Stocks to watch in March
Easily the most spectacular set of results in March will come from Tullow Oil.
Analysts forecast that pre-tax profits will surge from £97 million to £752 million. The figures will reflect higher oil production and much higher prices – up an average of 45% on a year earlier. The group is expected to make profits of around £850 million this year.
Tullow has a track record of discovery off West Africa second to none, and two-thirds of its production now comes from the continent, where it claims to be the largest independent oil group. It is now expanding across the globe and has recently made encouraging discoveries in South America.
Its shares dipped with last summer's market malaise but are back close to their all-time peak. They have risen fivefold in the past five years and still look excellent long-term value, selling on 24.5 times prospective earnings. Our table shows that the consensus rating among analysts is a fairly bullish 3.32.
House builder Taylor Wimpey should celebrate a return to profits in March after four years of losses. Profits look like coming in at £90 million for the year just ended, compared with a £71 million loss last time. There is even the prospect of a modest 0.7p dividend – the first payment to shareholders since 2007.
The shares have recovered steadily from the low point in late 2008 of 11p to reach 37.5p but remain a long way from their alltime peak of £5 in 2007. Brokers believe the steady recovery can continue and expect profits of £136 million this year. Panmure Gordon targets the share price to hit 50p.
Few companies symbolise better the renaissance now going on in UK manufacturing than the remarkably successful Glasgow-based pumps and valves engineer Weir Group. At the bottom of the bear market in December 2008 the shares were languishing at 328p. They now change hands at more than £20.
Weir's revenues, profits, earnings and dividends have grown steadily as it has expanded its operations across the globe in a wider range of industries. The key drivers have been the oil and gas industry, mining and power generation. Its operations now reach 70 countries.
Profits for the year just ended are expected to reach £382 million (£277 million last time) and the projections for this year and next are for £454 million and £505 million of profits respectively. These forecasts suggest the shares are still good value. Despite their strong performance, they still sell on only 12.7 times expected earnings for 2013. The majority of brokers who follow the stock still rate them a strong buy.
Shares in Yule Catto, a world leader in polymer chemicals, went on a spectacular run from below 50p in early 2009 to a 253p peak last summer. The profi t-takers moved in as the market went sour in the summer, but lately the shares have found support and look good value on the market's encouraging growth projections.
Profits for the year just ended are likely to hit £87.6 million, compared with £57.8 million last time, and the forecasts from brokers suggest that this year profits could top the £100 million mark or even hit £114 million in 2013. Such forecasts bring the forward earnings multiple down to just 6.56.
This cautious rating reflects doubts about Yule Catto's ability to ride out another global economic downturn. Shareholders suffered last time when the dividend had to be slashed and then dropped altogether. Even so, the shares now have a strong supporters' club among brokers and the rating is down to 2.45.
ADVANCED MEDICAL SOLUTIONS
If the market's forecasts are correct, profits at Advanced Medical Solutions are set to treble over three years. Results due in March from this specialist in wound care technology are expected to show pre-tax returns leaping from £4.3 million to £6.4 million. They are then forecast to hit £10.6 million this year and £12.72 million next.
The shares have recovered well since early December and at 92p now sell on 16 times forecast earnings for 2013.
Chime Communications, the international public relations group better known as Bell Pottinger, has an impressive track record. Profits have grown steadily through difficult times from £11 million in 2006 to £21 million in 2010.
For 2011 the expectation is that the group will achieve a pre-tax return of £31.3 million and that returns will rise steadily over the next two years.
Dividends – a mere 0.58p a share in 2006 – are forecast to reach 8.09p for 2013. That implies a yield of 4.5%, which, coupled with the forward earnings multiple of only 6.4, suggests the shares are undervalued. They were just 50p at the bottom of the last bear market, touched 300p last summer and now change hands at 171p.
Dramatic profits growth is also in prospect over the next couple of years for Soco International, the oil explorer, where profits for 2011 are expected to surge from £19.7 million to £113.7 million.
Soco's discoveries in Vietnam have set it on a growth path, and hopes are high that these will be followed by finds in the Democratic Republic of Congo. Even more gushing results are in the pipeline for 2012 and 2013, according to City forecasters. They say profits should reach £308 million this year and £400 million next. The shares reached a peak of 400p last year and are now down below 300p, where they sell on just five times expected earnings for 2013.
The uncertainties surrounding exploration in politically unstable regions of Africa are reflected in a cautious rating of 4.29.
Cake and snack retailer Greggs struggles these days to rekindle the growth formula of the past, when it rolled out new shops across the nation as fast as a chef rolls out pastry. But some analysts are convinced the company will expand steadily over the next couple of years.
Profits for the year just ended are expected to reach £54 million – just £1.5 million up on the previous year. But forecasts for the current year are more encouraging. Profits are expected to reach £57 million this year and just over £62 million next. Nothing spectacular perhaps, but the shares – at 164p – now sell on a prospective yield of 4.4%.
Meanwhile, management retains ambitious growth plans. The company plans to add a further 500 shops to the existing network of 1,500 outlets across the country ‘over the next few years'. One venture now being tried is a franchise with Moto, the leading motorway service station operator. There is no sign yet, then, that Greggs' particular fast food formula has run out of steam.
This article was written for our sister magazine Money Observer
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
This refers to a market situation in which the prices of securities are falling and widespread pessimism causes the negative sentiment to be self-perpetuating. As investors anticipate losses in a bear market and selling continues, pessimism grows. A bear market should not be confused with a correction, which is a short-term trend of less than two months. A bear market is the opposite of a bull market.