The FTSE's Make-or-Break Shareshttp://www.fool.com/investing/international/2012/08/21/the-ftses-make-or-break-shares.aspx Tony Reading
August 21, 2012
LONDON -- You normally expect companies in the FTSE 100 (INDEX: ^FTSE ) to be boring, solid and dependable. But several companies in the index are far from that. There are several "make or break" shares where management actions, or simply fate, could ultimately determine whether they are very good investments or very poor investments.
The three most obvious are:
When companies have such a binary outcome, there are two ways of thinking about the valuation at which its shares trade. One is that the price reflects the balance of bulls and bears on the stock. The other is that the price is a weighted average based on the probability of either outcome.
It recently announced a $1.2 billion refinery sale, which brings the total of disposals since 2010 to $26.5 billion against a $38 billion target. That's good progress, but the total will not be achieved without cutting into BP's earnings power and reserves.
Almost a quarter of BP's production comes from its 50-50 Russian joint venture. It has been dogged by tensions with the local partners, who currently are blocking dividend payments. BP could yet be forced out on poor terms, or alternatively secure the strategically attractive scenario of a joint venture with the state-owned oil company.
Eyes are now on its U.S. business, which it bought for $2 billion in 2006. Although plans for its sale are unconfirmed by management, the market would be pleased if McFarlane pulls off a deal, even though it's likely to raise less than half the original cost.
But Aviva's exposure to eurozone markets remains a drag, and its capital position is too tight for the dividend to be entirely safe. Last week Standard and Poor's downgraded Aviva's debt one notch from A to A- because of the significant risks and costs of the turnaround plan.