However, since September of last year, investors have started to cool on the company. After reaching a high of nearly 3,800p, the stock has since slumped to 1,758p. 

Slowing growth

Investors have been selling the stock as the City has downgraded its growth forecasts for the business. Analysts are now expecting earnings growth for the full year of just 7%, a significant drop from the 100%+ growth rates Fevertree has been able to achieve in the past. 

But I think this could be an excellent opportunity to snap up shares in the business at a relatively attractive valuation. 

Historically, the market has been willing to pay around 50 times earnings for shares in Fevertree. At the time of writing, the stock is trading at a forward earnings multiple of 30, falling to 27 next year based on current City estimates. That’s not too cheap, but it’s not too expensive either.

For example, shares in the US drinks giant Coca-Cola are dealing at a forward P/E of 25. Fevertree has higher profit margins and a stronger balance sheet than Coke. In my opinion, that goes some way to justifying the high multiple.  

Recovery under way

If you’re not interested in Fevertree, Aggreko (LSE: AGK) offers a global growth platform at a lower price. 

The company provides power generators around the world, and business has been mixed over the past five years. Earnings per share have declined by around 40% since 2013. 

Nevertheless, the business is expected to return to growth in 2019. City analysts have pencilled in earnings growth of 7% for the year, marking the first improvement since 2016. According to a trading update published by Aggreko today, the company is on track to hit this target. 

Analysts are forecasting earnings growth of 26%, which puts the stock on a 2020 P/E of 12.5. For a company that has demanded a multiple of as much as 20 times earnings in the past, this looks too cheap to pass up.

On top of the discount valuation, shares in Aggreko also support a dividend yield of 3.4%. The distribution is covered 1.8 times by earnings per share, so investors will be paid to wait, even if the company’s turnaround takes longer than expected. 

Cash cow

The final company I would buy with £3,000 today is homebuilder Berkeley Group (LSE: BKG). The UK’s housing market is booming, and a structural undersupply of properties across the country suggests homebuilders will be kept busy for years to come.

Berkeley predominately builds luxury property in London and the south east, so it’s not exposed to the same kind political risks as its peers that have leaned heavily on the government’s Help to Buy scheme in recent years. In its financial year to the end of April 2019, Berkeley built 3,698 new homes at an average selling price of £748,000.

What I like about it is its cash generation. At the end of its 2019 financial year, the group had nearly £1bn of cash on the balance sheet. A large percentage of this total is earmarked to be returned to investors.

The stock currently supports a dividend yield of 4.4% and the current level of cash on the balance sheet is enough to support this dividend for up to four years, according to my calculations. 

The post How should I invest £3k? The 3 shares I’d buy today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

Indeed, from early 2009, the share price shot up by more than 500% over the following three-and-a-half years with business boosted by events such as the 2012 London Olympics. But the share price began a long decline from its peak at the end of summer that year and is now around 65% lower. By early 2016, the outlook statements had dropped their bullish tone and the company seemed braced for softer trading ahead.

Slipping earnings

The financial record over the past five years shows earnings generally falling annually and the dividend has been essentially flat. But the operational and share-price slide could have run its course. City analysts following the firm have pencilled in earnings rises for the current year and for 2020. The share-price chart shows something of a consolidation, suggesting the lows might be in. And one popular share research website has labelled Aggreko as a Super Stock because of its strong showing against value, quality and momentum indicators.

Meanwhile, the valuation isn’t as racy as it was in the days of vibrant trading I described earlier. With the share price close to 829p, the forward-looking price-to-earnings ratio for the current year is around 16 and the anticipated dividend yield about 3.3%.

However, I’m concerned by the way Aggreko struggled to maintain its earnings over the last few years. The company has revealed its vulnerability to market cycles, and if we see a general macroeconomic slump, I reckon earnings could fall off a cliff, taking the dividend and the share price down too.

What makes this company special?

To me, it’s not worth investing in any individual company share unless I believe the stock has the potential to outperform the general stock market. I’m uncertain about Aggreko’s ability to do that so I’m avoiding the shares. In this case, I’d rather look at other shares or invest in a low-cost, passive index tracker fund that follows the fortunes of the market.

