Accrol also has the benefit of a very straightforward business model as it imports reels of paper in bulk and then converts them to toilet roll, kitchen roll and facial tissues at its Blackburn manufacturing plant. The company produces some own-brand products but the vast majority of its output is private label goods for major retail chains. Its core customer base includes discounters, which has kept growth high in recent years as they have taken market share from the big four grocers.

With over 50% market share in the discount space, Accrol is far and away the largest player in this growing market and is rapidly expanding its manufacturing facilities to keep up with this growth. In the year to April revenue rose 14.2% year-on-year (y/y) to £135.1m and EBITDA increased 6.8% to £16.1m

Increasing cash flow and year-end net debt of just £19m allowed management to both invest in new warehousing and production facilities as well as increase shareholder returns. Full-year dividends totalled 6p and were covered twice by adjusted earnings per share of 12p. At its current share price this works out to a 4.3% dividend yield.

On top of this very nice dividend the company’s shares trade at just 11.9 times forward earnings. Although the company’s profitability is exposed to global movements in paper reel pricing, this valuation looks quite attractive given the group’s solid growth prospects, healthy balance sheet and high income potential.

Higher risk, but higher reward?

For more risk-hungry investors, discount retailer Shoe Zone (LSE: SHOE) may present an intriguing option. The company’s shares are currently valued at just 9.8 times forward earnings and last year’s regular dividend of 10.1p represents a whopping 6.4% yield. In addition to the regular dividend there was also a special dividend of 8p that management intends to repeat whenever year-end cash balances exceed £11m.

The risky part of investing in Shoe Zone is that aside from facing the same sector-wide challenges as other retailers, the company is executing a strategy of shrinking to grow profits. This involves closing small, low-margin stores and opening up a smaller number of big box stores that cut down on rental, staffing and logistics costs. On top of this, management is also pushing to increase margins by directly sourcing product straight from overseas factories.

In the half to April the year-end store count fell from 518 to 504 y/y as part of this plan as the company closed small and medium-sized stores to trial new big-box outlets that are trading very well and will be rolled out across the estate. However, this did lead revenue to fall from £74.6m to £72.9m y/y although gross margins improved a full 170 basis points to 62.8%.

During this period the weak pound did cause underlying pre-tax profits to fall from £1.7m to £1.3m y/y but analysts still expect full-year earnings to more than cover dividends payouts. Shoe Zone is a risky income option but yield-starved investors who aren’t risk-averse may find it worth digging into.

The post 2 dirt-cheap dividend kings appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

On a roll

£127m cap Accrol (LSE: ACRL) is unlikely to get your pulse racing. It makes toilet rolls, kitchen rolls and facial tissues. Stay awake now.

As an investment, things are more interesting. Since coming to the market last year, the shares have climbed a very respectable 25%.

Full year results (released in July) revealed a 14.2% increase in revenue and 57.3% increase in adjusted profit after tax to £11m. Those with an aversion to debt should also note how Accrol’s ability to generate bundles of cash allowed it to reduce the amount on its books from just under £61m to £19m over the previous 12 months.

During its first year as a listed business, Accrol opened a new 168,000 sq. ft. manufacturing facility and unveiled a plan to make its supply chain more efficient through the creation of a centralised finished goods hub in Skelmersdale, Lancashire. Both developments should allow the company to continue growing its market share, which now stands at over 50% of the Discount Sector following recent contract wins.

The fact that Accrol produces a dull but essential product means that its earnings — and share price — should remain fairly resilient in the event of any general economic wobbles. Indeed, as CEO Steve Crossley recently stated, the recent rise in inflation should “drive shoppers to seek value” in discount stores, even if the full impact of price increases is still to be felt.

Trading on a forecast price-to-earnings (P/E) ratio of just 11 for the current year (based on predicted earnings per share growth of 27%) and offering a 5.4% yield, Accrol looks a solid buy.

More growth ahead

With a market cap of just £68m, minnow Miton Group (LSE: MGR) might not be the first investment manager that springs to mind but recent results suggest that highly-rated Gervais Williams and co are doing a great job of attracting clients.

