LONDON — I have recently been evaluating the investment cases for a multitude of FTSE 100 companies.
Although Britain’s foremost share index has risen 10% so far in 2013, I believe many London-listed stocks still have much further to run, while conversely others seem overdue for a correction. So how do the following five stocks weigh up?
BP plc (ADR) (NYSE:BP)
The fallout surrounding the 2010 Deepwater Horizon oil crisis continues to weigh heavily on industry giant BP plc (ADR) (NYSE:BP). The company has heavily divested assets to cover the cost of the accident, the trial for which is ongoing and which BP expects final compensation to come out at $42 billion.
Although the court case currently hangs wearily over the oil giant, I believe rocketing production should propel earnings higher over the longer term. Output is set to surge higher from this year onwards at BP plc (ADR) (NYSE:BP)’s major new projects, while maintenance-related closures at its other installations are set to slow considerably.
City analysts expect earnings per share to rise 39% in 2013 before leaping 8% in 2014. The oil leviathan currently trades on P/E ratios of 7.9 and 7.3 for this year and next, and whose excellent value for money is underlined by price/earnings to growth (PEG) projections of 0.2 and 0.9 for the same two years.
As well, BP plc (ADR) (NYSE:BP)’s dividends are expected to remain well above the average 3.5% yield for the FTSE 100 — yields of 5.1% and 5.3% are anticipated in 2013 and 2014 correspondingly.
I reckon Centrica PLC (LON:CNA) is an excellent pick for income investors looking for consistent dividend growth. The energy provider boasts a progressive payout policy, and City analysts expect a 16.4 pence per share dividend to rise to 17.4 pence and 18.3 pence per share during 2013 and 2014 correspondingly.
Yields of 4.9% this year and 5.2% in 2014 are projected, and although coverage of just 1.6 times is predicted, Centrica PLC (LON:CNA)’s position in the ultra-defensive utilities sector should protect shareholder payments.
Group revenues increased 5% last year to £24 billion, which pushed total adjusted operating profit 14% higher to £2.7 billion. Despite the ongoing furor over last October’s decision to hike household energy prices, the firm remains highly resilient and continues to add new custom.
Earnings per share are forecast to rise 2% and 8% in 2013 and 2014 respectively. And I fully expect earnings to speed up thereafter, as rising strength within the British Gas subsidiary, combined with a drive to build the group’s upstream oil businesses both in Europe and the U.S., delivers improving investor returns.
Enduring weakness in the steel price, allied to the potential for further large production closures, makes EVRAZ plc (LON:EVR) a risky selection in my opinion.
Group crude steel production fell 5% to 16 million tonnes in 2012, the company said in January, as the impact of a vast modernization program — combined with the closure of a facility in the Czech Republic — pushed output lower. EVRAZ plc (LON:EVR) expects production to improve this year as its upgrade scheme nears completion, however.
City brokers expect earnings per share to have slumped 86% in 2012, before planned production increases thrust earnings 210% and 39% higher in 2013 and 2014 respectively. Results for last year are due for release on Thursday, 11 April.
The company currently trades on P/E ratings of 23.9 and 17.2 for this year and next, and I think that these are far too expensive. I would like to see production-rate improvements this year, as well as a marked improvement in global steel demand, before ploughing my cash into this mining play.