There are many choices with trackers. Perhaps I’d go for the HSBC FTSE 250 Index Class S – Accumulation, tracking the FTSE 250 index of which Aggreko is a constituent. Or I could look at the Legal & General UK Index Class C – Accumulation, which follows the FTSE 350 index and comprises the shares in the FTSE 250 index and those in the FTSE 100 index of larger companies. Or maybe I’d track the UK’s largest public limited companies with the Legal & General UK 100 Index Trust Class C – Accumulation.

You’ll notice that all three of the tracker funds I’ve mentioned are the accumulation version rather than the income version. Accumulation trackers automatically reinvest the dividends back into your investment, which sets you on the path to compounding your money.

The post Why I’d ignore this FTSE 250 ‘super stock’ and what I’d buy instead appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share 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.

A costly settlement

Aerospace group Cobham (LSE: COB) has been under a cloud since July when it revealed US customer Boeing was claiming damages relating to their KC-46 air-to-air refuelling tanker programme.

Cobham initially pencilled in a £40m charge relating to these problems, but today announced a further £160m of expected costs to achieve a final settlement. This is made up of an £86m payment to Boeing and £74m of extra costs to complete the programme.

Although this settlement is bigger than expected, Cobham shares edged higher today as investors welcomed the certainty it provides. The company can now move on and focus on its return to growth.

+30% in 2019?

Cobham’s settlement with Boeing will make a hole in the firm’s 2018 results. But with that bad news behind it, the picture looks much brighter for 2019.

City analysts’ forecasts suggest that if we ignore one-off costs like the Boeing settlement, Cobham’s earnings will rise by 30% in 2019. They’re also forecasting a return to dividend payments this year, although there’s a risk that today’s news could delay that decision.

Barring any other surprises, I think Cobham could deliver steady growth over the next few years. Although the shares don’t look cheap on 18 times 2019 forecast earnings, this ratio could fall rapidly if profit margins continue to improve. I rate the shares as a hold.

Power up for growth

Temporary power solutions provider Aggreko (LSE: AGK) makes money from renting out large generators to event operators, remote engineering sites and utility operators. It recently signed a deal to provide power for the 2020 Tokyo Olympics, for example.

The company’s growth ground to a halt back in 2012, since when the shares have fallen by nearly 70%. But this is still a large and profitable business, and City forecasts suggest profits may finally start rising again in 2019. As I’ll explain, I think the firm’s shares are starting to look too cheap to ignore.

A tempting valuation

I’ve been watching Aggreko for a while and am increasingly tempted to buy some for my own portfolio. During the first nine months of last year, underlying revenue rose by 11%. This figure strips out the impact of exchange rates and fuel costs that are passed on directly to customers, so it’s a useful guide to growth.

The last remaining drag on the business is the group’s Utility division, where hire demand is falling. However, this should be manageable and will reduce the group’s exposure to high-risk countries such as Zimbabwe and Argentina.

Chief executive Chris Weston expects pre-tax profit to be flat in 2018. City analysts reckon that this performance is likely to be followed by a 5% increase in earnings in 2019.

The shares currently trade on 14 times 2019 forecast earnings and offer a 3.8% yield. If Weston can return the business to growth this year, then I think the shares could perform well from this level.

The post £5k to invest? This FTSE 250 dividend stock is on my buy list today appeared first on The Twelfth Magpie.

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Roland Head 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.

My research has identified three FTSE 250 dividend stocks that could be of interest. I reckon this trio could deliver a market-beating mix of income and growth over the coming years.

A global view

Recruitment firm PageGroup (LSE: PAGE) may have its roots in the UK, but today it’s a truly global business. That means the group’s exposure to local risks, such as Brexit, should be limited.

Trading figures released today suggest to me that this approach is still working well. During the final quarter of 2018, gross profit rose by 15.4% compared to the same period a year earlier.

Highlights included a 22% rise in Asia Pacific and a 32% increase in the USA. Even the UK managed a 2.1% gain, despite Brexit uncertainty dampening hiring activity.

Despite this solid performance, the shares are down 5% at the time of writing. One reason for this is probably that today’s figures are in line with existing market forecasts. So there’s no surprise reason for short-term traders to push up the share price.

However, for Foolish long-term investors, I think this diversified recruiter could be worth a look. PageGroup ended the year with net cash of nearly £100m, and offers a forecast dividend yield of 5%. I’d buy.

