Today I’m taking a look at three Footsie-listed newsmakers.
Fossil fears
Fossil fuel play Premier Oil (LSE: PMO) was recently dealing 4% lower from Tuesday’s close despite releasing a reassuring trading update. Premier Oil advised that it’s on course to meet — or possibly even exceed — estimated output of between 65,000 and 70,000 barrels per day in 2016.
The firm commented that “strong production performance from our existing assets, together with the contribution from the E.ON assets and the Solan field means that we now expect production for the year to be better than we originally anticipated.”
Maiden production at Solan commenced in April, and Premier Oil expects its second well to come onstream by the middle of the year. And the producer advised that its Catcher asset “remains on schedule and below budget” to commence output during the second half of 2017.
However, I believe the oil market’s chronic state of oversupply still makes Premier Oil a risk too far for now.
The City expects the business to keep clocking up losses until the close of next year at the earliest, and I believe these forecasts remain in danger of downgrades should supply and demand indicators continue to disappoint. And of course the unpredictable nature of fossil fuels extraction adds another layer of risk.
Service struggles
Indeed, the poor state of the oil market was underlined by Wood Group (LSE: WG) on Wednesday.
The oil services provider was recently dealing 1% lower after advising that “market conditions remain challenging in 2016 and we have seen further margin pressure in an environment of expected lower activity by operators.”
Wood Group added that it expects full-year EBITA to fall 20% year-on-year in 2016.
The worrying outlook for crude prices has seen producers across the globe take the hatchet to their capex budgets in recent times. But demand for Wood Group’s services could fall further should oil values fail to recover, a very likely scenario in my opinion.
The number crunchers expect earnings to slip 26% this year alone, resulting in a P/E rating of 13.9 times. I reckon this is far too high given Wood Group’s elevated risk profile.
Build huge returns
Things are much rosier at Barratt Developments (LSE: BDEV) however, although wider market jitters mean the share price flatlined in Wednesday’s session.
The housebuilder advised that “market conditions remain strong with ongoing good levels of demand for new homes,” with total forward sales 9.7% higher as of 8 May, at £2.84bn.
Barratt Developments said that favourable lending conditions continues to fuel housebuyer demand, noting that its sales rate has edged up to 0.75 net private reservations per active outlet per week, up from 0.74 in the corresponding 2015 period.
With homes demand set to keep outstripping supply, the City expects earnings at Barratt Developments to surge 19% alone, resulting in a P/E rating of just 9.7 times.
And when you add a market-mashing dividend yield of 5.7%, I reckon the property play is too good to pass up at current prices.