Do Centrica PLC, SSE PLC & Unilever plc Offer Relief From Today's Market Madness?
Don't be fooled by the recent share price fightback, the bears are likely to launch another wave of attacks. If you're feeling defensive the following three companies may have caught your attention. They look solid in theory, but are they safe havens in practice?
When is a safe haven not a safe haven? When it's British Gas owner Centrica(LSE: CNA). Voters may have forgotten about former Labour leader Ed Miliband but Centrica investors will recall his threat in September 2013 to freeze energy prices as the beginning of its current troubles. However, they can't blame him for the 30% crash in the company's share price over the last 12 months: that type of plunge isn't supposed to happen to a defensive play like this. On the stock market, there are no safe havens.
Today's full-year results show the pain continues: 2015 revenues fell 5% to £28bn while adjusted operating profits were down 12% to £1.459bn. Adjusted earnings per share fell 4% to 17.2p, which was actually better than forecast, and the full-year dividend fell 11% to 12p. Management remains optimistic, claiming the group is "robust in a low commodity price environment" and cash flow should rise at least 3% to 5% a year. The truth is that markets had expected worse. Despite the dividend cut, Centrica still trades on a forecast yield of 5.9% for December, which looks pretty hot in a negative rate world. The company has had its troubles but at 10.1 times earnings these may now be in the price.
Fellow utility SSE(LSE: SSE) offers an even higher yield at 6.61% and is only slightly pricier at 10.6 times earnings. With no interest rate hike expected until 2020, that income stream is a sizzling prospect. But be warned, cover is thin at just 1.3. As I said, nothing is safe in this market. Nor is the share price, which has fallen 17% in the past 12 months.
SSE has a proud dividend history having hiked every year since 1992 helped by its Network division, which delivers a regulated flow of cash. But its non-regulated wholesale and retail divisions have come under pressure in recent years. Like Centrica, it must also battle the challenge from smaller players and a dip in customer usage. Management expects EPS to increase slightly to 115p in the year to March 2017, but that's still down from 124.1p two years earlier. Its recent Q3 update shows management standing by its commitment to raise dividends by at least RPI, a pledge that will be tested as SSE battles to keep the cash flowing while investing in infrastructure.
Finally, a solid home for your money. While Centrica and SSE look as defensively sound as Premiership strugglers Aston Villa, global household goods giant Unilever(LSE: ULVR) has kept it tight at the back. Its share price is up 60% over five years and 5% over 12 months, while the FTSE 100 is down 7.5% and 19% over the same timescales. While energy demand has fallen there has been no slacking off in demand for soaps and sauces, hygiene and household products, with recent full-year results showing a 4.1% rise in underlying sales and 10% rise in turnover.
This has even helped Unilever defy the emerging market slowdown, with sales from this source up 7.1%. Double-digit growth in Latin America confirms that the company is built for troubled times like these. It isn't cheap at 21 times earnings but at least its yield is decent for once at 4%.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.