3 Hot Dates For April: Associated British Foods plc, AstraZeneca plc And Royal Bank of Scotland Group plc

Will Associated British Foods plc (LON: ABF), AstraZeneca plc (LON: AZN) and Royal Bank of Scotland Group plc (LON: RBS) bring happy tidings?

| 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.

April is just about on us again, but will it be a great month for Fools?

On 19 April we’re due interim results from Associated British Foods (LSE: ABF), the maker of Mazola, Ovaltine, Ryvita, Jordans and Twinings along with a lot of own-brand foodstuffs, but perhaps better known for its Primark clothing chain. The share price has risen 18% over 12 months to 3,369p, with a five-year gain of 236%.

A pre-close update in February made it sound as if Primark is still the star, with a 7.5% rise in sales expected — and there’s been a fair bit more capital expenditure during the period due to Primark’s expansion. After a few years of rising earnings, EPS was pretty much flat last year and the same is expected this year, ahead of a forecast 18% boost to EPS in 2017.

The big problem is the valuation of the shares. On current expectations we’re looking at a forward P/E of more than 33, dropping only to 28 on 2017 forecasts — and I just can’t see how that can be justified, not even by Primark.

Turnaround

2016 could be a pivot year for AstraZeneca (LSE: AZN), which should be delivering its first-quarter figures on 29 April.

AstraZeneca has been pursuing a turnaround plan since facing falling earnings due to the expiry of some key patents, offloading peripheral businesses and focusing on getting the development pipeline flowing at full speed again. The company invested $5.6bn in R&D in 2015 alone, following on from a $4.9bn investment in 2014, with a good chunk of that going into the potentially lucrative oncology market.

Analysts are forecasting a 7% drop in EPS this year, followed by a further 1% next — but with the company expecting a low-to-mid single-digit percentage decline in core EPS, it might do better than that. And 2017 could even swing back into modest growth, so we should watch out for outlook upgrades in interim updates.

But even if EPS growth doesn’t return until later, I still see AstraZeneca shares as cheap at 3,915p and on a distinctly average P/E of 14, especially with 5% dividend yields on the cards.

Bad bank?

Also on 29 April, we’ll have first quarter results from Royal Bank of Scotland (LSE: RBS). I’ve long been bearish towards RBS as its recovery has lagged a good way behind that of Lloyds Banking Group, yet the markets have been affording similar valuations to the two. But the RBS price has been through a bit of a correction, dropping 36% over the past 12 months to 224p, while Lloyds has lost 14%.

For 2015 we had a £1,979m loss, with a lot of one-off costs and impairments that will be out of the way this year, leading analysts to predict a modest pre-tax profit this year. There’s a tentative return to dividends on the cards for the second half, but it’s only likely to provide a yield of around 0.3% before getting back to decent levels in 2017.

Taken in isolation, a P/E of 10 based on 2017 forecasts looks attractive, but compared to a lower valuation at Lloyds with dividends set to reach 6% this year, RBS loses its shine for me — and I don’t expect Q1 results to change that.

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.

Alan Oscroft owns shares in Lloyds Banking Group. The Motley Fool UK has recommended AstraZeneca. 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

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »

Investing Articles

Billionaire Warren Buffett just bought shares of Domino’s Pizza. Should I grab a slice?

Our writer takes a look at a few reasons why Domino's Pizza stock might have appealed to Warren Buffett's Berkshire…

Read more »