Should I Invest in These 5 FTSE 100 Shares?

LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.

To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.

Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators, and buy at prices that offer decent value.

This series aims to identify appealing FTSE 100 investment opportunities and, during recent weeks, I've looked at Lloyds Banking Group  (LSE: LLOY  ) , Aberdeen Asset Management  (LSE: ADN  ) , Capita  (LSE: CPI  ) , Intertek Group  (LSE: ITRK  ) and Petrofac  (LSE: PFC  ) . This is how they scored on my total-return-potential indicators (each score in the table is out of a maximum of 5):

Share

Lloyds

Aberdeen

Capita

Intertek

Petrofac

Dividend cover

5

4

4

5

4

Borrowings

2

5

2

4

4

Growth

4

5

5

4

3

Price to earnings

4

4

2

2

5

Outlook

5

4

5

4

4

Total (out of 25)

20

22

18

19

20

Banking
In recent news, Lloyds reckons it will achieve a pro forma fully loaded CRD IV core tier 1 capital ratio of above 9% by the end of June 2013, and around 10 per cent by the end of 2013. That's good progress, expected to keep the Prudential Regulation Authority's (PRA) happy. A string of asset sales and improving trading cash flow are hitting the spot on the capital-rebuilding front, and recent balance-sheet progress should provide a sturdy platform for growth from here. First-quarter results were encouraging, with a 198% period-on-period increase in underlying operating profit, to 1,479 million pounds, which makes me optimistic about the firm's potential to deliver on total returns. I already own Lloyds shares, but might buy more.

Investment management
Aberdeen Asset management's recent half-year results showed a 13% rise in assets under management, to 212 billion, a 25% rise in revenue to 516 million pounds, a 43% rise in underlying earnings per share and, to headline the good news, a 36% dividend increase. Investors returning to shares are attracted to the firm for its straightforward approach to investing clients' money. Rather than overtrading or using arcane investment techniques, the firm identifies good companies, then simply buys the shares and holds them. That sounds like an appealing strategy, and I'm optimistic about the firm's total-return prospects from here. Recent share price weakness makes the shares look attractive.

Outsourcing
The outsourcing revolution continues apace with companies like Capita riding the wave of opportunity. A healthy bid pipeline, and a string of recent contract wins, underlines the appeal of the business, as the firm's clients typically outsource "non core" functions to Capita, like administration, ICT, HR and payroll, strategic development, and business process engineering. Outsourcing companies tend to execute well, as they focus on the task without distraction from the exigencies of the client's main business. I'm optimistic that Capita's steady growth can translate into decent total returns for investors from here.

Inspection and certification services
Although the directors at Intertek are expecting a flat result on profits for the whole year thanks to declining business related to worldwide mining activities, other sectors are growing well, like oil, gas, power, and renewables, which is an area that continues to experience inward capital investment, resulting in demand for Intertek's services. My verdict is that growth at Intertek is attractive, but expensive for investors, given the current valuation.

Oil and gas industry services
Petrofac scores well on my quality and value indicators, and the only question mark hangs over the growth record, thanks to fluctuating cash flow. Overall, I think I should invest in Petrofac, and recent share-price weakness only adds to the company's attractions. The firm has grown rapidly in its 30-odd year lifetime, servicing a booming worldwide oil and gas industry. Recent contract wins in the Middle East should contribute to Petrofac's ongoing earnings momentum.

What now?
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