Today I’m considering the investment case for three Thursday headline makers.
Stop digging!
Metals and energy giant Vedanta Resources (LSE: VED) has dipped 3% in Thursday trading, the firm’s full-year update failing to stoke investor appetite.
Vedanta saw revenues in the period to March 2016 slump 17%, to $10.7bn, causing full-year EBITDA fell to $2.3bn from $3.7bn in 2015.
The digger has subsequently slashed 2016’s dividend to 30 US cents per share, a colossal markdown from last year’s 63 cent reward.
Vedanta is attempting to hurdle the impact of low resources values by hiking output across its key commodity classes — the company started expansion of its aluminium, iron ore and electricity divisions last year, while zinc, lead, silver and copper cathode output all surged higher in fiscal 2016.
Still, expectations of prolonged commodity price weakness is expected to push Vedanta into the ‘loss’ column both this year and next, according to City brokers. And with the company also nursing a colossal $7.3bn net debt pile, I reckon shrewd investors should steer well clear of the battered stock.
Property star
In stark comparison, investor appetite for CLS Holdings (LSE: CLI) has taken off after announcing a massive share buy-back programme, the stock last dealing 6% higher on the day.
The property investor said that “the current share price, which is at a significant discount to its last reported NAV per share, does not adequately reflect the value of its property portfolio and development pipeline.”
CLS Holdings will pay a maximum of 105% of the average market value of the shares in the five business days proceeding the purchase, it said, and will buy no more than 4,140,618 ordinary shares. The scheme will start immediately and end no later than 30 June.
Robust economic conditions across Europe have underpinned steady earnings expansion at CLS in recent years, and the City expects this trend to keep on rolling with growth of 5% and 11% chalked in for the firm for 2016 and 2017, respectively.
I reckon consequent P/E multiples of 17.1 times for this year and 14.9 times for 2017 represent fair value given the company’s strong momentum.
Paper giant
Packaging play Mondi (LSE: MNDI) has also risen following a positive trading update, the stock last 2% up from Wednesday’s close.
Mondi advised that underlying operating profit had galloped 14% higher during January-March, to €269m, prompting the firm to reaffirm its full-year guidance.
So while Mondi advised it had seen “some price weakness in certain of our packaging paper grades,” it added that “demand for these products remains strong and we believe the fundamentals remain robust.”
The company is also benefitting from higher uncoated fine paper prices, lower energy and input costs, and the contributions from capital investment programmes, it advised.
The City expects earnings at Mondi to keep chugging along during the medium-term at least — indeed, growth of 4% and 3% is pencilled-in for 2016 and 2017. And I believe subsequent earnings multiples of 11.6 times for this year and 11.1 times for 2017 represent splendid value.