Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as other company news due to their complex nature. Nonetheless, here I’m breaking down this week’s biggest director dealings from three FTSE firms.

Rolls-Royce

Rolls-Royce (LSE: RR) is a British multinational aerospace and defence holdings company. It is one of the world’s largest makers of aircraft engines, and operates in four different segments. These include civil aerospace, power systems, defence, and new markets.

After a disappointing set of H1 results, Rolls-Royce shares saw yet another decline. But this week, a number of director dealings were carried out. Most notably, there was a huge purchase of shares from Chairwoman Anita Frew. The purchase from such a senior director should improve sentiment surrounding the stock.

• Name: Anita Frew
• Position of director: Chairwoman
• Nature of transaction: Purchase of shares
• Date of transaction: 5 August 2022
• Amount bought: 50,000 @ £0.83
• Total value: £41,300

• Name: Lee Hsien Yang
• Position of director: Non-Executive Director
• Nature of transaction: Share purchase plan
• Date of transaction: 8 August 2022
• Amount bought: 1,161 @ £0.84
• Total value: £980.23

• Name: Wendy Mars
• Position of director: Non-Executive Director
• Nature of transaction: Share purchase plan
• Date of transaction: 8 August 2022
• Amount bought: 2,156 @ £0.84
• Total value: £1,820.31

• Name: Sarah Armstrong
• Position of director: Chief People Officer
• Nature of transaction: Share purchase plan
• Date of transaction: 9 August 2022
• Amount bought: 175 @ £0.86
• Total value: £149.84

• Name: Rob Watson
• Position of director: President (Rolls-Royce Electrical)
• Nature of transaction: Share purchase plan
• Date of transaction: 9 August 2022
• Amount bought: 175 @ £0.86
• Total value: £149.84

Admiral

Admiral (LSE: ADM) is a British-based insurance company. It specialises in car insurance products, but also has a line of other offerings. These include home insurance, travel insurance, pet insurance, and van insurance.

The FTSE 100 firm released its H1 results earlier this week. Although profits slumped by almost half, the stock still shot up by 15% this week. This was most likely due to the announced special dividend of 15.8p. This would bring its total dividend to 60.0p per share. Investor sentiment was also further boosted when the Chairwoman purchased shares worth over £25,000.

• Name: Annette Court
• Position of director: Chairwoman
• Nature of transaction: Share purchase plan
• Date of transaction: 11 August 2022
• Amount bought: 1,181 @ £22.44
• Total value: £26,501.64

Dunelm

Dunelm (LSE: DNLM) is one of Britain’s biggest home furnishings retailers with an ever-growing market share. It operates over a 170 stores throughout the UK and offers over 50,000 products across a broad range of categories.

The FTSE 250 firm released its Q4 trading update not too long ago, and the interim numbers resonated well with investors. Nevertheless, its bottom line figure is yet to be released, and investors are wondering whether their expectations will be met. Therefore, the recent purchases by its CFO and another director could be an indicator of an earnings beat. The company is expected to report its official FY22 results in less than a month’s time.

• Name: Vijay Talwar
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares
• Date of transaction: 4 August 2022
• Amount bought: 9,670 @ £8.50
• Total value: £82,156.32

• Name: Karen Witts
• Position of director: Chief Financial Officer
• Nature of transaction: Purchase of shares
• Date of transaction: 5 August 2022
• Amount bought: 1,174 @ £8.45
• Total value: £9,922.18

Types of shares

To provide context, there are a few types of shares that can be purchased by directors. Some directors opt to purchase shares via the open market. Having said that, directors also have the option to purchase shares via a share incentive plan (SIP).

A SIP is an employee plan for companies within the UK to flexibly award shares to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this week’s set of director dealings, a certain number of directors opted to purchase shares via their companies’ share purchase plans. This allows employees to purchase shares through automatic deductions from their pay. And this was the case with a number of Rolls-Royce directors, as well as Admiral’s Chairwoman.

The post Director dealings: Rolls-Royce, Admiral, Dunelm appeared first on The Twelfth Magpie.

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John Choong has positions in Dunelm Group. The Motley Fool UK has recommended Admiral Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

We all know that Warren Buffett’s favourite holding position is forever. However, finding stocks that are able to prosper through multiple business cycles and economic downturns isn’t an easy task. Yet following a recent pull-back, I took the opportunity to buy into a FTSE 100 blue-chip stock that I believe has incredible long-term growth potential.

