Are any of today’s newsworthy shares worth an investment?
Great timing
The government continues to make progress selling off its stake in Lloyds Banking Group (LSE: LLOY). Today’s market update shows the amount still in the hands of ministers now down just below 17%.
Thank you very much British taxpayers for rescuing Lloyds during the financial crisis, but now that you are handing it back to the ownership of individual shareholders and institutions, should we buy?
Maybe we should. After all, on traditional valuation indicators the bank looks quite cheap, with a forward price-to-earnings ratio (PER) of just over 10 for 2016 and a forward dividend yield running at about 4.8.
However, I’m not rushing in because banks ‘should’ be cheap during the more mature points of the macro-economic cycle. There’s been a nice earnings rebound at Lloyds over the last few years but forward earnings-growth forecasts look insipid. From a position of largely recovered earnings, forward progress seems set to be hard to come by — I’d say well done to the British government for your market timing, while avoiding the shares myself.
A bit pricey?
Fashion clothing retailer Sport Direct International (LSE SPD) received a boost today from investment bank RBC Capital Markets, which raised its rating on the share from ‘sector perform’ to ‘outperform’.
The broker reckons Sports Direct’s business is regaining momentum and upgraded to a share-price target of 800p from 650p. RBC has it that Sports Direct enjoys structural advantages from its portfolio of owned brands, strong logistics and a dominant position in UK sportswear retailing.
Sportswear seems to be worn everywhere in Britain, which means it’s become a high-fashion sub-sector of the clothing retail scene. There’s some risk with that situation because what’s fashionable can become unfashionable. Sports Direct has its colours firmly nailed to the sportswear mast, so any slump in the market could be hurtful. On top of that structural risk there is cyclical risk, because clothing retail tends to rise and fall along with macro-economic cycles.
Perhaps Sports Direct’s forward PER of around 17 for 2016 renders the firm a bit pricey after all, despite City forecasts of a 16% uplift in earnings that year.
A strong uptrend
Shares in Bunzl (LSE: BNZL) seem locked in a strong uptrend, but much of that progress must surely be down to valuation expansion. A forward PER rating in excess of 19 looks rich against earnings growth expectations of just 6% during 2016.
The international distribution and outsourcing firm updated the market today relating to the six months ending 30 June 2015. Overall, the firm reckons, performance is consistent with expectations at the time of the first quarter trading statement in April. The firm saw revenue growth at constant exchange rates of 1% organically and around 5% due to acquisitions.
Acquisitions are a key component of the Group’s growth strategy the firm says, and during 2015 has so far acquired 10 businesses or agreed purchases. The pipeline for further acquisitions during the second half of the year is good say the directors. The best type of growth is organic, though, because it demonstrates operational success. So, I’m reluctant to pay up for such pedestrian progress achieved the ‘quick way’ like this.