This compares very well

One of my favourite technology stocks is price comparison website Moneysupermarket.com Group (LSE: MONY). I like it because it’s very profitable, with an operating margin of 30%. Capital expenditure is also limited, because the only thing the firm has to pay for is marketing and software development.

These qualities mean that Moneysupermarket generates a lot of surplus cash. This has enabled management to increase the dividend by an average of 12.6% per year since 2012. This has provided shareholders with an income that’s risen much faster than inflation or wages.

One potential concern is that this business is now fairly mature, with limited growth potential. This may be true, but I don’t think investors should rule out future growth. The company is currently investing in its next generation of comparison services, which are said to include automated switching and mortgage comparison.

Even without these new offerings, the group still managed to generate 6% revenue growth during the first nine months of 2018.

With new products and services on the way, I think the future looks promising. In the meantime, the shares offer a well-supported yield of 3.7% and remain on my buy list.

A recovery buy

For shareholders in temporary power generation group Aggreko (LSE: AGK), the last six years have been tough. The group’s share price has fallen by 65% from its all-time highs of 2,300p+ in September 2012.

However, the group’s underlying revenue rose by 11% during the first nine months of 2018 and Aggreko has reported a number of new contract wins recently. Broker forecasts suggest profits could rise by 7% in 2019.

I see this as a good long-term business that’s large enough to adapt to changing market conditions. The shares look affordable to me, on 14.5 times 2019 forecast earnings, and with a 3.6% dividend yield. Now could be a good time to buy, before the market wakes up to this long-awaited turnaround.

The post Have £3k to invest? 3 FTSE 250 dividend stocks I’d buy and hold for 10 years appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com. 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.

I think both firms are doing well, but there’s only one that I’d consider buying for my own portfolio. Let me explain why.

I’m impressed by these numbers

Balfour Beatty (LSE: BBY) is a name you’re probably familiar with. The company is involved in large construction projects all over the UK. Shareholders may also remember how the firm’s share price halved in 2014 when the business ran into financial problems.

That’s all in the past now. Under turnaround boss Leo Quinn, the group has dealt with problem contracts, repaid a lot of its debt, and is now winning new work on much better terms. On Friday, Quinn said that he expected the firm to achieve its goal of “industry standard” profit margins for the second half of 2018.

Balfour’s profit margins and cash generation have certainly improved. Average monthly net cash is expected to be £185m this year, ahead of previous forecasts. And the group’s underlying operating margin was 2.7% over the 12 months to 30 June, compared to 2% during calendar 2017.

Buy or avoid?

I’m impressed by Balfour Beatty’s transformation. But I think it’s worth remembering that profit margins in the construction industry are fairly low, even at the best of times.

I’m not convinced this is the best of times. In recent weeks, several UK-listed construction firms have said that banks are restricting new lending to this sector. That’s a bearish sign for the construction industry, in my view.

Balfour shares are trading on about 13 times 2018 forecast profits, at the time of writing. Although earnings are expected to rise by about 15% next year, I think the stock looks fully priced at the moment. I won’t be buying Balfour Beatty for my portfolio.

Powering up for growth

One industrial firm I would like to own is temporary power provider Aggreko (LSE: AGK). Like Balfour Beatty, this firm went through a difficult patch a few years ago. The Aggreko share price has yet to recover and remains nearly 60% lower than it was five years ago.

However, I think the outlook is starting to improve. The firm said today it had won a $200m contract to provide power at the 2020 Tokyo Olympic Games. This represents about 11% of annual revenue, based on recent results, so it’s a pretty valuable win.

Getting more profitable

Chief executive Chris Weston expects that the Olympics deal will help Aggreko to meet its target of generating a “mid-teens” return on capital employed by 2020. This measure of profitability compares profits with cash invested in the business, so it’s a useful guide for an equipment hire company.

My calculations show that the firm’s ROCE over the last 12 months was 11%, excluding certain one-off costs. That’s a solid figure, but if Weston can improve it further then I think earnings could rise significantly.

Aggreko shares currently trade on a forecast P/E of 14.4, with a dividend yield of 3.8%. I believe the group’s improving profitability and global footprint could make this a good level to buy. I’ve added the shares to my own watch list.

The post Have £2k to invest? One FTSE 250 dividend stock I’d buy, and one I’d avoid appeared first on The Twelfth Magpie.

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Roland Head 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.

