Today I am considering the investment prospects of three recent FTSE fallers.
Shopper shivers
Up until last week, shares in retail giant NEXT (LSE: NXT) were broadly flat for the month of March. But a disastrous trading update last Thursday changed all that, the stock collapsing more than 15% on the day.
NEXT advised that “the year ahead may well be the toughest we have faced since 2008,” adding that “it may well feel like walking up the down escalator, with a great deal of effort required to stand still.”
Chief executive Lord Wolfson has warned that consumer spending patterns are not as encouraging as they were just six months ago as real earnings growth has slowed. Consequently NEXT expects sales in the year to January 2017 to range between a 1% fall and 4% rise — the company had anticipated growth of 1% to 6% as recently as January.
I have long been bullish about NEXT, given its terrific brand power, not to mention the exceptional online presence of its NEXT Directory service. But last week’s warning has caused me to reconsider my positive take on the firm, while the result of June’s ‘Brexit’ referendum could present further obstacles such as rising labour costs.
The City expects NEXT to record a 4% earnings uptick in the current period, resulting in a P/E rating of 12.5 times. This is a reasonable reading on paper, but given the rising challenges facing the retailer, I believe risk-averse investors would be better shopping elsewhere.
Don’t bet on it!
Betting house William Hill (LSE: WMH) also suffered the effects of evaporating investor confidence last week, an 11% decline on Tuesday putting it firmly ‘in the red’ for March.
William Hill shocked the market by advising that it now expects operating profit in 2016 to register between £260m and £280m. This compares with profits of £291.4m last year.
The bookies explained that “the worst Cheltenham results in recent history” was a major contributor to the poor performance of recent weeks, along with “an acceleration in the number of time-outs and automatic self-exclusions” used by online gamblers.
The latter is a particularly worry for William Hill — the company expects profits at its Online division to be dented to the tune of £20m-£25m in 2016 alone, and rather worryingly notes that “the trend is still evolving.”
The City is expecting earnings at William Hill to flatline in 2016, resulting in a P/E rating of 13.3 times. Again, this number can hardly be considered expensive. But I believe the bookmaker could struggle to meet current forecasts given the rising challenges for its internet operations.
Go for gold?
A stagnating gold price has seen precious metals digger Centamin’s (LSE: CEY) share price trend lower again in March, the business falling 5% since the end of February.
While wider macroeconomic worries have boosted gold prices since the start of the year — the so-called ‘safe haven’ asset touched 14-month highs of $1,280 per ounce earlier this month — the prospect  of a resurgent US dollar threatens to push metal prices lower again, in my opinion.
Indeed, strong datasets from the States in recent days has raised expectations of additional Federal Reserve rate hikes in the coming months, even if Fed chief Janet Yellen struck a more cautious tone at yesterday’s meeting.
The number crunchers expect Centamin to punch an 8% earnings improvement in 2016, resulting in a P/E rating of 15.4 times. Still, I believe this reading is a tad heady given the danger of gold prices sinking heavily once more, a scenario that could put paid to any expected earnings recovery.