The company’s trading update for the first half of 2017 reflected on a “strong start to the year” with total assets under management (equity funds, multi-asset funds and investment trusts) increasing 15% to £3.35bn from £2.91bn back in January. 

While the popularity of investment management companies is heavily correlated with the twists and turns of markets, CEO David Barron stated he was “optimistic” that the kind of performance achieved over H1 would continue into the second half of the year.

Analysts are equally optimistic, having predicted a 14% increase in earnings per share in 2017 with an even bigger 20% rise expected in 2018. Based on today’s share price, that would leave the stock trading on price-to-earnings (P/E) ratios of 16 and 13 respectively. That sounds very reasonable, especially as Miton also boasts a significant net cash position — £21m at the end of its last financial year. And while its easily-covered-by-profits 2.8% dividend yield may not be the biggest payout available on the market, there are already suggestions that this will be hiked by no less than 27% in the 2018/19 financial year.

Miton next reports to the market towards the end of September. Assuming recent momentum has been sustained, I can see the shares moving higher.

The post 2 ‘under the radar’ growth and income stocks appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Accrol describes itself as a tissue converter, which means that it converts so-called primary rolls of tissue from paper mills into products such as loo paper, tissues and kitchen roll. The company’s main business is producing and supplying branded and private label products for supermarkets. A particular focus is the discount sector, where it has a market share of more than 50%.

It’s tempting to think that this recently-floated stock could become an attractive income growth play.

Why I wouldn’t buy

Last year’s financial performance was very solid. But there are a number of things about this business which concern me. One risk, in my view, is that the firm’s customers will never allow it to be too profitable. The company’s gross profit margin fell from 29.2% to 27.9% last year. The group’s operating margin, which includes a wider range of costs and expenses, fell from 10.1% to 7.8%.

In today’s results, chief executive Steve Crossley comments that input costs are rising. He notes that “we continue to seek inflation recovery”. According to Mr Crossley, retailers are increasing their prices “slower than expected”. These comments seem to confirm my view that this business’s customers will use their negotiating power to keep prices down. I suspect it will be difficult for Accrol to regain this lost margin.

On that basis, I’d argue that on a forecast P/E of 11.5, Accrol stock is probably fairly priced.

One I would buy

For consumer goods firms, the secret to pricing power lies in having strong brands. One company which understands this is FTSE 100 group Reckitt Benckiser Group (LSE: RB), which owns brands including Dettol, Nurofen, Harpic and Strepsils.

Producing these branded goods isn’t necessarily any more expensive than producing own-label products for supermarkets. However, their premium positioning and customer appeal means that prices and profit margins tend to be higher.

Reckitt has generated an average operating margin of 24% over the last five years. The group generates a huge amount of free cash flow, enabling it to invest in new products and acquisitions without excessive levels of debt. Although the group’s recent $17.9bn acquisition of Mead Johnson will result in raised debt levels, I’m confident its cash generation will enable it to repay this additional borrowing promptly.

The stock has fallen by about 5% from the all times high of £81 per share seen at the start of June. Reckitt was also hit by a recent cyber-attack and said the disruption this has caused is expected to reduce full-year sales growth from 3% to 2%.

In my view, this is just a short-term blip for this impressive growth business. Although the stock is expensive on 22 times forecast earnings, I think the firm’s defensive qualities mean that it’s worth considering as a long-term buy.

The post One dividend growth stock I’d buy and one I’d sell appeared first on The Twelfth Magpie.

More reading

• Start buying shares with just £20 a week? Here’s how even that could help someone build wealth
• Here’s how putting £800 a month into a Stocks and Shares ISA from age 27 could fund a £2m retirement!
• Relying on the State Pension for retirement? Here’s why it might not be enough
• 3 beaten-down FTSE 100 shares to consider buying and holding for a decade
• How much would you need in a SIPP to replace a £3,000 monthly salary?

