Today I’m running the rule over three significant Footsie fallers.
Fashion faller
Despite its massive global presence, clothing giant Ted Baker (LSE: TED) has suffered the wrath of imploding investor confidence across the retail sector.
The designer’s share price has dived 23% since the results of the Brexit poll came in. And there’s plenty of reason to expect the share price to keep tumbling, as Britain’s retailers are likely furnish the market with gloomy outlooks and profit warnings in the weeks and months ahead.
Ted Baker itself sources around three-quarters of retail revenues from the UK, leaving it in danger of sliding shopper activity.
Still, I believe that surging demand for Ted Baker’s ‘urban chic’ fashion the world over should help the firm overcome the worst of these problems. Ted Baker is still rapidly expanding into new territories. For instance, it has opened new stores in US, China, Canada, Germany and Japan since January.
I reckon these factors make Ted Baker a terrific long-term growth selection. But a prospective P/E rating of 21.6 times leaves plenty of room for further stock price weakness, in my opinion.
In a spin
Like Ted Baker, white goods and gadgets flogger Dixons Carphone (LSE: DC) could also suffer from falling demand as shoppers digest the implications of Brexit Britain.
Indeed, YouGov head Stephen Harmston has warned that “in the coming months this is likely to filter through into a much weaker environment for retail sales and household spending — particularly on big ticket items.”
Like Ted Baker, Dixons Carphone generates the lion’s share of revenues from the UK with 65% of sales generated from its home market last year. And this has sent the share price skidding to record lows in the process, with Dixons Carphone dealing at a 34% discount since the polls closed.
However, a forward P/E rating of 10.2 times suggests that the risks facing Dixons Carphone could be priced-in at the present time. And with the retailer also bolstering its overseas footprint, I reckon now may prove to be a decent time for patient investors to pile-in.
Bank bombs
I’m not so bullish over the long-term prospects of Royal Bank of Scotland (LSE: RBS), however. Unlike its Footsie peers described above, RBS has scant exposure to foreign climes, leaving it in danger of prolonged revenues weakness should the British economy fall off a cliff.
On top of this, Royal Bank of Scotland has huge exposure to the commercial property market, leaving it in further peril. JP Morgan estimates that RBS has lent just over £25bn to the beleaguered sector, representing around 66% of the bank’s tangible net asset value. If this wasn’t bad enough, RBS is also likely to face a steady stream of earnings crushing, PPI-related penalties in the months and years ahead.
An 41% share price slide since polling booths were put back in storage leaves RBS dealing on a forward P/E rating of 11.9 times. But while decent on paper, I believe this reading still fails to reflect the colossal risks facing RBS, and I reckon investors should steer well clear.