A powerful business model

Legal & General (LSE: LGEN) is primarily known for its insurance and retail retirement expertise. Indeed, it is the UK’s number one individual life insurance provider.

However, its business tentacles stretch far and wide. Its institutional retirement division takes on pension scheme liabilities from corporate schemes. Doing so helps companies de-risk their liabilities while providing guaranteed payments to individuals within their schemes.

Its investment management division has assets under management of £1.4trn and has deep expertise in defined contribution (DC) and defined benefit (DB) pension schemes.

Finally, its investment capital division invests across a number of specialist asset classes. This includes commercial real estate, clean energy, housing and SME finance. And L&G is a top-10 house builder by revenue.

Growth drivers

The sheer diversity of L&Gs business model is a significant selling point for me. It is in a unique position to capitalise on a number of long-term growth drivers. Many of these drivers provide a significant degree of immunity in a low-growth economic environment.

Ageing demographics is a trend that continues to accelerate across many western economies. Pension risk transfer (PRT) is a huge and growing market. In the UK alone, it is estimated that only 13% of £2.4trn of DB pension liabilities have been transferred to insurance companies such as L&G. The rising interest rate is a likely catalyst for companies to consider accelerating the de-risking of their pension plans.

Pension freedoms and welfare reforms add up to another huge driver for future growth. Over the past few years there has been an increasing awareness of the need to take personal responsibility for financial security, particularly in later life.

Climate change and technological innovation are key drivers too. For example, L&G has invested in over 500 start-ups to date.

Is Legal & General undervalued?

L&G’s recently-released half-year results convinced me that the market is undervaluing its long-term prospects.

In the last 10 years, the company has seen its earnings per share (EPS) and dividend per share grow by a compound annual growth rate of 11%.

EPS for the first six months of 2022 was higher than the company achieved in the whole of 2015. Today however, the share price sits at the same level as back then.

The business is confident that it will consistently grow cash and capital faster than its dividend commitment. This excess cash provides it with tremendous flexibility. It could, for example, decide to return excess cash to shareholders or reinvest for future growth.

Insurance is a risky business. Rising inflation coupled with low global growth is likely to hit L&G’s bottom line. Should inflation become entrenched and policy responses by central banks prove ineffective, a significant economic downturn is likely to follow.

Despite these risks, I feel that long-term structural changes across society are trends that L&G is well positioned to capitalise upon. That is why, in the last few weeks, I added to my position.

The post A FTSE 100 stock that I never intend to sell appeared first on The Twelfth Magpie.

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Andrew Mackie has positions in Legal & General Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as other company news due to their complex nature. Nonetheless, here I’m breaking down this week’s biggest director dealings from three FTSE firms.

Aviva

Aviva (LSE: AV) is a British multinational insurance company. It has millions of customers across its core markets. Aviva is also the UK’s largest general insurer. This week, an influential director purchased shares through the firm’s Global Matching Share Plan.

• Name: Jason Storah
• Position of director: Chief Executive Director
• Nature of transaction: Partnership shares and matching shares
• Date of transaction: 15 July 2022
• Amount bought: 38.413602 @ £3.93
• Amount received: 76.827204 @ £3.93
• Total value: £452.70

Royal Mail

Royal Mail (LSE: RMG) is Britain’s biggest postal service and courier company. The group runs the brands Royal Mail and GLS. It released its Q1 trading update this week. Two director dealings also occurred.

• Name: Mick Jeavons
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares (Deferred Share Bonus Plan 2019)
• Date of transaction: 18 July 2022
• Amount bought: 14,132 @ nil
• Total value: £N/A

• Name: Katherine Amsden
• Position of director: PCA of Mark Amsden, Group General Counsel and Company Secretary
• Nature of transaction: Purchase of shares
• Date of transaction: 21 July 2022
• Amount bought: 34,262 @ £2.92
• Total value: £99,977.21

Deliveroo

Deliveroo (LSE: ROO) is a British online food delivery company. It operates in over 200 locations across the UK and internationally. In the UK, it is the second-biggest food delivery platform. In this week’s transaction, a director exercised their option to redeem stock compensation.

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares
• Date of transaction: 15 July 2022
• Amount received: 83,400 @ £0.85
• Total value: £70,973.40

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Sales of shares to cover tax liabilities
• Date of transaction: 15 July 2022
• Amount sold: 40,407 @ £0.85
• Total value: £34,345.95

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this week’s director dealings, Aviva’s CEO opted to purchase partnership shares. Partnership shares give employees the opportunity to buy shares via deductions from their salary, before tax deductions. But where partnership shares are offered, the company can also offer matching shares. This can range up to a maximum ratio of two free matching shares per partnership share purchased, as was the case. That being said, it’s important to note that matching shares must normally be held in a trust for at least three years, and held for five years in order to receive full tax relief. However, these shares may be forfeited if an employee withdraws their partnership shares from the trust.

