First-half results season is starting to draw to a close, but we still have a few big companies due to bring us updates.
Struggling bank?
Royal Bank of Scotland (LSE: RBS) had a tough time in the latest European banking stress tests, which suggested its capital buffer could almost halve in the event of a severe economic downturn. That’s likely to delay the bank’s resumption of dividends, which is already not expected before the end of 2017 (and then, only a 1% yield is forecast). The test only had a modest effect on the share price, which is down just 2.6% today at 184p — and it seems to have stabilised at around 25% down on its pre-referendum level.
Eyes will now be turned towards first-half results due on 5 August, and to any comments on the bank’s dividend plans and its full-year outlook. Analysts currently have a 60% drop in EPS pencilled-in for this year, but they’re expecting a 50% recovery next year — though the earnings consensus has deteriorated significantly in the last month.
RBS might surprise us, but I’m not expecting to see any good reason to buy the shares. We’re looking at a forward P/E of 17, dropping to a bit over 11 next year, and that doesn’t look like bargain territory to me.
Insurance bargain
Legal & General (LSE: LGEN) is a depressed share that I much prefer the look of after the insurance sector was sent plunging along with the banks in the wake of the Brexit decision. The shares plummeted after the vote, though the firm’s quick assurance that its planing was based on a 50-50 Brexit probability has helped secure a bit of a recovery — at 206p today, Legal & General shares are down 13% since the referendum.
We’re now looking at a forward P/E of 10 for this year, dropping to 9.6% for 2017 based on analysts’ forecasts — and those forecasts have remained upbeat in the past month. Dividend predictions suggest yields of 7% and 7.4% for the two years, with cover by earnings looking adequate at this stage — though if necessary, there’s room for a capital-preserving cut while still leaving yields at attractive levels.
First-half results should be with us on 9 August, when we should hopefully get some considered thoughts on the insurer’s likely post-Brexit position.
Oily troubles
On 18 August we’re due first-half results from Premier Oil (LSE: PMO), after July’s operations update told us that full-year production is expected to be “at or above the upper end of earlier guidance” of 65,000-70,000 barrels of oil equivalent per day. The integration of the firm’s acquired E.ON UK assets has completed, so some guidance as to the effect on the bottom line will be welcomed too.
But perhaps the most pressing issue is the state of Premier Oil’s finances, with net debt having stood at a pretty massive $2.24bn at the end of December 2015. The most recent update on the firm’s ongoing discussions with major lenders, on 1 August, told us that a further one-month delay in its financial covenant test has been agreed while debt arrangement discussions continue. It’s the second time in two months that the test has been delayed a month, presumably in the hope of getting a new debt package in place first.
A good investment? It’s risky, but I’m happy to hold.