This ‘hidden’ growth stock looks a better buy than Interserve plc

Harvey Jones — Mon, 30 Oct 2017 13:54:27 +0000

Falling knife Interserve (LSE: IRV) continues to tempt and taunt investors in equal measure, with its share price now trading 78% lower than it did one year ago. There are reasons to be excited by its potential rebound prospects, and appalled by the mess it has got itself into.

Artilium attack

Could this under-the-radar stock be a better option for risk seekers? You may never have heard of telecommunication software micro-cap Artilium (LSE: ARTA), which has a market cap of just £32.5m, but it was a big deal before the financial crisis. In October 2007 its stock traded at 348p, today, incredibly, you can buy it for 10p, up from 8p just three weeks ago.

This morning Artilium announced results for year ended 30 June which included revenue growth of 8.6%, from €9.6m to €10.5m, with adjusted EBITDA rising 21.7%, from €310,000 to €380,000. The group is a Mobile Virtual Network Enabler (MVNE) whose cloud platform provides customers with a fully branded mobile offering complete with sim cards and control panel. It also reported new business customer wins amid expansion of its portfolio of services.

Software, hard choices

Artilium recently opened its first office in Germany where it tells of strong demand for its fixed line mobile and data telecom based software. Non-executive chairman Jan Paul Menke hailed significant operational and technological progress: “We accelerated revenue growth, kept costs under control and strengthened our leading position in innovative telecom software solutions.”

The group focuses on innovative cloud based telecom software used by data centres, telecom operators and corporates, and anticipates further revenue and EBITDA growth in the year ahead, with a growing order book. Its share price is little moved by today’s report. I can understand why. This company has a long way to go and given the risks inherent in this sector, investors need something more jazzy to tempt them to take the plunge.

In which we serve

Interserve, by comparison, catches the eye, if only for its headline yield of 10.91%. Do not be misled, the forecast yield is 0%. Both figures reveal a company in severe difficulties, with yet another shock profit warning earlier this month adding to its woes. The international support services and construction company had previously issued two profit warnings this year, in February and September, and warned investors that it is in danger of breaching its banking covenants.

Interserve is a mess but blowhards will be tempted by its lowly valuation of just 1.18 times earnings. They will be further emboldened by news that it has just won a £140m contract to continue providing facilities services across the BBC’s UK estate until 2023. The contract covers 150 sites including Media City UK in Salford, Broadcasting House in Portland Place, London, and Pacific Quay in Glasgow.

Debt fears

However, with a current market cap of £108m and anticipated average net debt for 2017 of between £475m and £500m, the numbers do not add up for me. Despite a promising £7.4bn order book, I fear further bad news could punish bargain seekers.

The post This ‘hidden’ growth stock looks a better buy than Interserve plc appeared first on The Twelfth Magpie.

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Harvey Jones 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.

Are Rolls-Royce Holding PLC, Chemring Group plc And Artilium plc About To Post 25% Gains?

Peter Stephens — Thu, 11 Feb 2016 08:40:10 +0000

It’s been an incredibly challenging year for investors in defence company Chemring (LSE: CHG). That’s because its profitability has come under severe pressure, while its share price has slumped by over 40%.

Although its profit for 2015 was in line with expectations, those expectations had been significantly lowered in October due in part to several key export orders in the sensors and electronics segment taking longer to materialise than had been anticipated. Furthermore, Chemring’s energetic systems segment was hurt by a contract termination in the final quarter of the year, as well as delays to a key order for 40mm ammunition.

However, things could be about to improve for Chemring. It’s in the process of conducting a rights issue and this should help to shore-up its financial standing, thereby allowing it to progress with its strategy. Although slow recovery in the global defence market is expected in 2016, the US economy continues to improve and defence spending is likely to stabilise over the medium term. With the US being the biggest military spender in the world by far, this bodes well for Chemring.

With the company trading on a forward price-to-earnings (P/E) ratio of just nine, it offers substantial upward rerating potential. While it may prove to be volatile, a share price rise of 25% is very much on the cards over the medium term.

Too expensive for now?

Also struggling to deliver improved returns is Rolls-Royce (LSE: RR). Its shares have been hurt by a handful of profit warnings within the last couple of years and looking ahead, it would be of little surprise for Rolls Royce’s share price to come under further pressure following its fall of 44% in the last year. That’s because Rolls-Royce is forecast to report a decline of 43% in its earnings in 2016, which is likely to cause investor sentiment to worsen.

Unlike Chemring, Rolls-Royce still trades on a premium valuation, with its shares having a forward P/E ratio of 17.2. This seems to hugely overvalue the company and its near-term prospects, even though it has a highly capable management team that’s likely to turn around its performance in the long run. However, implementing a major restructuring will take time and generating efficiencies could be more challenging than the market anticipates. As such, it may be wise to await a much lower share price before buying Rolls-Royce.

Slow progress

Meanwhile, shares in Artilium (LSE: ARTA) have also disappointed in recent months, with the telecoms software and solutions company recording a decline of 18% in the last six months alone. This includes a fall of 2% following a rather disappointing update released today. It shows that the company, while making progress, is doing so at a slower-than-expected rate.

In fact, delays in the implementation of a number of projects caused revenue for the six months to 31 December 2015 to be around €4.3m, with sales for the full year expected to come in at between €10m and €11m.

While disappointing, Artilium continues to make steady progress with regards to its order book. Furthermore, it believes that there are additional opportunities within the machine-to-machine market from which it can expect further growth. However, due to the delays, it may be a stock to watch rather than buy at the present time.

The post Are Rolls-Royce Holding PLC, Chemring Group plc And Artilium plc About To Post 25% Gains? appeared first on The Twelfth Magpie.