The broader market has sought to disagree, however, and the FTSE 250 firm’s share price has plummeted in the wake of the third-quarter update. It’s now trading at its cheapest for four months.

Much of this summer’s gains may have been wiped out, but I’m not worried. Indeed, I believe Aggreko’s subsequent forward P/E ratio of 15.1 times, in line with the widely-accepted value benchmark of 15 times (or below), makes it a hot buy right now.

Sales surging

In that aforementioned market update, the business — which rents out power generation equipment for a broad range of sectors, from agriculture and energy to shipping and telecoms — declared that underlying revenues galloped 11% higher in the nine months to September.

Growth may have slowed in recent months (comparable sales were up 14% in the first half of 2018), but this result is still not to be sniffed at. That broad operational base protects it from weakness in one or two areas, as does its broad geographic footprint.

Indeed, at its Rental Solutions arm, a division worth more than half of group revenues, underlying turnover soared 26% year-on-year from January to September thanks to soaring sales in North America (up 32%), as well as solid growth in Europe.

Those hoping that Aggreko can break out of its long-running cycle of earnings dips in 2018 are set to be disappointed, or so say City analysts who are forecasting an 8% drop. They are, though, predicting that it will bounce in 2019 with a 6% profits improvement.

And with the profits picture brightening, the number crunchers feel that Aggreko will have the confidence to start lifting dividends again. Last year’s 27.12p per share dividend is expected to rise to 27.5p in 2018 and again to 28p in 2019, figures that yield a chubby 3.7% and 3.8% respectively.

Even bigger yields!

Vesuvius (LSE: VSVS) is another FTSE 250 share offering inflation-busting dividend yields that I’d be happy to buy for 2019 and beyond.

Unlike Aggreko, though, Vesuvius, which manufactures equipment used in the steel and foundry industries, has had no problems lifting dividends in recent times. And thanks to City predictions of further bottom-line growth — earnings rises of 18% for 2018 and 8% for 2019 are currently predicted — shareholder payouts are tipped to keep swelling too.

A 19.5p per share reward is predicted for this year, up from 18p in 2017 and yielding 3.8%. Next year a 20.5p dividend is anticipated, nudging the yield to a tremendous 4%. And I’m tipping payouts to keep striding on along with profits as global steel demand goes from strength to strength.

Right now, Vesuvius trades on a prospective P/E ratio of 10.8 times. This provides a brilliant base for its share price to spring higher in the near-term and beyond, whilst those bulky dividend yields provide a great little bonus. I reckon the engineer is a hot buy today.

The post 2 FTSE 250 dividend stocks I’d buy for 2019 and beyond appeared first on The Twelfth Magpie.

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Royston Wild 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.

However, shareholders who’ve been sitting on their holdings for the past 15 years have seen a total annualised return of 14%. That’s nearly double the market average.

And after several years of floundering, I believe there’s a strong chance Aggreko’s performance could be about to pick up again.

Balancing the books

Around 50% of Aggreko’s revenue comes from its Rental Solutions business, which provides long-term services to industrial and utility customers around the world. The oil and gas industry is a crucial customer for this division, and as activity in this industry has picked up over the past 12 months, revenues have started expanding again.

According to a trading update published by the company today, Rental Solutions “underlying revenue increased 26% on the prior year, and 24% excluding hurricane-related work in North America.” As this is the largest division, the expansion is having a disproportionate impact on overall group sales. Underlying revenue for the nine months ending 30 September is on track to grow 11%.

Unfortunately, foreign currency headwinds and rising fuel costs mean Aggreko’s profit before tax will remain at 2017’s level in 2018. Still, for a company that has registered five consecutive years of year-on-year declines in net profit, this is a big positive. 

In fact, this turnaround indicates to me that Aggreko is finally on the verge of a comeback. Double-digit revenue growth is a huge positive for the group and puts the business on track to return to growth in 2019, as City figures currently suggest (analysts have pencilled in earnings per share (EPS) growth of 7% for next year).

Dividend potential 

A return to growth also bodes well for the company’s dividend potential. One of Aggreko’s best qualities is its dividend credentials. 

Even though earnings have slumped over the past five years as demand for temporary power solutions from the oil and gas sector has evaporated, management has maintained the group’s distribution to investors. It’s been able to do this because the payout has always been set at a conservative level. Indeed, dividend cover only recently dropped to 1.5 times EPS. 