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Improving performance

Reporting on Tuesday was adhesive and bonding solutions specialist Scapa (LSE: SCPA). The company enjoyed an excellent year, with revenue growing 13.3% and trading profit rising by 37.1%. Although both figures include the impact of positive currency translation, underlying revenue growth of 1.7% and underlying trading profit growth of 18.2% indicate that the company’s strategy is working well. Further evidence of this can be seen in the company’s rising trading profit margin, with it increasing to 10.4% from 8.6% in the previous year.

Looking ahead, there is scope for earnings growth as the company seeks to grow its business within the healthcare and industrial segments. This is expected to help Scapa to increase its bottom line by 11% in the next financial year.

While its shares currently trade on a price-to-earnings (P/E) ratio of over 30, the company has a solid track record of double-digit growth. For example, in the last five years it has been able to grow its bottom line at an annualised rate of 29%. This shows that as well as high growth, Scapa also offers resilient growth. As such, its shares seem to be worthy of purchase at the present time – especially with uncertainty surrounding the UK economic outlook continuing to build.

Growth opportunity

Also offering upbeat growth prospects is tissue manufacturer Accrol (LSE: ACRL). It is expected to grow its earnings by 11% in the current year, and by a further 5% next year. Its outlook could be upgraded due to the potential for pressure on household budgets. Due to higher inflation, consumers now have negative real-terms growth in disposable incomes, which means they may trade down to cheaper own-brands on a range of staple goods, such as tissues. This could lead to greater demand for Accrol’s services and more new contract wins in future.

Despite this growth potential, Accrol continues to trade on a relatively low valuation. For example, it has a P/E ratio of just over 10, which suggests that its shares could experience an upward re-rating over the medium term.

Certainly, the company’s lack of a dividend payment and the absence of plans to commence shareholder payouts over the next two years may hold investor sentiment back somewhat at a time when inflation is heading higher. However, with a sound business model, a track record of improving financial performance and a wide margin of safety, Accrol could prove to be an excellent long-term investment.

The post 2 overlooked growth stocks that could fund your retirement appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Peter Stephens owns shares of Scapa Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It’s always worth keeping a watch on companies that have recently come to the market. So long as the investment case is solid, those who buy shares early on can often enjoy quick capital gains. 

One recent example is colour cosmetics business Warpaint London (LSE: W7L). Since arriving on AIM back in November, shares in the Buckinghamshire-based company have jumped from its IPO price of 97p to 165p. A 70% return in just over three months? Now that’s a company I want to learn more about.

Looking good

Warpaint London focuses on offering consumers in the 16-30 age range “high quality cosmetics at affordable prices“. With more than 500 items, its flagship W7 brand is sold to high street retailers and independent beauty shops in over 40 countries. In addition to this, Warpaint also operates a close-out division which buys excess stock of branded cosmetics such as Max Factor before selling them on to discounters.

Although new to the stock market, a quick glance at its financial history suggests this could be a stock to buy and hold for the medium-to-long term. Annual returns on capital over the three-year period from 2013-15 were all around the 50% mark. Take into account the company’s net cash position and the fact that sales of lipstick and eyeliner will continue regardless of the macroeconomic picture and things start looking pretty attractive.

Another point worth mentioning is Warpaint’s relatively low free float. At the time of writing, only 36% of the company’s 65m shares are available to investors. The remainder are held by the company’s board, with joint CEOs Samuel Banzini and Eoin Macleod owning a combined 63% stake. In addition to guaranteeing that both will be highly motivated in pushing the business forward, you can also be sure that this limited availability will mean that any positive news (such as the introduction of a dividend) could lead to a significant jump in the share price.

Shares in Warpaint trade on a not-unreasonable 17 times earnings for 2017. What’s more interesting however, is that the price-to-earnings growth (PEG) ratio is only 0.7. As a general rule of thumb, anything less than one on this metric is indicative of a company offering excellent value for money given management’s plans for expansion.

Things to be wary of? Even those with meagre knowledge of the products will recognise the highly competitive nature of the cosmetics market. Warpaint’s dependence on two highly-motivated CEOs to drive the company forward could also backfire if one or both ever decide to leave. 