On the other hand, the Royal Mail CFO received free shares. This occurred under the company’s Deferred Share Bonus Plan from 2019. Having said that, the director is expected to retain their share-based awards until they achieve an equivalent of 200% of their salary.

As for Deliveroo’s CFO, he received free shares. These are a form of restrictive stock units (RSU). RSUs are a form of stock compensation. It is a promise from the company to award a company’s shares in the future. RSUs are most often used in younger companies. This is because cash on its balance sheet is used to grow the business instead.

The post Director dealings: Aviva, Royal Mail, Deliveroo appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

So what caused the Saga share price to start climbing? Will it rise even higher? And should I be adding the stock to my portfolio?

The rising Saga share price

Saga recently published its preliminary full-year results for 2020. And they’re quite promising. At least, I think so. With the vaccine rollout progressing quickly in the UK, travel restrictions are beginning to ease. And so it’s encouraging to see that advanced cruise bookings for 2021-23 are 20% higher compared to a year ago.

To me, this indicates that many over-50s (Saga’s primary customer age group) are eager to enjoy a long-overdue holiday. And given that the UK vaccine policy has prioritised over-50s, they’ll be able to do so safely. It’s worth noting that cruise travel bookings only represent a small portion of Saga’s revenue stream. But considering it was shedding customers not too long ago, I find this progress encouraging.

Its insurance business has also performed relatively well. After years of decline, the motor and home insurance segments finally began growing again, albeit by a small margin of 1.1%. While this is hardly substantial, it indicates the company might be improving the quality of its services, especially since customer retention rates have increased by 5.4% to 80.5% overall.

This report was well received by investors and so the Saga share price subsequently increased. While it’s too soon to tell, the new management team led by Sir Roger De Haan seems to be getting things back on track. Besides injecting £100m into the business, De Haan has restructured the company. This involved cutting the managerial layers down from 17 to five and reducing the employee count by 36%. Terminating employee contracts is never pleasant. But it has improved the operational efficiency of the firm and reduced losses by nearly 80%.

The challenges that lie ahead

The tough decisions made by new management are prudent in my eyes. But it has yet to fix all the problems created by the old management team, who openly admitted to being “overly focused on the short term”.

Saga still has an enormous pile of debt to contend with. As it stands, the company has over £820m of long-term obligations to repay. By comparison, based on Saga’s share price today, its market capitalisation stands at around £530m. Needless to say, it’s a highly leveraged business. And that creates a considerable level of solvency risk, especially since Saga is currently unprofitable.

The bottom line

The company has made some significant progress since the last time I looked at it, but there’s still a long way to go. And shareholder dividends will remain suspended for quite some time until debt levels are brought to a more sensible level.

But De Haan’s new strategy does sound viable to me and so far appears to be effective. With both the travel and insurance business divisions showing new-found growth, I believe this could be the start of a comeback for Saga. Therefore despite the high solvency risk, I think the Saga share price can continue to climb, and I would consider adding it to my portfolio.

The post Is the Saga share price making a comeback? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Saga. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Can the Aviva share price continue its upward momentum though? And is it too late to add the business to my portfolio? 

Aviva’s rising share price

Aviva is a financial services firm that specialises predominantly in life insurance and pension products. The business charges its insurance customers premiums and its investment customers service fees. But that’s not actually how this company generates profits.

Like all insurance companies, Aviva uses its operational cash flow to invest in various financial instruments, including shares. It then subsequently uses the returns on these investments to cover claim expenses and grow the business in general. So when the stock market crashed in March 2020, Aviva took a significant hit to its investment portfolios and even had to cancel its full-year dividends.

Since then, the stock market and, subsequently the Aviva share price, have begun to recover. What’s more, the company is shifting its strategy to only focus on the UK, Irish, and Canadian markets. And so, throughout 2020, it began disposing of its international operations in Singapore, Hong Kong, Indonesia, Turkey, and more recently, France and Italy.

These disposals provided a surge in cash on the balance sheet and also enabled the dividend to return, with the next ex-dividend date set for 8 April.

