BROKERS’ NOTES: Buy Old Mutual, sell Peloton

Shaun Murison, senior market analyst at IG Markets

BUY: Old Mutual

The share price of Old Mutual has discounted heavily over the past two years, with earnings dipping from the start of the pandemic thanks to increased payouts and disrupted business sales. However, the company’s recent interim results have started to show the beginnings of a post-pandemic turnaround. Headline earnings per share have soared by more than 60% against the prior year’s comparable period, albeit off a relatively low base. Old Mutual trades on conservative p:e multiples — both historic (about five) and forward-looking (six). The company’s dividend offering is at an attractive historical yield of about 7%. For investors with a long view, the current share price could offer a favourable entry opportunity from both a value and yield perspective.

SELL: Peloton Interactive (US)

Peloton, a market darling during the pandemic, saw demand for its interactive gym equipment and internet workout subscription services push the price up more than 700% into January 2021. Since then, the share price has fallen more than 90%. Demand for its products and services has waned as people return to more conventional fitness routines outdoors and in gyms. The company trades deep in loss-making territory, impairing and selling some of its assets, as well as downsizing its staff contingent. A delay in its filing its annual reports in line with Securities & Exchange Commission requirements has placed further pressure on the company’s share price, thanks to the potential for litigation risk on the grounds of misinforming or misleading investors. Negative operational cash flow and a soft balance sheet suggest this company might be one to steer clear of right now.