LONDON -- Strong equity markets and an improving economy have seen share prices rise to new highs. Here are some of the companies whose shares have responded best in this new environment.
|Company||Market Cap (million pounds)||Price (pence)||% vs. 52-Week High||1-Yr. Price Change|
|BP (LSE: BP )||90,328||474||(2.5)||18%|
|Lloyds Banking (LSE: LLOY )||44,172||62||(2.6)||142%|
|Shire (LSE: SHP )||12,020||2,170||(2.5)||22%|
|Whitbread (LSE: WTB )||10,736||2,883||(0.8)||57%|
|International Consolidated Airlines (LSE: IAG )||5,188||280||(2.5)||97%|
In the last three months, the price of Brent crude oil has fallen 7.5%. That hasn't stopped BP, however; the shares are up 6% in that time and are 11.5% ahead so far in 2013. The shares have rarely traded higher since the Gulf of Mexico disaster of 2010.
Analysts are forecasting that BP will make earnings per share of $0.84 this year, rising to $0.93 in 2014. That puts the shares today on a 2013 price-to-earnings ratio of just 8.6 times forecasts, falling to 7.8 times the estimate for next year.
For the full year, analysts expect a dividend increase of around 10%. That puts the shares on a 2013 yield of 5%. Next year, another significant rise is expected, pushing the yield on the shares to 5.4%.
It is more than two years since shares in Lloyds last traded at around these levels. From a low of 23 pence during the worst of the eurozone crisis, Lloyds put in the best performance of any FTSE 100 company in 2012, rising 77% in the calendar year. The shares have continued their strong run this year and are 30% ahead so far in 2013.
Since the financial crisis, some market commentators have speculated that banks' assets are worth vastly less than their balance sheet value. However, Lloyds' sale last week of a collection of mortgage securities for a 20% premium to their book value significantly undermines the bears' case.
With the U.K. housing market improving, Lloyds' prospects have not looked better in a long time. Last December, brokers were estimating EPS of 3.8 pence for 2013. That figure has been steadily increased to 4.6 pence.
International Consolidated Airlines
IAG is the company formed from the merger of British Airways and Iberian. A company like IAG is notoriously cyclical. When the economy is doing well, it is more likely that families will holiday and businesses will spend on premium travel.
While Spain and Portugal may be struggling, the U.K. economy is picking up. The softer oil price is another positive.
In the last 12 months, shares in IAG have almost doubled. So far this year, they are up more than 50%.
The shares do not look cheap against earnings forecasts for 2013. However, the expectation for 2014 is EPS of around 0.32 euros. That puts the shares on a 2014 P/E of just 10.3.
Whitbread is the company behind Premier Inn and the Costa Coffee chain. The success of Costa has been one of the main reasons for Whitbread's recent success. There are now 1,578 Costa stores in the U.K. -- more than Starbucks.
The success of Premier and Costa has delivered huge profit increases at Whitbread. In the last five years, EPS has increased at an average rate of 11.4% a year. In that time, the dividend has risen at an average rate of 9.8%.
More growth is expected from Whitbread this year and next. Using consensus EPS and dividend forecasts for 2014, the shares are today trading on a P/E of 15.7 with a prospective yield of 2.4%.
Shares in pharmaceutical Shire are up 15% so far this year and now stand within touching distance of an all-time high.
The most recent stage of the company's growth has been delivered by its Attention Deficit Disorder treatment Vyvanse. Sales of this drug delivered around half of the company's revenues in the first quarter of 2013.
Analysts are forecasting big earnings and dividend growth at Shire this year and next. Shire is expected to deliver record profits in 2013 and a 68% EPS increase. That is forecast to be matched with a 27% dividend rise. Growth is expected to moderate in 2014, with EPS rising "just"13% and the dividend by 17%.
That puts the shares on a 2014 P/E of just 13.2.
While the estimates put Shire on a very low forecast yield of less than 1%, there are still some great yield plays elsewhere in the sector. Don't just take my word for it: Top income fund manager Neil Woodford is a big fan of pharma.
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