The FTSE 100 Index, the equity index for blue chip stocks of the UK, closed at a value of 7403.92 on Friday (February 21, 2020) and traded approximately 5.7% above its 52-week low level of 7004.43. And, on a YoY basis, the index has handed just 3.23% in price returns. Many global portfolio managers have stated that the valuation of the UK stocks is relatively cheaper, and yields are higher in the UK market as compared to the global peer indices. Also, a vast majority of FTSE 100 constituent companies are international companies as they derive a major portion of their earnings from international markets. This makes the FTSE 100 more of a global benchmark index rather than being merely a UK benchmark index.
Despite the FTSE 100 index trading at a decent gap away from its 52-week low level, three of its crucial constituents; Royal Dutch Shell PLC, HSBC Holdings PLC and BP Plc are hovering near their 52-week lows in the week which has just elapsed.
Royal Dutch Shell PLC: In the year-over period, shares of integrated oil and gas major LON: RDSA tumbled approximately 21.67% to GBX 1,887.80 (at the February 21, 2020 closing). The group is an above average, quality high dividend yield stock with a consistent dividend payment track record. However, because of steep fall in the oil and gas prices, which is impacting its earnings and profitability, its shares are in a downtrend and registered new 52-week lows many times in the past three months, and registered a new 52-week low of GBX 1,871.0 in the February 21, 2020 trading session. In the past three months, the stock traded around 38 times lower against their respective previous closes and traded higher against the previous closing level about 24 times, which makes an up/down ratio of 24/38 or 0.63x over the past three months. Also, at last, traded level, its shares were offering a dividend yield of 7.5%, which was around 170bps higher against its close peer's average of 5.8%. Also, its yield was 690bps higher against the United Kingdom 10-Year Bond Yield of 0.593%, reflects its shares are offering huge income potential for the investors. However, a majority of higher yield is because of a steep fall in its share price over the past couple of months. But RDSA is reputed for its stable dividends across industry and economic cycles. Also, in terms of price to earnings multiples its shares have traded at a PE multiple of 12.66x, whereas its close peers average PE multiple stood at 22.24x, which reflects a discount of 43% against the peer group in terms of PE multiple.
BP Plc: The international oil and gas producer LON: BP. is making an endeavour among the oil and gas industry participants to reposition itself in the battle against climate change. Its newly appointed chief executive, Bernard Looney, has committed to reaching net-zero carbon emission by 2050 while maintaining the free cash flow and shareholder pay-outs. However, on a YoY basis, its shares have given up approximately 15.83% and registered a new 52-week low of GBX 435.35 during February 24, 2020 trading session (before the market close). Also, recently as on February 18, 2020, its shares had touched a 52-week low of GBX 450.0. It reflects that its shares are in a downtrend as it is registering continuously new 52-week lows over the past couple of months. However, at the current price level of GBX 437.43 (before the market close at 12:45 PM GMT), its shares are offering a dividend yield of 6.80%, which is approximately 620bps higher against the United Kingdom 10-Year Bond Yield of 0.593%. Also, the group has a proven track record of paying dividends in the past in all kinds of economic and industry cycles. In the year-over period, its shares have tested a peak of GBX 583.41 as on April 23, 2019, and at the current price level, its shares are approximately 25% off those 52-week high levels.
HSBC Holdings Plc: Banking and financial services major LON: HSBA is engaged in providing retail banking, wealth management, commercial banking and markets services. The banking behemoth’s FY19 profit accruing to the common shareholders, plunged 53% to $6.0bn and was significantly impacted by a charge related to goodwill impairment to the tune of $7.3bn. The goodwill impairment charge was primarily composed of $4.0bn related to GB & M division and $2.5bn related to commercial banking in Europe. This translated into assumptions of lower economic growth in the longer term and additionally for GB&M division the planned restructuring of its business. Its shares also registered a 52-week low price of GBX 549.50 on the date it reported its FY19 results (February 18, 2020), and still at the current market price of GBX 552.50, its shares are hovering very near its 52-week low price level of GBX 546.70, registered today. Also, at the current price level, its shares are offering a lucrative dividend yield of 7.0%, which is significantly above the industry average dividend yield of 3.5% and 640bps higher against the United Kingdom 10-Year Bond Yield of 0.593%. On a YoY basis, its shares have given up approximately 9.77% and declined around 4% in the past three months. However, despite a negative price return handed in the year-over period and month-over period, its shares are still trading at premium valuation compared to the average of its peers; in terms of PE multiple, stock of HSBA is trading at a PE multiple of 24.71x, whereas industry average stood at 17.43x, which reflects that shares of HSBA are commanding a premium valuation of approximately 41.7% against its peer group.
However, the above-mentioned stocks are not a recommendation in any sense and past returns and yields are not a guarantee for future returns.
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