Today I’ll be taking a closer look at oil major Royal Dutch Shell (LSE: RDSB), banking giant Royal Bank of Scotland (LSE: RBS), and silver miner Fresnillo (LSE: FRES). Should you be buying any of these Footsie favourites today?
North Sea sell-off
Anglo-Dutch oil major Shell might be looking to sell some of its older, lower quality assets in the North Sea, according to chief executive Ben van Beurden. The move could be part of a two-year programme to help finance the recent $52bn acquisition of BG Group.
The firm is keen to maintain its dividend despite the decline in oil prices and aims to sell $30bn worth of assets between 2016 and 2018. Shell has seen its share price rise by over 30% in the last three months, as the shares continue to offer attractions for income seekers, with forecasts suggesting dividends yields in excess of 7% for the next three years.
With the outlook for oil prices remaining uncertain, investors might want to drip-feed into the stock and build up a holding over time.
Bargain bank
According to a recent report, the Royal Bank of Scotland is set to close down its operations in India by year-end. The bank has been trying to sell the business since last year, but now believes that red tape would lead to extra delays and costs, and it would be cheaper to close down the operation rather than continue its quest to find a buyer.
The India business provides financial services to corporate and institutional clients, and employs around 700 people, who will lose their jobs. RBS originally took control of the operation when it acquired ABN Amro in 2007. The bank will still be left with around 13,000 staff in India providing back-office support for RBS’s other international operations.
RBS shares have plummeted this year, losing more than a third of their value, and unlike some of its rivals, there’s not much in the way of dividends to attract income-hunters. However, the valuation looks appealing, with shares trading on 12.3 times forecast earnings for this year, falling to 9.7 for the year to 31 December 2017. Value investors might want to take a closer look at RBS and take advantage of the recent share price declines.
Great expectations
Shares in gold and silver miner Fresnillo moved higher this morning after a positive trading update for the three months to 31 March 2016. The Mexican precious metals miner revealed a 26% increase in gold production from the same period last year, and a 6.5% increase compared to the previous quarter. Silver production however remained flat on both a year-on-year and quarter-on-quarter basis.
The company remains confident of reaching its full-year production guidance of 775,000 to 790,000 ounces of gold, and 49m to 51m ounces of silver. If achieved, both gold and silver production would be an improvement on 2015.
Analysts are very optimistic about Fresnillo’s prospects this year, with consensus forecasts suggesting a steep rise in earnings of 250%, followed by a further 83% improvement in 2017. However, if this expected growth transpires, the company will still be trading on expensive looking earnings multiples of 58 and 32 for the next couple of years.
In my opinion the optimistic growth forecasts are already well priced-in and the demanding P/E ratio leaves no room for error in case earnings fall short. Too risky for me!