Risks to consider

Running an insurance business is a relatively risky endeavour. The monthly insurance premiums paid by an individual rarely cover the costs if a claim is made (although, of course, not all customers make claims). A simple solution to this problem would be to charge higher premiums. But with so many other competing insurance businesses for customers to choose from, Aviva’s pricing power is virtually non-existent.

Beyond its insurance business, the firm is also exposed to risks revolving around medical innovations. Average life expectancy has been steadily increasing over the past 40 years due to general healthcare improvements. However, this has added pressure to Aviva’s pension products. For example, annuities have become far less lucrative over the years — a trend that will likely continue over the long term.

To mitigate these risks, Aviva uses those aforementioned investments to grow its capital. But consequently, this exposes it to market risk, which can cause severe financial damage, as perfectly demonstrated last year. The volatility in its investments has also led to an inconsistent dividend track record, with cuts being made multiple times even before the pandemic.

The bottom line

The disposal of most of its international operations has flooded the business with fresh capital that could lead to substantial future growth. And even though Aviva’s share price has significantly risen these past few months, it is still trading at a P/E ratio of around 8. Comparing that to its industry average of 12.5, the stock does look undervalued to me.

Therefore, over the short-term, I think it is possible for the Aviva share price to keep on climbing. But its long-term growth potential is tied to the new strategy which remains unproven for now. So, I won’t be adding Aviva to my portfolio today.

The post Can the Aviva share price keep on climbing? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Aviva. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A familiar name 

And one of my favourite blue-chips is Prudential (LSE: PRU), which is geographically diversified and offers investors exposure to the massive insurance industry. Life insurance is Prudential’s key focus and concomitant with that is its huge asset management arm, which invests the cash received from life insurance customers with the aim of creating long-term value in order to eventually pay out on policies.

Prudential has large insurance operations in the UK and Asia and operates as an asset manager in these regions as well as in the US. As expected, its UK business is a largely mature one and the recent combination of its domestic life insurance and asset management operations into one company suggests a spin-off could be pursued in the near future.

However, the US business is growing quickly and the long-term potential of its Asian operations is astounding. In the first half of 2017, group operating profit rose 9% year-on-year (y/y) with Asian operations surging ahead 16% and the US business contributing 7% growth.

In Asia the group is benefitting as increasingly wealthy middle-class consumers begin to seek out life insurance and money management expertise. While many Western financial providers are flocking to tap into this wellspring of long-term profits, Prudential has a huge lead due to its well-respected brand names, 90-year history in the region and operations stretching across 14 markets.

With a long history of delivering impressive shareholder returns, a nice 2.4% dividend yield, very good growth prospects and an attractive valuation of 13.3 times forward earnings, I believe now could be a great time to begin a position in Prudential.

A speciality stock 

Another stock in the sector that I believe would make a great addition to many portfolios is Jardine Lloyd Thompson (LSE: JLT). The group is different from Prudential in that rather than writing policies itself, it serves as a consultant and broker for speciality insurance and reinsurance needs for everything from mines to sports events and protecting against political unrest.  

The group’s growth has accelerated in recent years as management has gone about consolidating its position in this highly fractured sector. In the half year to June the group’s speciality insurance business revenues grew 12% y/y at actual exchange rates and 3% on an organic basis. Growing operations in the US, Asia and Latin America more than compensated for staid growth in its European operations.

Looking ahead, I see impressive growth potential for the group as it pushes into these massive new markets and scales up. In its interim management statement released this morning, management reiterated that it expects the US business to turn its maiden profit in 2019 and over the long term I see the potential for this new division to become as important as core European operations currently are.   

These growth prospects together with the stock’s decent 2.5% dividend yield have me very interested in JLT despite a lofty valuation of 22.5 times forward earnings.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of Jardine Lloyd Thompson. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Dividend increase

Shares in insurance group Randall & Quilter (LSE: RQIH) gained as much as 7% today after the company reported a more than tripling in profits in 2016. As after-tax profits increased from £2.8m to £8.3m, the Bermuda-based insurance investor and service provider also announced its first dividend increase since 2012, boosting its full-year dividend from 8.4p per share to 8.6p per share. This gives its shares a tempting prospective dividend yield of 6.8%.

The insurer is also upbeat about its prospects going forward. “2017 is expected to be a year characterised by further profit growth and strong strategic focus,” the company said in today’s announcement. R&Q sees further acquisition opportunities this year and expects to reap the rewards from the expansion of its product offering and stronger distribution in North America after years of investment and underperformance.

