News of lower profit at home furnishing and clothing retailer Laura Ashley (LSE: ALY) doesn’t seem to have hurt investor sentiment too much today. The company’s shares are flat despite it reporting a fall in pre-tax profit for the year to 30 January, with it declining from £23.5m in the previous year to £19.4m.
Re-rating on the cards
This was partly as a result of a dip in revenue to £290m from £304m in the prior year, with the company’s international division in particular experiencing difficult trading conditions. And with Laura Ashley’s bottom line also being hurt by an exceptional charge of £1.3m relating to its licence partner in Australia being placed into voluntary administration, it is little wonder that its financial performance worsened versus the prior year.
With Laura Ashley’s share price having fallen by 12% in the last year, it now trades on a price to earnings (P/E) ratio of just 9.8. This indicates that an upward re-rating is very much on the cards and with the company continuing to offer long term profit growth potential, it could prove to be a sound buy.
Negative impact
Also in the news today is Africa-focused budget airline Fastjet (LSE: FJET). Its shares have been hurt of late by a disagreement with shareholder easyGroup, with an allegation that the airline is in breach of two clauses of a license agreement. Fastjet denies this and, unfortunately for its investors, the disagreement is being played out in public, which is having a negative impact on the company’s share price. In fact, it is down by 6% toda, which takes its fall in 2016 to 55%.
Of course, not all of this decline is due to the disagreement with easyGroup. Fastjet is experiencing challenging trading conditions which according to its latest trading update are lasting for longer than anticipated. And with the company’s CEO stepping down, there is added uncertainty at the present time. Therefore, it seems to be prudent to watch, rather than buy, Fastjet until there is an indication of a more stable near-term outlook for what could prove to be a highly profitable business.
Enticing income play
Meanwhile, shares in Rio Tinto (LSE: RIO) have also disappointed in recent months, being down by a third in the last year. Although they have reversed some of their decline as the price of iron ore has stabilised somewhat in recent weeks, the future for Rio Tinto and the wider iron ore industry is likely to be highly volatile and uncertain. This means that obtaining a sufficiently wide margin of safety before buying is imperative.
On this front, Rio Tinto appears to be relatively appealing. It trades on a price to earnings growth (PEG) ratio of just 0.5 and this indicates that it offers growth at a very reasonable price. And with Rio Tinto still yielding around 3.7% even after its decision to rebase its dividend, it continues to be a rather enticing income play for the long term. As such, it seems likely that its shares will reverse at least part of their decline from the last year.