Today I’ll be discussing the outlook for global banking giant Barclays (LSE: BARC) and Irish packaging company Smurfit Kappa Group (LSE: SKG). Will investing in these leading firms make you wealthier over the longer term?
Switch to London
Europe’s leading packaging company Smurfit Kappa earlier this month reported a positive first quarter of 2016 with a strong rise in profits on the back of higher revenues. The company revealed a 31% rise in pre-tax profits to €128m, compared to €98m reported for the same period a year earlier. Revenues were also higher at €2bn, a 2% increase year-on-year from the €1.96bn in Q1 2015.
The Irish firm has recently transferred its primary listing to London, at the same time downgrading to a secondary listing on the Irish Stock Exchange. With a market value of around £4.5bn the Dublin-based group could be a likely addition to the FTSE 100 at next month’s quarterly index review. This would certainly raise the company’s profile and is likely to have a positive effect on the share price.
Smurfit has seen excellent growth in recent years and the City expects it to continue with analysts talking about a 9% rise in earnings this year, followed by a further 6% improvement in 2017. This would leave the shares trading on around 11 times forecast earnings over the next couple of years, and in my opinion represent a bargain not to be missed.
Chief exec’s pledge
The still-new Chief Executive of Barclays, Jes Staley, has acknowledged that the bank’s decision to cut the annual dividend was very unpopular, but has promised not only to return the payouts to previous levels but surpass them over the longer term. In March, management announced a drastic cut to the dividend from 6.5p per share down to just 3p for the next two years.
Barclays is speeding up the sale of its non-core assets in a bid to turn the business around, and no doubt the restructuring will take time to have an effect on earnings, but I believe patient investors will be rewarded in the long run.
The group’s shares have given up 38% of their value in the past 12 months, and are now trading on 10 times forecast earnings for this year, falling to just seven times next year. With underlying earnings predicted to rise by 41% in 2017, I think the shares are oversold and offer an opportunity for contrarian investors to jump in while confidence is low.
The verdict
Smurfit Kappa looks like an excellent candidate for both growth and value-focused investors as the company is likely to continue rewarding shareholders with significant share price appreciation and rising dividends. The switching of its primary listing to London from Dublin, coupled with the recent pull-back in the share price, provides an excellent entry point for new investors to grab a slice of this £4.5bn packaging heavyweight.
Meanwhile, Barclays is trading on a very low valuation, and while some may believe the shares are a value trap, I can’t help but look towards next year’s earnings forecast and think they’re a genuine bargain waiting for a rerating. Management is continuing with its strategy to offload non-core assets and I believe the shares represent an unmissable bargain for the longer term.