As earnings recover, forecasts suggest cover will move back to 2 times earnings. This extra headroom will give management the financial flexibility to restart payout growth. And when Aggreko’s dividend starts to grow again, I think the stock could take off. 

A sign to investors 

By announcing the first dividend increase for many years, management will send a strong signal to the market that it believes the company’s turnaround is complete, and I think this will be enough to convince investors to return. 

So overall, as Aggreko’s turnaround nears its end, I think time could be running out for investors to buy the shares and profit from the recovery.

The post Have £1,000 to invest? Here’s why I think this FTSE 250 dividend stock could be about to take off appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
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Rupert Hargreaves owns no share 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.

Today I’m going to look at two stocks which I believe could deliver market-beating gains over the coming years — potentially helping you to achieve seven-figure stock market wealth.

Powering up

The first company I want to look at is temporary power solutions provider Aggreko (LSE: AGK). This FTSE 250 stock has been out of favour since 2012, but now appears to be poised to return to growth.

The company’s business is split into two divisions. Rental Solutions provides short-term power, cooling and heating for short-term projects in developed markets. Examples include sporting fixtures and providing power following natural disasters, such as hurricanes.

The Power Solutions division focuses on providing long-term services to industrial and utility customers in emerging markets. Typical examples include remote mining and oil production sites. Increasing levels of activity in the mining and oil sectors are likely to be a positive for Aggreko.

Returning to growth

The group’s half-year results showed a 10% rise in revenue. Underlying operating profit rose by 8% to £76m and the average number of megawatts on hire rose slightly to 6,560MW.

Although the group’s earnings are still expected to fall by 9% this year, Aggreko is expected to report profit growth in 2019. Analysts are forecasting a 7% rise in earnings next year, accompanied by a modest dividend increase.

The stock’s forecast P/E of 17 and 3.1% yield may seem pretty average, but I think 2018 is likely to mark a turning point, after which profits should recover. For this reason, I believe the shares could be worth buying at current levels.

Homing in on big events

My second company is also involved in providing temporary facilities for big events. Arena Events Group (LSE: ARE) builds large temporary structures for major events. Examples include grandstands, marquees, seating and ice rinks.

Over the last year, the firm has worked at events including the Royal Wedding, Wimbledon and the Cheltenham Festival, where Arena built “the largest ever temporary structure”.

It doesn’t just operate in the UK. It’s also involved in events in Europe, North America and the Middle East. To speed up expansion, it’s hoovering up smaller rivals. So far this year management has made five acquisitions, including two overseas.

Risk vs opportunity

Companies that expand rapidly through acquisition can sometimes run into problems. But well-executed deals to acquire much smaller companies can often work well.

One thing that concerns me is that Arena only floated in July 2017. Since then, the company has already raised a further £19m by selling new shares, and increased its net borrowings to £17m. This suggests to me that the business is expanding very fast, or that it doesn’t generate much free cash flow.

Despite this concern, progress so far seems reasonable. Revenue rose by 23% to £54.9m during the first half of this year, while adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 52% to £3.5m.

However, rising costs hit the group’s half-year operating profit, which I estimate at just £0.8m on an underlying basis. That gives an operating margin of just 1.5%, which is a little slim for my liking.

The shares look reasonably valued on 15 times 2018 forecast earnings, with a 2.8% yield. This could be a good growth buy, but I’d like to see a longer track record before making a decision.

The post Two dividend-growth stocks that could help you retire with £1 million appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head 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.

The business is also held in high regard for its tech, which has undoubtedly been a critical factor in its growth. Indeed, earlier in the year, one group of City analysts praised the company for “unique physical auction and data platform.“

However, despite BCA’s “unique” operating structure, I reckon the firm’s growth has run its course. With this in mind, today I’m looking at a company that could be an excellent replacement for BCA in your portfolio.

Overvalued

At its core, BCA is fundamentally a used car retailer. While the company’s tech experience gives it an edge, it’s fortune ultimately depends on the state of the second-hand car market.

With this being the case, it seems odd to me that shares in BCA are currently changing hands for 18 times forward earnings. Peers Pendragon, Lookers and Marshall Motor Holdings trade at an average multiple of just 7!

