Today I’ll be taking a closer look at three companies from the FTSE 100 that have suffered huge share price declines following the UK’s decision to leave the European Union. Is now the right time to invest in these fallen giants, or is it still too soon?
Chunky dividend
Together with most of its housebuilding peers, Berkeley Group (LSE: BKG) suffered a major sell-off immediately following the result of the EU referendum. Shares sank from £32.85 on the day of the vote to £20.15 the next morning as panic-stricken investors offloaded their holdings. The share price has since recovered to £26, but investors are still faced with the dilemma of whether to buy, sell or hold.
Despite the post-Brexit pessimism surrounding the housebuilding and construction sector, analysts are still expecting Berkeley to improve its bottom line to £536m by April 2018, which leaves the shares trading on an attractive-looking forward price-to-earnings (P/E) ratio of just seven. Furthermore, the dividend payout is expected to rise by almost 5.3% to 200p per share this year, giving a chunky 7.5% yield at current levels. For me Berkeley is a buy for both its income and long-term recovery potential.
Massive sell-off
Building materials supplier Travis Perkins (LSE: TPK) endured an even bigger sell-off following the Brexit vote with its shares sinking 43% the morning after from 1,917p to 1,090p, before bouncing back to around 1,500p where it has been hovering for almost two months. Interim results announced recently revealed a 10% rise in profits to £176m for the six months to June, with revenues 5.8% higher at £31bn.
However, the Northampton-based firm said like-for-like sales in July were below normal levels in the wake of the Brexit vote, but also remarked that it was still too soon to gauge the long-term impact. Market consensus predicts low single-digit earnings growth for the next couple of years with profits reaching £322.5m by December 2017. The shares are trading on an undemanding forward P/E ratio of 12, which is well below historical levels and in my view leaves plenty of room for further upward movement.
Good track record
Another Brexit casualty from the blue chip index was outsourcing firm Capita (LSE: CPI). The company’s shares sank to three-year lows of 839p in the days following the referendum, before bargain-hunters stepped in to push the stock back up to the 1000p level. Half-year results to June were encouraging with pre-tax profits up by £40m to £186m, and underlying revenue up 5% to £2.4bn.
Management admitted that the result of the EU referendum had increased uncertainties, but said the group had a good track record of operating through political and economic cycles. Steady growth is expected to continue at a rate of 4% this year and next, leaving the shares on a modest P/E rating of 13. I think the current weakness in the share price could be a decent buying opportunity for longer-term investors confident of a recovery.