Bog standard profits

If adding Warpaint to your portfolio doesn’t appeal but you remain interested in small companies selling products that people buy on a regular basis, shares in Accrol Group (LSE: ACRL) might be a viable alternative.

Based in Blackburn, the £135m cap manufactures toilet rolls, kitchen rolls and facial wipes. It’s hardly exciting stuff but then some of the best investments never are. Since coming to the market last June, shares in the owner of brands such as Sofcell and Thirsty Bubbles have put in a very encouraging performance, rising 29% to 142p.

Trading on 11 times earnings for this year, reducing to 10 in 2018 so long as earnings growth estimates of 10% are hit, stock in Accrol still doesn’t look expensive. Like Warpaint, Accrol also has a low PEG ratio of just one for 2017. 

The post Should you add newly listed Warpaint London plc to your investing arsenal? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

A solid growth stock

Accrol (LSE: ACRL) may not be a household name, but it continues to deliver consistently high growth figures. In today’s interim results, the tissue converter posted a rise in sales of 8.8% and an increase in gross profit of 5.6% for the first half of the year. It also announced a maiden interim dividend of 2p per share, which shows that it has confidence in its medium-term outlook.

Its successful IPO in June 2016 raised £63.5m and it continues to have strong growth prospects. Its market share of the discount tissue sector has increased to around 50% following significant contract wins with Booker, Poundstretcher and Lidl. In fact, there are early indications that the contract with Lidl will deliver more than £10m in annual revenue. And with UK consumers likely to trade down to budget options as inflation rises this year and wage growth fails to keep pace, demand for Accrol’s products could increase significantly in the coming months.

Looking ahead, earnings growth of 73% is forecast for the current year, followed by further growth of 17% next year. This puts Accrol on a price-to-earnings growth (PEG) ratio of 0.6, which indicates that there’s at least 25% upside on offer. Allied to this is a consistent and robust business model, which makes the stock of interest to value and growth investors alike.

A dirt cheap cyclical stock

Also reporting today was recruitment company Staffline (LSE: STAF). It expects to deliver results for the full year which are in line with market expectations. Demand within the staffing business has remained robust throughout the second half of the year, while the PeoplePlus division has also delivered impressive results.

Clearly, the outlook for the UK and European economy is challenging and this is reflected in Staffline’s forecasts. It’s expected to grow its bottom line by just 3% in 2017, which is around half the wider market growth rate. However, its uncertain outlook appears to be adequately priced-in, with the company having a price-to-earnings (P/E) ratio of 7.5. As such, a 25% rise in its share price would leave it with a P/E ratio of 9.4. This would still represent good value for money.

As well as growth potential, Staffline also offers a yield of 3.1%. Dividends are covered 4.3 times by profit, which shows that they could move significantly higher over the medium term and still leave the company in a sound financial position.

The post 2 small-caps with 25%+ upside after today’s results appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Booker. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

New business wins

Accrol’s performance in the first six months of the current financial year shows that its strategy is performing well. It has been able to win new business with existing customers while also gaining new contracts such as the £10m deal with Lidl. Accrol is in the process of installing two high-speed converting lines in its new manufacturing facility. This will significantly increase its capacity and support long-term growth, especially with both discounters and major multiples in the UK.

In fact, Accrol could be a major beneficiary of Brexit. The UK economy could endure a challenging period that may end in inflation being higher than wage growth. This could lead to increased pressure on disposable incomes, which may cause shoppers to trade down to cheaper supermarkets and cheaper brands. This could increase demand for Accrol’s products and act as a positive catalyst on its future growth.

Accrol is expected to increase its bottom line by 53% in the current year and by a further 22% next year. This is an excellent rate of growth and yet the market doesn’t yet seem to have fully priced it in. For example, Accrol trades on a price-to-earnings growth (PEG) ratio of 0.4, which indicates that capital gain prospects are high.