However, not everything is rosy. The company managed to deliver an extremely strong performance in its Insurance Investments Division following the completion of a series of 15 legacy transactions during the year and an improvement in investment returns. But profits fell sharply from its Insurance Services division, while losses widened at its Underwriting Management unit. This indicates an unbalanced reliance on investments as a source of growth, which could become a cause of concern should the company struggle to acquire new businesses and investment returns decline.

Growing acceptance

Meanwhile, Xeros Technology (LSE: XSG) announced the rollout of its commercial laundry machines continues apace. Shares in the developer and provider of polymer-based technologies gained by as much as 4% today as the company reported group earned income increased to £2.5m in the 17 months to 31 December 2016, up from £480,000 for the year to July 31 2015.

The company’s progress in the laundry market continues at a steady pace, with Xeros seeing multiple successful customer trials in the performance workwear market and increasing in its order backlog to 438 machines at the end of March. In addition, Xeros is seeing promising trial results for its polymer technology in tanning and textile manufacture applications, which could underpin the long-term growth prospects of the company.

Xeros is still some way away from delivering significant profits, as its pre-tax loss in the 17-month period widened to £21.1m, from a loss of £10.7m in the year to July 2015. However, the company is moving towards generating meaningful revenues — CEO Mark Nichols advised that “2017 will be a year of execution, in which we significantly progress the commercialisation of our highly disruptive, innovative technology.”

Year-to-date, shares in Xeros haven gained 26% — but they may yet have further to go. Xeros is looking to expand its distribution network and has recently secured a significant forward channel partner agreement to enter the Australian commercial laundry market. And as the rollout continues, Xeros could prove that there is growing acceptance and demand beyond the US and UK commercial laundry market. This would be a major boost to the company’s growth plans, increasing the penetration of its target markets.

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The gold and silver star has seen its stock value ascend 33% since the start of 2016. And I believe the foundations could be laid for much, much more strength looking ahead, particularly as an already-tense political backdrop is becoming ever-more turbulent.

The UK’s decision to hit the Brexit button, and Donald Trump’s ascension to the Oval Office in 2016, were undoubtedly the earth-shaking political events so far this century. And the geopolitical waters are becoming ever-muddier, particularly as tensions between the 45th president and long-term foes Russia, North Korea, Iran and Syria threaten to spiral out of control.

Looking elsewhere, the political landscape in France is becoming ever-more jittery as far-left presidential candidate Jean-Luc Mélenchon continues to pick up steam, making an already tough-to-call election still tougher to predict.

And British Prime Minister Theresa May’s decision to call a June general election earlier this week throws plenty of more uncertainty into the mix. While recent polling suggests a bruising Tory majority is around the corner, recent failures by pollsters around the globe suggest that nothing should be taken for granted. Anything other than a Conservative win would throw a spanner in the works of an EU exit.

When you also throw in signs that inflation is back on the rise, allied with persistent tension over economic turbulence in emerging regions, it comes as little wonder that precious metals are back in vogue.

Production powering up

This backcloth is helping support gold prices close to the critical $1,300 per ounce marker, around $1,285. And a burst through this level in the days ahead could see the safe-haven metal really light up, and pull the share price of Fresnillo with it.

But the near-term direction of gold values is not the only reason to be excited about the Mexican digger.

Fresnillo delivered record silver production of 50.3m ounces in 2016, up 7.1% year-on-year, while gold output soared by almost a quarter to 935,513 ounces. And planned project expansions like that at Fresnillo’s San Julián asset should keep output levels rising long into the future.

I reckon the silver surfer is in terrific shape to deliver splendid returns in the near term and beyond.

Sailing higher

Car insurance colossus Admiral Group (LSE: ADM), like its sector peers, has been one of the strongest performing stocks in 2016 as driver premiums continue to tick higher. The stock has added 11% in value since New Year’s Eve, and should continue to rise in line with insurance costs.

While claims inflation is ticking merrily higher, data across the industry suggests that this continues to be offset by rampant price rises. Indeed, Barclays Capital notes that while inflation stands at around 5%, price increases stand at double this figure at 10%.

Investors should also be cheered by Admiral’s ability to keep its customer base ticking higher, with 720,000 new clients taking the number on its books to a fresh record of 7.2m. And with the car insurer also making increasing progress abroad (revenues outside of the UK surged 57% last year), I reckon Admiral’s share price should keep on rising.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Macroeconomic headwinds

Africa-focused insurer Old Mutual (LSE: OML) is the FTSE 100’s worst performer so far this month. Shares in the company have slumped 12% following the downgrade of South Africa’s long-term foreign currency credit rating by Standard and Poor’s to junk status last week.

