I have recently been evaluating the investment cases for a multitude of FTSE 100 (FTSE: ^FTSE - news) companies.
Although Britain's foremost share index has risen 9% so far in 2013, I believe many London-listed stocks still have much further to run, while conversely others are overdue for a correction. So how do the following five stocks weigh up?
Hargreaves Lansdown (LSE: HL.L - news)
I am expecting shares in Hargreaves Lansdown -- which edged to a fresh record high around 985p recently -- to stride to new summits amid surging activity levels.
Hargreaves Lansdown's latest quarterly update this month showed assets under management hit £35.1bn in the three months to the end of March, up 35% on an annual basis and striking record levels. Net inflows during the period also struck a record peak of £1.8bn, compared with inflows of £1bn in the same 2012 period. These pushed revenues 24% higher to £216.6m.
City forecasters put earnings per share for the year ending June 2013 at 31p, up 29% from the previous year. This is then expected to rise 18% in the following 12-month period to 37p. As well, the company operates an ultra-progressive dividend policy, and analysts expect last year's 22.6p full-year payout to rise to 27p per share in 2013 and 31p per share next year.
Hargreaves Lansdown currently trades on a P/E reading of 30.9 for 2013, which is anticipated to fall to 26.1 in 2014. Although this still represents a premium to a forward earnings multiple of 20.7 for the entire financial services sector, in my opinion the prospect of further stunning earnings growth and improving dividends makes the company a great stock pick.
I expect Schroders to bounce back from a difficult 2012 from this year onwards, as its expertise and activities spanning a plethora of asset classes and products pays off. The prospect of further M&A activity could also drive the company skywards.
Schroders saw net turnover fall 3% last year to £1bn, which in turn drove profits to £360m, a 12% annual fall. However, new net business inflows rocketed to £9.4bn last year from £3.2bn in 2011, which in turn propelled total assets under management to a record £212bn, up more than 13% from the prior year.
Earnings per share are expected to advance 18% in 2013, to 123p, according to broker estimates, before rising a further 16% next year to 143p. Like Hargreaves Lansdown, Schroders is also making hay in terms of building dividends, and analysts predict last year's 43p per share payout to increase to rise to 49p per share in 2013 and 55p per share in 2014.
The firm currently changes hands on a P/E rating of 18.6 and 16 for 2013 and 2014 respectively, which compares favourably to the prospective earnings multiple of the listed financial services sector. And Schroders' position as a value stock is underlined by a price/earnings to growth (PEG) figure of 1.1 and 1 for this year and next. A reading around 1 is generally considered excellent value.
Resolution
I reckon that life insurer Resolution is a great pick for investors seeking juicy investment income well ahead of the average yield of Britain's 100 largest-quoted companies.
The firm hiked last year's total dividend 6% in 2012 to 21.1p and, although the company said that it would not raise dividends again until the surplus hits £400m, a prospective 21.1p dividend per share for 2013 still provides a huge yield of 8.1%, well above the average forward yield of 3.3% for the FTSE 100.
Resolution saw its sustainable free cash surplus rise to £300m last year from £291m in 2011, and the firm's solid balance sheet should help to maintain the dividend into the medium term at least. Indeed, the company has increased dividends even in times of previous earnings pressure, and raised last year's dividend even though earnings per share fell more than 60%.
City analysts expect earnings per share to rise 20% this year, to 24p, before climbing 14% to 27p in the following 12 months.
Resolution currently trades on a P/E multiple of 11 and 9.6 for 2013 and 2014 correspondingly, providing a chunky discount to a forward earnings multiple of 12.8 for the entire life insurance sector. And the company's current position as a bargain stock is borne out by a PEG readout of 0.5 for 2013 and 0.7 for 2014.
I am backing outsourcing giant Capita to deliver chunky new business inflows in coming years, offsetting fears over falling margins and which should fuel solid future expansion.
Capita announced organic growth of 3% last year, treading back to growth after the 7% drop recorded in 2011, and which pushed profit before tax 10% higher to £472m.
Particularly encouraging was news that contract wins doubled to £4bn last year, while its sales pipeline increased to £5.2bn at the time of the results against a £4.8bn pipeline in November (Xetra: A0Z24E - news) . The pipeline currently encompasses 27 separate bids with an average nine-year lifespan, providing exceptional long-term revenue visibility.
City brokers expect earnings per share to increase 6% in 2013 to 56p, before advancing an additional 9% in 2014 to 61p. In addition, investors can look forward to increasingly-tantalising dividend payments -- the firm hiked 2012's total payment 10% to 23.5p per share, and analysts expect this to climb to 25.6p per share and 27.9p per share in 2013 and 2014 respectively.
Capita was recently dealing on a P/E readout of 15.8 and 14.4 for 2013 and 2014, a positive comparison when viewed against a forward earnings multiple of 17.2 for the whole support services sector.
Standard Life (LSE: SL.L - news)
Shares in Standard Life sprung to record peaks above 391p after last week's positive interims. However, I believe that the stock is in danger of a heavy correction as the impact of rising competition muddies the firm's revenues outlook.
The company saw life and pensions sales on a PVNBP (present value of new business
premium) rise 24% to a record £6.3bn in the first quarter, it announced last week, helped by new legislation which has installed automatic enrolment for company pensions. However, I reckon that the prospect of rivals gaining ground in the UK pensions and savings markets is set to weigh on prospective earnings growth further out.
Earnings per share are set to dive 21% in 2013 to 24p, according to City forecasts, before snapping back 11% in the following 12-month period to 26p.
The company is liked by investors due to the meaty dividends on offer. Last year's 14.7p per share total payment was up from 13.8p per share in 2011. And brokers expect this to come in at 15.6p per share and 16.6p per share this year and next, presenting yields of 4.7% and 5%.
Standard Life was recently changing hands on a P/E ratio of 16.4 and 14.8 for 2013 and 2014 respectively, comfortably above the forward earnings multiple for the UK's listed life insurance sector. Considering that the firm's earnings outlook remains murky, I believe that shares are far too expensive at current levels.
Further company comment can be found at www.fool.co.uk.
> Royston does not own shares in any of the companies mentioned in this article.
