Stay on the sidelines
Shares in Synthomer (LSE: SYNT) rallied today after announcing the acquisition of Hexion Performance Adhesives & Coatings. The £156m purchase of US-based Hexion will be completed in the summer subject to regulatory approval.
Shares in FTSE 250 listed Synthomer have performed well lately gaining around 20% over the past month. Brokers in The City expect a tiny 1% rise in earnings this year, with 21.77p per share expected compared to 21.50p per share last year.
The shares go ex-dividend on 02 June 2016 with the final payment of 5.4p payable on 04 July 2016. Dividends are forecast at 9.53p and 9.59p for 2016 and 2017 respectively, offering a prospective yield of around 2.9% for the next two years.
Synthomer currently trades on 15 times forecast earnings for the current year, with the P/E ratio forecast to stay at 15 for the year ending 31 December 2017.
At current levels, the shares seem fairly priced, and I do not see any compelling reason to buy. Investors should stay on the sidelines for now.
Good value
Shire (LSE: SHP) also moved higher today, with its shares reaching 3846p by lunchtime. The FTSE 100 listed drugs company is recovering from a share price slide that started in August 2015 when it reached a peak of 5870p.
City analysts expect earnings to fall by 32% to 264.15p per share for the year ending 31 December 2015, followed by a rise of 12% to 294.90p this year, and a further rise of 15% to 339.22p in 2017.
Dividends are forecast at 17.10p, 20.78p and 24.74 for 2015, 2016 and 2017, respectively, offering prospective yields of 0.5%, 0.6% and 0.7% for the next three years. The shares currently trade on a forecast P/E ratio of 14 for fiscal 2015, falling to 12.5 for 2016, and 10.8 in 2017.
At present levels, the shares offer good value given the relatively low P/E ratio. Investors should BUY for capital growth.
Not now
Mid-cap miner Evraz (LSE: EVR) also enjoyed early gains with shares reaching 93.2p in early trading. The shares have rallied recently gaining 47% over the past month, but are still down 54% over the past year.
Full year results revealed a narrowing of pre-tax losses from $1084m to $707m, whilst revenue dropped from $13.1bn to $8.8bn, and losses per share narrowed from 78 cents to 45 cents.
Consensus forecasts predict earnings to remain flat at around 1.9p per share this year, followed by a leap of 210% next year. Dividends are forecast at 0.86p and 1.16p for 2016 and 2017, offering a prospective yield of around 1.0% and 1.3& for the next two years.
Evraz currently trades on 93 times forecast earnings for the current year, falling to 23 for the year ending 31 December 2017.
At present levels, the shares look expensive given the relatively high earnings multiple and I think investors should avoid Evraz for now.
What Next?
I believe Shire looks undervalued and represents a bargain for value investors. However, I don’t think Synthomer offers any significant upside potential or meaningful dividend income, and Evraz looks overvalued at the present time.