The reason this has had such a huge impact on Old Mutual’s share price is due to the company’s outsized exposure to the country. Firstly, there is a currency impact, as the fall in the value of South Africa’s currency, the rand, reduces the sterling value of its profits earned there. Additionally, as the credit ratings of financial companies are linked to the country’s sovereign rating, this has had a knock-on effect on the credit rating of Old Mutual’s operations in the country, which would no doubt raise its funding costs and limit the company’s ability to grow.

Looking forward, the risk of a further downgrade below investment grade is possible this year because of the constrained growth outlook and continued political uncertainty in the country. And investors have taken none-too-kindly to warnings that “political and economic uncertainty” could create hurdles going forward.

Regardless, return on capital is high and sales, profits and dividends are all expected to rise over the next two years. So while the macroeconomic backdrop doesn’t look too good, Old Mutual seems set to weather the current period of economic weakness due to its strong and growing retail franchises.

For 2017, City analysts expect adjusted EPS to grow 9% to 21.1p, giving its shares an enticingly low forward P/E rating of 9.3. And for the following year, adjusted EPS is forecast to increase by another 8%, which would reduce its forward P/E to just 8.6 times by 2018.

Dividend growth

Similarly, shares in asset manager and banking group Investec (LSE: INVP) have been hard hit by the credit rating downgrade.

Of course, macroeconomic conditions will present a challenging trading environment in the near term, but I expect the company’s financial performance to hold up more resiliently than previously expected. The company has a diversified business model, with its strengths in wealth management and private banking expected to drive steady earnings growth.

Its bottom line is expected to have risen by 9% in 2016/17 and is then due to increase by a further 16% in 2016. This gives it a P/E of 12.2 and a forward P/E of 10.5. And this leaves hopes of a dividend of 23p per share this year — up from 21p in 2015/6 — and giving Investec a market-beating prospective yield of 4.2%. Furthermore, with the projected dividend cover of nearly two times, I reckon there’s further scope for dividend growth in the future.

The post Are these battered dividend growth shares due for a rebound? appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tempting-looking value indicators may instead just lead us to buy ‘cheap’, which can sometimes work out to be a mistake. 

Growth in the FTSE 100

Right now, I reckon pharmaceutical firm Shire (LSE: SHP) and insurance company Prudential (LSE: PRU) from the FTSE 100 both have decent forward growth prospects backed by impressive trading records. Today, I’m taking a closer look to see if these firms offer investors good value too.

I can’t argue with their recent trading records. Over the past four years to December 2015 Shire has driven up its annual revenue by 50%, operating profit by 28%, and net cash from operations by 117%. Over the same four-year period Prudential advanced its revenue by 43%, operating profit by 62%, and net cash from operations by 46%. 

Those figures demonstrate impressive business growth. In response, Shire’s share price is up 130% since the beginning of 2012 and Prudential has risen 120%. That strikes me as decent returns for investors holding through the period, and I think it shows how important a firm’s growth prospects can be to an investor’s initial assessment of value. The big question is, can these two firms continue to grow their businesses from here?

Positive outlooks

City analysts following these two firms are optimistic. They see Shire increasing earnings per share by 87% this year and 19% during 2017. They think Prudential’s journey will be a little more bumpy with earnings per share dipping by 9% this year before rebounding by 13% in 2017.

Shire’s ongoing progress comes from organic growth and acquisition activity. During 2016 the company completed a deal taking over US biotechnology company Baxalta. Shire’s chief executive said with the recent second-quarter results statement: “While closing this transformative deal and making significant progress on integration, we have delivered strong double-digit revenue growth from our legacy Shire franchises, and for the first time our results reflect a significant contribution from the legacy Baxalta franchises.” 

The Baxalta deal and an earlier acquisition of Dyax at the beginning of the year look set to make big contributions to forward growth.  I reckon shire’s cash-generating business will go on to enable more earnings enhancing deals in the future.

Meanwhile, Prudential’s chief executive said in August: “The group’s performance is led by double-digit growth in Asia … In the US and the UK, we continue to successfully manage the effects of market turbulence. The quality of our earnings, geographic diversity and strong balance sheet position us well to grow over the long term.” 

At today’s share price of 5,118p Shire trades on a forward price-to-earnings (P/E) ratio of just over 13 for 2017, and at 1,382p Prudential’s forward P/E rating is 10.6. With both firms making positive noises, it suggests growth could have further to run. 

The post 2 growing FTSE 100 firms to consider now appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.