Sometimes poor results can trigger a tempting buying opportunity. The following three companies have disappointed, but could this be a good entry point?
What does Foxtons say?
Who shot Foxtons Group (LSE: FOXT)? Once again, it was Brexit that pulled the trigger as the EU referendum becomes the perfect blame-all for any business with a disappointing story to tell. The group’s half-year profits are certainly disappointing, down 42.2% to £10.5m due to a slowing property market with little hope of recovery this year. Revenue fell 3.1% to £68.8m.
The London property market, where Foxtons is focused, had to slow at some point, and there were signs it was doing so well before Brexit. What the result may do is stretch out the pain that little bit further, although the 10% drop in Sterling may also attract foreign buyers. The second quarter was much weaker than the first and this was as much down to the 3% stamp duty surcharge introduced on 1 April as the Leave victory.
Foxtons remains a big player in the London sales and lettings market and is looking to expand to 100 branches, despite current uncertainties. The shares are down nearly 7% today leaving Foxtons trading at 10.08 times earnings and yielding 4.34%, which may tempt buyers who believe the capital can boom again.
Profits down, shares up
Engineering firm IMI (LSE: IMI) has seen its share price leap more than 3% in early trading, despite reporting a 19% drop in first-half pre-tax profits from £107m to £86m as revenue fell in challenging conditions. Net debt rose from £289m to £334m, partly due to an adverse currency impact of £70m.
IMI expects more favourable currency impacts over the full year as it generates more than 90% of sales outside the UK and a weaker pound could boost revenues and operating profits. The business faces challenging conditions in a number of key sectors but chief executive Mark Selway claims he can drive growth through operational efficiency, enhancing processes and launching new products. Given the challenges, IMI looks pricey at 16.64 times earnings, despite the respectable 3.59% yield.
Less than bullish
Multi-platform business information and events group Centaur Media (LSE: CAU) has had a tough year, its share price falling 54% from 81p to 37p. It has seen its advertising and sponsorships revenues squeezed in recent months, yet recent updates show revenues rising at a fairly convincing pace, and this continues in today’s update.
Reported revenues grew by 8% to £39.9m in the six months to 30 June with underlying revenue growth of 4%. Premium content and live events revenues was up, more than offsetting a 6% drop in advertising revenues. Unfortunately, this was offset by a dip in adjusted operating profits to £5m, down from £6.1m in 2015, while adjusted operating margins of 12.5% were down from 16.6% in 2015. Lower advertising revenues, the cost of building premium content products and commercial team capability all hit reported operating profits, which slumped to £3.1m, down from £4.8m last year.
Centaur’s 170% cash conversion for the first four months of the year may convince some, as will its rock bottom valuation of 6.73 times earnings and sky-high 8.33% yield. Tempting, but risky.