Five big-hitters for Burns Night

Around the world, fans of Robert Burns are today celebrating Scotland's national bard with poetry, whisky and haggis. To join a tradition that's over 200 years old, we have analysed five well-known Scottish companies to see whether you should toast the poet with a dabble in the market.

And, for those who are new to Rabbie Burns' work, we've paired each company with one of his popular poems or songs to help you through tonight's celebrations!

Royal Bank of Scotland

Auld Lang Syne

The government has only just begun selling down its significant stake in the retail bank, a process expected to take four years. Its ownership of ordinary shares has stood at 51.1% since November, while its total economic ownership is 72.9%. There are concerns about the massive share overhang - when the market knows a shareholder has a significant stake to sell, deterring investors from buying - although broker Barclays thinks this may be partially offset by directed buybacks.

There are also issues related to conduct fines, its restructuring timeline, and whether the shake-up will be successful. However, the valuation looks "interesting" at 0.9 times 2016 tangible book value, with 12% return on equity expected, according to Barclays. It reckons RBS is worth 315p a share, which represents over 20% upside after the recent sell-off.

"We expect RBS to make an adequate return in time but see little scope for share price outperformance in the early phase of business restructuring. Tangible book value looks to be under pressure for a couple of years and returns will take time to build. The current valuation discounts this and we rate the shares 'equal weight'."

Wood Group

Tam O' Shanter

Buoyed by chatter that Canadian engineer SNC-Lavalin is mulling a bid, FTSE 250 oil and gas services firm Wood Group has more-than recovered from last week's main-market quick step into bear territory.

But SNC's new boss Robert Card played down mergers and acquisitions talk, and broker Macquarie has rubbished the rumours. Still, the shares have, at least, outperformed the collapsing oil price, down a modest 20%. The oil price has more-than halved.

Against negative industry sentiment, Wood has delivered modest growth thanks to recent acquisitions in December, which triggered City upgrades. With forecasts now ahead of consensus, Macquarie's Dan Farrell has upgraded earnings per share (EPS) targets by 13%, 14% and 1% for 2015/2016/2017, to 81.4 US cents (c), 70.5c and 75c respectively. A target price of 550p is 8% higher than its current level, but the analyst upgraded its rating from 'underperform' to 'neutral'.

"The market appears willing to support a premium valuation on the name given its asset-light business model and decent balance sheet," Farrell explains. "With no evidence that either of those will change in the near term, the catalysts for underperformance, certainly relative to the rest of the sector, appear thin on the ground."

Devro

Address to a Haggis

After working hard to launch new projects in America and China, sausage casing maker Devro should start to feel the benefits from 2016. Left behind in the 2015 UK mid-cap fast-moving capital goods (FMCG) sector re-rating, there are concerns surrounding volume weakness, pricing pressure and foreign exchange deterioration. But Investec reckons the extra, much-needed capacity and stronger margin levels will support the shares, which it rates a 'buy'. Representing 20% upside from its current 292p level, the broker hikes its target price to 383p.

A trading update in November confirmed the group was on track to meet its 2015 targets, although volume growth in China, Japan and North America mostly occurred in the first half due to tougher comparatives and capacity constraints later in the year.

Cairn Energy

My Luve is like a Red Red Rose

Although Cairn's appraisal campaign has the potential to be world-class, Investec thinks success is already priced in with a much higher oil price. Analyst Brian Gallagher cautiously explains: "This is too much of a leap for us ahead of appraisal and therefore we reiterate our 'sell'."

Aiming to define the quality of Sangomar's reservoir, the three-well programme began in November and is expected to continue until the second quarter of 2016. In 2014 the team of explorers had success at the FAN-1 and SNE-1 discoveries, and there are many positive elements to make the analyst doubt its 'sell' recommendation - positive fiscal terms and reservoir quality, as well as its size.

After the market sell-off, Cairn's share price is now more in-line with Investec's 130p target price. "It is not a given that the campaign will meet current expectations," warns Gallagher.

Stagecoach Group

A Man's a Man for A' That

Challenges in Stagecoach's UK rail, bus and European inter-city coach operations have been a drag on full-year forecasts, although an attractive and rising dividend yield should support the share price. Despite its solid interims in December, Panmure Gordon analyst Gert Zonneveld has downgraded its target price to 330p, due to lower UK bus and Megabus valuations.

Looking further ahead, growth is still expected to be muted, as economic conditions remain sluggish, holding back regional bus profitability and margins. Despite Megabus Europe start-up losses and disappointing North American revenue prospects, the dividend is tipped to keep rising, offering a prospective yield of 3.8%, rising to 4.2% based on estimates for the year to April 2017.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.