The outlook for Accrol is brighter than for consumer goods peer Unilever. It’s forecast to grow its bottom line by 5% in the current year and by a further 10% next year. This puts Unilever on a PEG ratio of 1.9. While this is attractive on an absolute basis, relative to Accrol, Unilever seems to be significantly overvalued at first glance.

However, Unilever offers a much lower risk profile than Accrol. For starters, it’s a much more diversified business, with Unilever selling a wide range of goods that enjoy a high degree of customer loyalty. Unilever also has greater geographical diversity than Accrol, which means that its performance should prove to be more stable over the long run.

Unilever’s financial firepower is also more impressive than that of Accrol. This means that Unilever is better positioned to invest for future growth, for example in the M&A arena. And with Unilever having a dividend yield of 3.2% which is covered 1.5 times by profit, it has far superior income potential to Accrol, the latter of which currently pays no dividend.

While Accrol is a worthy investment, Unilever’s risk/reward profile is superior. Therefore, selling Unilever to buy Accrol doesn’t seem to be a wise move at the present time.

The post Should you ditch Unilever in favour of fast-growing small-cap Accrol? appeared first on The Twelfth Magpie.

More reading

• 3,566 shares in this FTSE 100 stalwart earns a £1,443 second income
• 2 FTSE shares for beginners starting an ISA
• Is this former stock market hero now the ultimate FTSE 100 buy and hold?

Peter Stephens owns shares of Unilever. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Shares in Aveva (LSE: AVV) have risen by around 5% today after the engineering data specialist reported a solid trading update. It stated that since Aveva’s results in May, the company has made satisfactory financial and operational progress in line with expectations. It expects the seasonality in the current financial year to be broadly similar to that of previous years.

One positive for investors in Aveva is the weakness of sterling. If this persists, Aveva expects to report a positive currency translation in future. With its balance sheet being strong and it having net cash of £133m, it seems to be well-placed to overcome any short-term challenges that present themselves.

Aveva has also today announced a change in its CEO, with the current CFO set to take on the senior role from January 2017. Looking ahead, Aveva is forecast to increase its earnings by 9% this year and by a further 7% next year. Although this is an impressive outlook, Aveva’s share price seems to be overvalued as it trades on a price-to-earnings growth (PEG) ratio of 3.1. Therefore, there may be better growth opportunities available elsewhere.

Benefitting from Brexit?

Also reporting today was Accrol Group (LSE: ACRL), with the independent tissue converter announcing a new contract with a major global retailer to supply toilet paper, kitchen rolls and facial tissues. The contract is expected to be worth over £10m per annum and further consolidates Accrol’s position as a major player within its industry.

Accrol could benefit from a downturn in the UK following the EU referendum. Over 50% of its sales are generated from the discount market segment and if consumers trade down to cheaper toilet paper and kitchen rolls, then its sales could rise. And with Accrol being significantly hedged against currency movements for the current financial year, its medium-term outlook remains bright.

On this topic, Accrol is on track to meet current guidance for the full-year and although it’s a small and relatively risky stock to own, it could prove to be a somewhat resilient buy over the medium-to-long term.

Irish move

Meanwhile, real estate investment trust (REIT) Hammerson (LSE: HMSO) has today announced that it has successfully secured the ownership of Dundrum Town Centre, which is a shopping and leisure destination in Ireland. The deal has been undertaken in a joint venture with Allianz Real Estate, with Hammerson’s total consideration for its share of the portfolio being just over £1bn.

The acquisition is in line with Hammerson’s strategy of investing in high-growth European retail markets and it will be accretive to the current year’s earnings. As such, it has been viewed as a positive move by the market, with Hammerson’s share price rising by 3% today.

However, the property market in the UK and Ireland could come under pressure in the coming months. The two economies are closely linked and if the UK experiences a recession then Ireland may also undergo a period of difficulty. Therefore, with Hammerson trading on a price-to-earnings (P/E) ratio of 17.5, there may be better options available elsewhere for long-term investors.

The post Are Aveva Group plc, Accrol Group Holdings plc and Hammerson plc ‘buys’ after today’s updates? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.