Furthermore, a forecast dividend of 7.65p (covered a robust 2.8 times by forecast EPS) gives a juicy prospective yield of 4.6%. And, just for good measure, this £59m cap company has a strong balance sheet, having reported a net cash position of £6.1m at its last financial year-end of 30 June.

Dependent on H2 to meet expectations

Alumasc provides premium products and systems in high-growth niches in its principal market of UK construction. It’s also building export sales. These jumped to 17% of last year’s group revenue of £105m from 9% of £92m the year before.

The company today advised that against a background of relatively flat demand in the UK construction market, its like-for-like domestic revenues increased by 4% year to date. However, it also said that export sales “are lower than the prior year.“ It didn’t put a number on the decrease but said it reflected, “the later phasing of larger projects.”

Indeed, this was a theme in a number of areas of business across the group and we were told “financial performance is expected to have a greater weighting towards the second half than was the case last year.” The H1/H2 profit weighting was 45%/55% last year, so the current-year outturn is going to be very dependent indeed on a strong second half. In such situations, the risk of a profit warning is heightened.

Alumasc appears to be well managed and I like its focus on specialist segments and its international ambitions. Nevertheless, there’s no getting away from its exposure to the cyclical construction market and there are recent signs this is weakening in the UK. I will await the company’s second-half performance with interest, but I’m minded to avoid it right now.

Confident outlook

I’m rather more confident on the outlook for specialist staffing group Empresaria (LSE: EMR). Its shares are trading at 127p, as I’m writing, valuing it at £62m. A current-year EPS forecast of 13.9p puts the company on a P/E of 9.1 and this falls to 8.5 for 2018 on expectations of a rise in EPS to 15p. Dividend forecasts of 1.3p and 1.45p give yields of not much more than 1%, but with these payouts covered more than 10 times by forecast EPS, there is plenty of scope for substantial increases in coming years.

Of course, like the construction market, recruitment is also cyclical. However, Empresaria is nicely diversified by both sector and geography. Seven key sectors range from aviation services to healthcare, while the group operates in 20 countries around the world. The breakdown of last year’s £270m revenue was Continental Europe 34%, Asia Pacific 29%, UK 26% and Americas 11%.

The company is seeing good growth opportunities within its existing businesses and from potential complementary acquisitions. It said in its half-year results to 30 June that it’s “confident” of meeting full-year market expectations. As such, I rate the shares a ‘buy’.

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G A Chester 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.

Sixth year of growth

The Kettering-based group supplies the UK construction market with a wide range of products and services, including solar shading & architectural screening, roofing & walling, water management, and housebuilding & ancillary products. All of the group’s businesses enjoy strong positions and brands in their individual specialist markets, with 80% of sales driven by building regulations and specifications due to the performance characteristics offered.

For the financial year to June, the group delivered a 14% increase in revenues to £104.8m, reflecting strong export sales growth as well as continued growth in the domestic market. Here in the UK, revenues grew by 4%, comparing very favourably to the overall construction market growth rate of just 1.8%. Group earnings advanced for the sixth consecutive year, with underlying profit before tax up by 9% to £9m, compared to £8.3m for FY2016.

Squeeze on margins

It wasn’t all plain sailing, however. The combination of weaker sterling and a recovery in certain commodity prices raised costs for many of its products, which in turn impacted on margins, particularly for work already in the pipeline. While able to respond to these cost increases to various degrees, particularly with regard to future work, there was an inevitable squeeze on margins in the earlier part of the year.

But despite the relatively high level of political and economic uncertainty at the present time, I’m still optimistic about Alumasc’s future. Its chosen businesses have strong strategic positions in specialised market segments capable of growing faster than the overall construction market. Alumasc’s shares not only look grossly undervalued trading at just eight times forecast earnings, but also come with a nice little bonus yield of 4.5%.

Another strong performance

Small-cap engineering group Costain (LSE: COST) is another London-listed firm whose shares can be picked up for less than a fiver each. The business deploys technology-based engineering solutions to meet urgent national needs across the UK’s energy, water, and transportation infrastructures.

Interim results announced last month revealed another strong performance in the first half of the year, with 34% growth in underlying operating profit to £21.2m and a 10% interim dividend increase. Total group revenues (including share of joint ventures and associates) increased to £874.5 from £791.4m in the previous year, with underlying pre-tax profits up 30% to £18.3m.

Smart infrastructure solutions

Costain is transforming rapidly to become the UK’s leading smart infrastructure solutions company. Underpinned by legislation and regulation, the group is providing the technology-based solutions demanded by its clients who are spending billions of pounds to meet the UK’s ever more complex infrastructure needs.

The shares are up by a third in the last 12 months, and currently trade on a fairly modest P/E rating of 13 for the year to December.

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Bilaal Mohamed has no position in any 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.

Could this small cap, which provides premium products and often bespoke solutions in high-growth niches, be a more resilient performer through construction and housebuilding cycles than general housebuilder and FTSE 100 giant Persimmon (LSE: PSN)?

Lucrative growth

Despite Alumasc’s impressive 17% rise in revenue, up to £50.7m from £43.5m in H1 last year, the increased cost of imported materials following the depreciation of sterling over the last six months impacted on margins. Underlying pre-tax profit increased just 2%, rising to £4.1m from £4.0m.

However, management said selling-price increases and operational gearing, driven by strong growth in revenues, will see stronger margins in H2.

I like Alumasc’s collection of businesses. In particular, Levolux, its solar shading and screening business, is growing fast. It achieved revenue growth of 46% to £11.1m. Notably, this business is experiencing strong demand in North America, which looks set be a lucrative market for the future.

Levolux accounts for the majority of Alumasc’s total order book which currently stands at £27.6m. And with most of these projects due to complete before the financial year-end, the Board said its  expectations for the full-year remain on track.

Attractive valuation

The house broker’s forecast ahead of today’s results was for full-year revenue of £96.6m and earnings per share of 20p. The shares are currently trading at 172p, putting Alumasc on a highly attractive P/E of 8.6. While the company clearly isn’t immune to external forces, it appears to be well-managed and the low P/E provides a good margin of safety against any cyclical downturn in the wider markets to which the group is exposed.

With the company also offering a 4% dividend yield (covered almost three times by earnings) and having net cash on the balance sheet of £5.2m, the shares look very buyable to me at their current level.

Housebuilding

Alumasc’s housebuilding products business is its smallest. It posted revenue of £4.4m (up 8%) during the period and a 22% increase in operating profit at a margin of 15.8%.

The equivalent numbers for Footsie housebuilder Persimmon were even more impressive, demonstrating the benefits of its scale and efficiency. Revenue of £1.5bn was up 12%, while operating profit increased 30% at a margin of 23.8%.

Also attractively valued

Like Alumasc, Persimmon has net cash on its balance sheet (£913m at 31 December). Its P/E is a little higher than Alumasc’s, standing at 9.9 at a share price of 1,925p, but still provides some margin of safety. Furthermore, Persimmon offers a more generous dividend yield of 5.7%.

The company said in a trading update earlier this month that it remains “mindful of the risks associated with the uncertainty arising from the UK’s decision to leave the EU” but that fundamentals continue to be supportive for housebuilding and demand remains healthy.

On the strength of this, as well as the cheap P/E and generous dividend, I also rate blue-chip Persimmon as a ‘buy’.

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G A Chester 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.