Today I’ll be taking a closer look at construction services company Carillion (LSE: CLLN), and pharmaceuticals giant GlaxoSmithKline (LSE: GSK). Is it the right time to invest in these Great British businesses?
A good year ahead
Earlier this month Carillion reassured its shareholders at its Annual General Meeting that trading so far this year had been in line with expectations. New orders secured so far in 2016 have increased revenue visibility for the full year to 94%, compared to 84% at the end of 2015. Management said the strong, high-quality order book and substantial pipeline of contract opportunities should help the company make further progress, and it expects profits in 2016 to revert to a greater second-half weighting.
Shares in the Wolverhampton-based firm have underperformed in recent months, and are now trading 17% lower than a year ago. Consensus forecasts suggest underlying earnings will remain broadly flat this year at around £147m, with a 6% improvement to £156m pencilled-in for next year. Over the years, Carillion has rewarded its shareholders with generous dividends, and analysts expect this to continue with 18.89p forecast for this year, increasing to 19.60p for the year to December 2017. That adds up to prospective yields of 7.2% and 7.4%, respectively.
At current levels, the shares are trading at a very attractive valuation at just eight times forecast earnings for the next two years. In my opinion, the lowly P/E rating coupled with the chunky dividend payout makes Carillion an unmissable investment for both bargain hunters and income seekers alike.
Healthy pipeline
The UK healthcare cost watchdog has reportedly approved GlaxoSmithKline’s new drug to battle lupus after previously rejecting it on the grounds of cost. The National Institute for Health and Care Excellence (NICE) revealed that Benlysta would be made available for limited use under a managed access scheme between Glaxo and the NHS in England for the treatment of lupus, a condition that causes the immune system to attack the joints and organs.
Pipeline medicines such as Benlysta are important to the long-term prospects of firms like Glaxo in order to offset the impact of patent expirations and generic competition. The Brentford-based drugmaker continues to reward its shareholders with generous dividend payouts. The prospective yields in excess of 5% make Glaxo an appealing buy-and-hold investment for those with a low appetite for risk.
The verdict
Bargain hunters will no doubt be attracted to Carillion’s low P/E rating, but income seekers should also take note of the chunky dividends that are covered twice by earnings. In my view the perfect stock for those looking for both growth and income.
Meanwhile, GlaxoSmithKline continues to offer income-focused investors with some stability in their portfolio, with the drugmaker’s defensive qualities and low-risk profile making it an ideal long-term income play.