accelerating earnings growth and better valuation could generate S&N capital gains


For a company with a market value above £ 10bn this doesn’t really move the dial and is hardly here or there from the point of view of this column, which is more interested in dividend security. But such buyout aspirations at least speak of confidence in the future and if the company can deliver on its promises, our patience could still receive its full reward.

Stocks could be worth buying on any weakness inspired by a virus. Otherwise, they are a catch.

Quaestor says: hold on

Symbol: SN

Closing price: £ 12.12

Update: ContourGlobal

It must be said that the ContourGlobal stock price chart for the past 12 months is not looking good, as it just goes from the top left corner to the bottom right.

But this slide means that the stocks are now offering an expected dividend yield which is 9pc, which might attract the attention of income seekers in particular. Shares even ignored a bullish trade statement earlier this month, which pushed earnings estimates up around 4% thanks to a surprisingly strong performance from a power plant in Spain.

The weakness may be related to interest rate increases, especially in emerging markets, as Latin America and Africa account for 40% of earnings before interest, taxes, depreciation and amortization (Ebitda). Utilities tend to underperform when rates rise for three reasons.

First, they’re seen as bond proxies (and bond prices fall as bond yields rise, which they can do out of sympathy when overall borrowing costs rise).

Second, they tend to have a lot of debt – $ 4.1 billion in net borrowing in the case of ContourGlobal – so higher interest bills eat into their income.

And third, the “discount rate” increases, so that the theoretical “net present value” of future cash flows decreases, dragging with it the perceived value of stocks.

However, more than four-fifths of the company’s EBITDA comes from indexed energy supply contracts and more than four-fifths of the company’s debt is at fixed rates. Both offer a certain degree of protection.

The stock still feels like a valuable option for income seekers.

Quaestor says: hold on

Symbol: GLO

Closing price: 190.2p

Russ Mold is Director of Investments at AJ Bell, the stockbroker

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