It would appear the company’s “unique” data platform is the reason why investors are happy to pay such a hefty premium to be a part of the BCA growth story. City analysts are expecting the firm to report an earnings per share (EPS) increase of 67% this year, after growth of 51% last year. It’s hard to deny that this rate of expansion is impressive, but even after adjusting for growth, the shares look expensive. They trade at a PEG ratio of 2.

Put simply, BCA’s lofty valuation leads me to conclude that investors should stay away. If your’e looking for a replacement in your portfolio, I reckon Aggreko (LSE: AGK) could be worth spending some of your research time on.

Recovery gaining traction 

The past few years have been tough for this power solutions business. Falling oil prices, coupled with the end of lucrative long-term supply contracts, almost crippled the company. 

After hitting a peak of 109p in 2012, EPS have since slumped to 57p (fiscal 2017) thanks to rising costs. Over this period, profit margins have been cut roughly in half.

It now looks as if some stability has returned. During the first half of the year, pre-tax profit increased 8%, smashing City expectations. Revenue for the period rose 10%, putting the firm well on the way to achieving its full-year growth targets.

Both the City and management believe this is just the start of Aggreko’s turnaround. CEO Chris Weston thinks the group can achieve a return on capital employed (ROCE), a measure of profitability for every £1 invested in the business, in the mid-teens in 2020. ROCE was 11% during the first half of the year.

Unfortunately, after so many years of disappointment, analysts remain sceptical. The City is expecting no earnings growth over the next two years. Based on the company’s first-half numbers, I think this is a mistake. If Aggreko can prove its first-half figures were no fluke, I reckon the stock could undergo a substantial re-rating. Now could be the time to buy before the rest of the market catches on.

The post One FTSE 250 stock I’d sell and one I’d buy today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Pendragon. 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.

Interserve employs more than 25,000 people in the UK, where it manages the Ministry of Defence’s estate and is involved in healthcare and probation services. Yesterday’s deal appears to provide additional borrowing capacity for the group, along with extended repayment deadlines.

This looks promising

The Reading-based firm has agreed an extra £291.6m of borrowing facilities. These won’t mature until September 2021. Most of the group’s existing debt will also be restructured so that it isn’t due for repayment until that date.

If the deal is approved, it will provide the company with total cash borrowing facilities of £834m,, subject to certain “step-downs” during that period. This compares to expected net debt of £513m at the end of 2017.

The group’s lenders will also be able to subscribe for new shares at 10p per share which, if taken up, will give them a 20% stake in the firm.

Although this deal suggests those lenders are keen to support a turnaround, yesterday’s statement didn’t include an update on current debt levels. This means that we don’t know how much of these new borrowing facilities will already be used up when they’re approved.

Nor do we know the full costs of this refinancing. Interserve said that pricing on existing debt has been renegotiated but didn’t specify the new interest rates. All we know is that interest payments in 2018 are expected to total £56m, of which £34m will be cash.

My view

Interserve hopes to reduce debt by cutting costs and selling parts of its business. But I think there’s still a risk that shareholders will be asked to provide extra cash.

If I was one of them, I’d probably hold on after Wednesday’s news. But I wouldn’t buy any more shares at this time.

Although the forecast P/E of 3 may seem tempting, it’s actually a reflection of the group’s high debt levels and distressed state. And while the firm’s lenders will probably make a profit from this situation, shareholders might not.

A 65% faller I’d buy

You might not think of temporary power provider Aggreko (LSE: AGK) as an outsourcing firm. But its business enables customers to outsource the supply of electricity by simply telling Aggreko what they need and paying the firm to provide it.

This business has suffered from weaker demand and bad debts over the last five years, during which the shares have lost 65% of their value. However, I believe conditions could soon start to improve.

Emerging market economies and the oil, gas and mining sectors all appear to be gaining strength. At some point I think this should generate additional demand for temporary power.

In the meantime, Aggreko’s performance seems to have stabilised. The recent 2017 results showed revenue rose by 4% to £1,730m last year. Excluding the impact of problematic legacy contracts in Argentina, revenue was 9% higher, with operating profit up 13%.

Debt looks comfortable to me and cash generation improved last year. The unchanged dividend of 27.1p was covered by free cash flow, excluding acquisitions.

Analysts expect earnings to be largely flat in 2018. With the shares trading on a forecast P/E of 13 and offering a 4% yield, I believe Aggreko could be a profitable turnaround buy.

The post Should you buy as Interserve share price rises 35%? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head 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.