As diversified investment play Wendel approaches its mid-year trading update on the 5th June, we note multiple factors in OTAS which highlight potentially growing signs of risk to the shares.
Having underperformed its peers for most of 2014, Wendel shares have enjoyed a solid start to 2015 rallying +26% year to date in line with that of the sector whilst outperforming by +2.75% in the last week as we head into its Company release.
The shares now lie back at the recent multi-year highs seen in mid-April and are adopting similar technicals to then – looking overbought on all 3 stochastic measures (Fast, Slow & Full) and a similarly high RSI reading. The shares subsequently fell -7% in the following month.
Further signs of risk in the Core Summary centre on Director Dealings and Valuation.
Current CFO Jean Michel Ropert has sold €300k worth of stock prior to the trading update. Our unique back-test and ranking identifies Mr Ropert as being the most reliable Wendel director to follow when he has historically sold stock. He currently holds the highest, 3 star ranking.
From a more fundamental stand point Wendel’s current 12m Fwd P/E valuation is looking particularly stretched. Trading on a peak 8 year multiple of 18.9x it is at unprecedented levels in absolute terms and at a 46% premium to the sector, levels at which the shares have struggle to significantly re-rate from.
Analyst EPS estimates have been revised upwards by just over +2% in the last month having seen heavy downgrades the month before. The market price action over this time period has largely followed in line (Divergence Stamp) with the shares +4.2%. The stock is a consensus Buy and trades at a 3% discount to its current median price target.
Of the sentiment risk indicators on OTAS, CDS has seen the most notable move. From the lows in March, Wendels credit risk has increased 65%, currently standing at 110bps. It is interesting to note the idiosyncratic relationship between this and the share price which has also rallied over this time.
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