April is just about on us again, but will it be a great month for Fools?
On 19 April we’re due interim results from Associated British Foods (LSE: ABF), the maker of Mazola, Ovaltine, Ryvita, Jordans and Twinings along with a lot of own-brand foodstuffs, but perhaps better known for its Primark clothing chain. The share price has risen 18% over 12 months to 3,369p, with a five-year gain of 236%.
A pre-close update in February made it sound as if Primark is still the star, with a 7.5% rise in sales expected — and there’s been a fair bit more capital expenditure during the period due to Primark’s expansion. After a few years of rising earnings, EPS was pretty much flat last year and the same is expected this year, ahead of a forecast 18% boost to EPS in 2017.
The big problem is the valuation of the shares. On current expectations we’re looking at a forward P/E of more than 33, dropping only to 28 on 2017 forecasts — and I just can’t see how that can be justified, not even by Primark.
Turnaround
2016 could be a pivot year for AstraZeneca (LSE: AZN), which should be delivering its first-quarter figures on 29 April.
AstraZeneca has been pursuing a turnaround plan since facing falling earnings due to the expiry of some key patents, offloading peripheral businesses and focusing on getting the development pipeline flowing at full speed again. The company invested $5.6bn in R&D in 2015 alone, following on from a $4.9bn investment in 2014, with a good chunk of that going into the potentially lucrative oncology market.
Analysts are forecasting a 7% drop in EPS this year, followed by a further 1% next — but with the company expecting a low-to-mid single-digit percentage decline in core EPS, it might do better than that. And 2017 could even swing back into modest growth, so we should watch out for outlook upgrades in interim updates.
But even if EPS growth doesn’t return until later, I still see AstraZeneca shares as cheap at 3,915p and on a distinctly average P/E of 14, especially with 5% dividend yields on the cards.
Bad bank?
Also on 29 April, we’ll have first quarter results from Royal Bank of Scotland (LSE: RBS). I’ve long been bearish towards RBS as its recovery has lagged a good way behind that of Lloyds Banking Group, yet the markets have been affording similar valuations to the two. But the RBS price has been through a bit of a correction, dropping 36% over the past 12 months to 224p, while Lloyds has lost 14%.
For 2015 we had a £1,979m loss, with a lot of one-off costs and impairments that will be out of the way this year, leading analysts to predict a modest pre-tax profit this year. There’s a tentative return to dividends on the cards for the second half, but it’s only likely to provide a yield of around 0.3% before getting back to decent levels in 2017.
Taken in isolation, a P/E of 10 based on 2017 forecasts looks attractive, but compared to a lower valuation at Lloyds with dividends set to reach 6% this year, RBS loses its shine for me — and I don’t expect Q1 results to change that.