The recent market sell off has highlighted some firms that could prove to be safe havens for investors.
The examples I’ll look at today are equipment hire firm Ashtead Group (LSE: AHT), public sector outsourcing specialist Capita (LSE: CPI), and power utility SSE (LSE: SSE).
Capita
First up is outsourcing firm Capita. Much of this group’s work comes from the UK public sector. Example clients include the NHS, multiple councils and Defra, although Capita also does private sector work, notably in the financial sector.
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All of this adds up to a profitable formula that should be largely unaffected by the emerging and commodity market slowdowns, in my opinion.
The market seems to agree. Capita shares are up 12% so far in 2015, while the FTSE 100 is down by 7%.
Capita has hammered the wider market over the last five years, too. The firm’s shares have risen by 73% since 2010, during which time the FTSE has only managed an 18% gain, and peers such as G4S and Serco have seen profits crumble.
Capita currently trades on a forecast P/E of 17 and offers a prospective yield of 2.6%. That’s not cheap, but the firm’s proven quality and ability to generate free cash flow suggest to me that it could be a good safe haven buy, with long-term growth potential.
Ashtead Group
Equipment hire group Ashtead surged 6% higher today after it revealed a bumper set of first-quarter figures.
Underlying operating profit rose by 25% to £180m, while underlying earnings per share were up 27% to 21p. Rental revenues rose by 20% thanks to strong growth in the US market, which generates around 85% of Ashtead’s sales.
Ashtead’s two brands, Sunbelt and A-Plant, are the second-largest equipment hire companies in the US and UK markets respectively. This scale appears to give the firm significant advantages over small-cap UK peers such as HSS Hire and Speedy Hire, both of which have issued dire profit warnings recently.
Shares in Ashtead have fallen by 15% since the start of the year. This puts the firm on a forecast P/E of 11.8 with a prospective yield of about 1.9%. That doesn’t seem overly expensive given the group’s large-scale exposure to the booming US market.
SSE
Neil Woodford put the boot into SSE recently, announcing that his fund had sold its shares in SSE in July. The fund manager cited uncertainty over SSE’s future cash generation and limited upside potential as the reasons for selling.
We don’t know exactly when Woodford Funds sold its shares in SSE, but the utility’s shares have fallen by about 10% since the start of July, leaving them on a tempting forecast yield of 6.2%, and a fairly average forecast P/E of 13.
Was Mr Woodford wrong to ditch SSE? It’s too early to say, but as a shareholder I’m encouraged by current forecasts which indicate that normalised earnings per share could rise by 60% to 112p this year, the highest level seen since 2012.
This should help to improve dividend cover, which is expected to rise from 0.6 to 1.2. If cash flow also improves, the shares could be an attractive buy, in my view.
