Are Centrica PLC, Stagecoach Group Plc, British American Tobacco plc & Whitbread plc A Better Trade Than The Banks?

Are Centrica PLC (LON:CNA), Stagecoach Group Plc (LON:SGC), British American Tobacco plc (LON:BATS) and Whitbread plc (LON:WTB) are under the spotlight ahead of results.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

All eyes will likely be on Barclays and Lloyds next week when the two British banks announce their quarterly results, but several other companies outside the banking industry also report their trading updates and deserve full attention.

To name a few, Centrica (LSE:CNA), Stagecoach (LSE: SGC), British American Tobacco (LSE: BATS) and Whitbread (LSE: WTB) are four companies whose valuations are more appealing than those of the two banking behemoths, in my view. Here’s why. 

Centrica: More Upside Than Barclays & Lloyds

I am not a fan of Centrica, and I think its high yield, at 4.8%, signals risk rather than opportunity. Goldman Sachs today raised its price target to 292p a share, which is some 30p above the average price target from brokers as well as Centrica’s current stock price of 258p.

Should you invest £1,000 in British American Tobacco right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if British American Tobacco made the list?

See the 6 stocks

The shares trade on forward earnings multiples of 14.8x, and could be considered fairly valued under the assumption that they have actually bottomed out. A similar conclusion could be drawn by taking into account Centrica’s core cash flow multiples, which are rather low. 

I am not sure that Centrica is ready to surge, but it has been trading around its multi-year lows since early March, and extraordinary corporate activity may provide a fillip. Centrica or the banks? Centrica would be my call. 

Is Stagecoach Bouncing Back? 

Stagecoach is a business I like based on its current and forward valuation. The average price target from brokers is 406p, for an implied upside of 8.5% from its current level of 374p. That’s not why I’d buy its shares, however.

Operational hurdles in the UK and the US resulted in a profit warning in early December, so the upcoming trading update will be particularly important; most of the bad news appears to be priced into the stock, in my view, and that shows in its 15x and 13x net earnings multiples for 2015 and 2016, respectively.

Its forward yield, at 2.7%, is less appealing that of Centrica, but is safer based on cash flow metrics and its dividend cover ratio. Stagecoach offers more upside than Barclays and Lloyds, and it’s less risky than either bank, in my opinion.

British American Tobacco & Whitbread Promise Solid Returns

These are two business that I support wholeheartedly — not least because coffee and fags keep me going until late night at work!

Of course, that’s not why I’d buy both stocks!

In fairness, British American Tobacco looks expensive, but then the business churns out £3bn of free cash flow almost every year, which supports a forward divided yield at 4%. Over time, rising dividends are likely if projected capital expenditure stays in the region of £750 annually, according to my calculations. 

Admittedly, at 19x forward earnings its share are not a bargain, but they should be added to your diversified portfolio at between 3,500p and 3,750p. They currently trade at 3,722p.

Shareholder-friendly activity should not be ruled out, either. Talking of which, I am not sure whether Whitbread will surprise investors or not in the next few quarters — its rising free cash flow suggests that it could — yet this remains a great growth story, with a forward valuation of 26x and 22x, based on earnings multiples. 

Does it sound expensive? I don’t think so, and I’d rather continue to bet on its outstanding growth prospects than on the banks. 

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has recommended Centrica and Stagecoach. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Is now a good time to start buying shares?

Stock market turbulence can be alarming, but it can also offer opportunity. Our writer considers whether now could be the…

Read more »

Investing Articles

Hunting for passive income? These falling insurance giants offer 10% yields

The UK insurance sector is typically a good place to look for attractive dividend yields. Dr James Fox details two…

Read more »

Investing Articles

Considering a Stocks and Shares ISA this April? Avoid these mistakes!

When opening a Stocks and Shares ISA for the first time, it's easy to fall foul of some costly mistakes.…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

With global markets down 10%+ investors should remember this legendary quote from Warren Buffett

Warren Buffett is the greatest investor of all time. And he says that the best time to buy shares is…

Read more »

Investing Articles

I asked ChatGPT for the best safe havens in the FTSE 100 amid Trump’s tariffs 

Our writer isn't convinced by the answers that AI assistant ChatGPT rattled off when asked about solid FTSE 100 defensive…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

2 world-class shares to consider buying in the market sell-off

Looking for blue-chip shares to buy amid the market chaos? Here are two high-quality businesses that Edward Sheldon sees potential…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Consider targeting £8,840 of annual passive income from 363 shares in this FTSE 100 heavyweight stock!

Investing in high-dividend-paying stocks with the returns used to buy more of the shares can generate potentially life-changing passive income…

Read more »

Investing Articles

16% lower in 10 days, does Prudential’s share price look a compelling bargain to me?

Prudential’s share price is down a lot from its one-year traded high, which suggests a bargain to be had. I…

Read more »