expectations for the year to March 2016, before noting that market conditions in the public sector continue to improve. The firm added that “this is expected to result in a further gradual increase in opportunities across government departments”.
On top of this, Kainos advised it had signed a five-year deal with InTouch Health, a “telehealth” services provider. The move will see the company’s Evolve Integrated Care SaaS platform used in 1,500 hospitals across the US and Europe.
Broker Barclays Capital expects earnings to surge 12% in the current year before advancing an extra 9% in fiscal 2017. A P/E rating of 20 times may not be cheap, but I believe Kainos deserves serious examination from those seeking exceptional growth potential.
Fossil fuel fears
Engineering play Smiths Group (LSE: SMIN) also furnished the market with fresh trading details on Wednesday, although the market greeted the release with much less fanfare. Smiths Group advised that revenues slipped 3% during July-January, to £1.37bn, a result that sent pre-tax profit 9% lower to £189m. The company’s shares were recently 2% lower from Monday’s close.
A robust performance from the company’s medical and detection divisions helped Smiths Group broadly meet broker estimates, although the results highlighted the ongoing pressures for its John Crane oil and gas division — sales here tanked 13% in the first half of the year.
City consensus suggests that earnings should slip 14% in the year to July 2017, resulting in a P/E multiple of 14.7 times. Although this reading is more than respectable on paper, I reckon the prospect of further weakness across its oil-based operations — a segment responsible for roughly 30% of total sales — makes Smiths Group a risk too far at the current time.
Set to correct?
Diversified miner Anglo American (LSE: AAL) has been one of the FTSE’s major chargers since the start of February, the business gaining 75% in value during the period as commodity prices have rallied.
But returning fears over the strength of the global economy — and more specifically concerns over the impact of Chinese economic rebalancing — has seen raw material values, along with market appetite for Anglo American and its peers, begin to slip lower again in recent days. The company’s shares were last dealing 1% lower from Tuesday’s close.
I have long argued that the rapid ascent of the mining and energy sectors has been build on dodgy footing thanks to the chronic supply imbalances across major commodity markets.
And with expectations of a 58% earnings dip leaving Anglo American on an elevated P/E rating of 28.7 times, I reckon the stock is in danger of a harsh price correction.