Insights for July 2016

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BP Plc is ‘Hold’ at the current price levels, considering its spectacular rally, on account of improvement in oil prices! However, the oil giant missed the analyst estimates in its 2016 half yearly results, announced on July 26th.  Also, the latest results of the company indicate significantly lower liquids and gas realizations as well. Although there is an improvement in oil prices, but the company second quarter profits have almost halved compared to a year ago as the company suffered from lower oil prices and weak refining margins. BP Plc’s underlying replacement cost profit for the quarter fell to $720m, which is 44% down compared to $1.3bn profit recorded a year ago. The profit was slightly below analyst’s expectations, as analysts forecast this profit at $839m. BP also announced another cut to its planned investment budget for 2016 to below $17bn. But despite three consecutive quarterly losses, BP Plc did announce its plans to invest in three new projects this year. The projects would include a gas plant in India, a project in Trinidad and the second phase of the Mad Dog deepwater oil field in the Gulf of Mexico. Also the management outlook is pretty positive on these projects and is hopeful that these projects would reap benefits and would increase the production levels to 500,000 barrels of oil per day by the end of next year, and add another 300,000 barrels per day in the next ten years. It surely seems that the oil giant is taking best measures to address the issue of low crude oil prices. Also, in the first half of 2016, BP received $1.9 billion from divestments, including the partial sale of its interest in Castrol India. Therefore, the oil giant is implementing effective strategies to get the company back to profits and despite the losses it continued paying steady dividend to its investors. Because of the stable dividend policy, the oil giant has always been favorite of income oriented investors.

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Topics: Analysis
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In this period of Brexit-induced instability, examples of companies with good investment potential in the current climate are few and far between. One such example which defies the trend is Fresnillo PLC: once again a mining stock, it has been the top performer on the FTSE 100 so far this year: it has gained over 180% since January. It has lost a bit of its value (2.40%) since its peak last week, however the overall upwards trend is unmistakable, as the compelling graph below shows. The relative decline since its peak was unavoidable given its record valuation and may also result in a lower price for the stock, making it more appealing to investors. With it however comes a record P/E share, 252.6. The stock has a market capitalisation of £13.780 billion. (Read more)

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This week there have been the first signs the UK is drifting into a fully-fledged financial crisis which is hitting the commercial property sector first. Six UK property funds from leading asset management firms have suspended redemptions in three days over Brexit fears: Aviva, Standard Life, M&G, Columbia, Henderson and Canada Life. The move, in agreement with the Financial Conduct Authority (FCA), has been in put in place over concerns the rapidly increasing pace of redemption requests from investors will lead to a devaluation of the assets still held in the fund. Henderson Global Investors highlighted "exceptional liquidity pressures... as a result of uncertainty following the EU referendum and the recent suspension of other direct property funds". As these funds invest in physical real estate such as office blocks, malls, supermarkets, and warehouses, fund managers need time to be able to sell the assets at the best price in order to safeguard the overall value of the fund and protect those investors who still hold the fund's shares. Redemption suspensions buy them time to sell the assets in an orderly way and for this reason they are deemed acceptable practice by the regulator. (Read more)

Kingfisher Plc is a compelling ‘Buy’ at the current price levels with the potential upside of up to 25%.  Post Brexit, the stock went through deep correction and has come down from 366p to 314 in just 2 trading sessions! However we see this sharp dip as a lucrative investment opportunity to go long as the strong fundamentals speak about the future upside of the stock. Kingfisher plc is engaged in the sale of home improvement products and services and has a market cap of £7.30 bn.  The Company operates over 1,200 stores in 11 countries across Europe and China. The Company's segments include UK & Ireland, France and Other International. The Other International segment consists of the operations in Poland, China, Germany, Portugal, Romania, Russia and Spain, and of its joint venture with Koc Group, Koctas, a Turkey-based home improvement retailer. Currently the company has been trading 3% above its 52 weeks low and 15% below its 52 weeks high.  The stock finished trading on London stock exchange at 320 p a share on Thursday 30th June. The stock has a forward price to earnings ratio of 14.0 which is almost in line with FTSE100 12 month forward price to earnings of 13.3.The analysis of P/E ratio also indicates that the stock is fairly priced.

However the company generates over 45% of its revenue from Uk and Ireland, 36% from France and remaining revenue from the other international segments. Therefore the company’s revenue depends mainly on the United Kingdom and France. (Read more)

Topics: Analysis
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