At least BCA Marketplace (LSE: BCA) used to be in the fund. But Woodford is only publicly listing the top 10 holdings, as I write, while the fund is in lockdown. For all I know, BCA could have been tossed out in the restructuring.

Takeover bid

However on 20 June, the firm announced a potential takeover offer from TDR Capital LLP and the share price shot up around 23% on the news. Today, BCA confirmed it has reached agreement with TDR via its specially formed takeover company Bidco at an offer price of 243p in cash per share. The offer is “unanimously recommended” to shareholders by the BCA directors.

Well done to those holding the shares. The offer represents a premium of 29.5% to BCA’s “volume-weighted average price” for the month to 19 June, which was the day before the offer was first announced. Such a rise will be helpful to the Woodford portfolio if the fund still owns its BCA shares, and a glance at the share-price chart suggests there’s every chance that BCA was a winning investment overall for Woodford – hooray!

The firm operates as a used vehicle marketplace and owns the well-known brand WeBuyAnyCar. It’s a decent-looking business and the financial record is impressive. Over the past five years, revenue shot up around 540% with profits and cash flow moving up fast over the period from a position of losses early on. The firm underlined its gathering financial strength with the fast-rising dividend payments it made. Prior to the offer announcement, BCA was yielding around 5%.

What I’d do next

And there’s more good news in today’s full-year results report, which reveals revenue rose 24% compared to the year before and adjusted earnings per share moved just over 13% higher. The directors continued the rapid escalation of the dividend by pushing up the total payment for the year by almost 13%.

I always have mixed feelings when a decent, fast-growing company is taken out with an offer. On the one hand, shareholders get an instant realisation of value and a boost to their portfolios. But on the other hand, the company taking over the business walk away with all the ongoing longer-term growth potential of the enterprise.

But if I held BCA shares today, I’d be looking to sell now because there’s still a chance something might happen to thwart the deal going through, and the shares could fall back again.

So how do we find the next BCA? I think this offer shows other investors often see the attractions in companies that we see ourselves. In the case of BCA, we had a fast-growing company selling at a reasonable price and paying a generous dividend. I’d look for more like that.

I also think the outcome with BCA is a good endorsement for Neil Woodford’s value-seeking investment style, despite his recent challenges.

The post Neil Woodford got this one right. Here’s how to find more just like it 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.

Right now, institutional investors appear to think that there are better options elsewhere. But if a Brexit deal is settled, cash could start to flow into UK stocks again.

Today I’m going to look at two potential Brexit buys from the FTSE 250. Does either of these stocks deserve a home in my portfolio?

Still motoring ahead

The automotive sector has attracted a lot of attention ahead of Brexit. There are fears for UK car factories and worries that the new car market could be heading for a slump.

One company that is heavily exposed to this sector is auction group BCA Marketplace (LSE: BCA). This £1.8bn firm is no longer simply a collection of large sheds where auctions are held. It’s involved in buying, selling, financing, preparing and delivering more than a million cars each year.

The business seems to be working well at the moment. Sales rose by 22% to £1,429.7m during the first half of this year. Operating profit was 24% higher, at £50.6m. Shareholders will enjoy a 15% pay rise, as the interim dividend rises to 3p.

What could go wrong?

BCA clearly enjoys economies of scale over smaller rivals. The group also benefits from having a huge amount of market data at its disposal.

My concern is that from what I can see, all of its activities benefit from the same factors — strong used car sales, rising volumes and low interest rates. If the market goes into reverse, I suspect profits would fall sharply across all of the group’s activities.

There’s no sign of this happening just yet. But it may be worth noting that executive chairman Avril Palmer-Baunack sold £10.7m of shares in September, reducing her holding by about 35%.

BCA shares now trade on 18 times forecast earnings for the year ending 1 April 2019, with a 4.2% dividend yield. Although this could be a good entry level if growth can be maintained, I’d prefer a greater margin of safety. I won’t be buying at this level.

One I would buy

Consumer spending is also important in the property market, especially for companies such as kitchen supplier Howden Joinery Group (LSE: HWDN). Howden’s share price has failed to break any new ground since mid-2015, and is unchanged so far this year.

However, a trading statement earlier in November showed that revenue rose by 7.5% on a like-for-like basis between 17 June and 3 November. The company says this was due to higher sales volumes and that profit margins were in line with expectations.

I rate this highly

Howden’s locally-focused business model has made it unusually profitable. The company has generated a return on capital employed of 40% or more for at least the last six years. That means that for each £100 invested in the business, it’s generated an annual operating profit of £40. That’s very good indeed.

Earnings growth is expected to be around 7% this year and in 2019. The shares now trade on just 14 times earnings and offer a 2.6% yield. For such a profitable business, this seems cheap to me. Howdens remains on my buy list.

The post Have £2,000 to invest? Why I think these FTSE 250 dividend stocks could soar after Brexit 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 Howden Joinery Group. 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.

Expanding its existing footprint in North America, the AIM-quoted business announced that it was about to launch in Florida and more specifically the Tampa and Orlando designated market areas. Purplebricks, which provides an online platform for property sellers to advertise their homes, already operates in DMAs spanning from Los Angeles to New York, San Diego, Las Vegas, Sacramento, Fresno and Phoenix.

Announcing details of the launch group chief executive Michael Bruce commented that “we are encouraged by our progress in the US and excited about the potential in Florida, and we continue to identify new markets in the US where our value proposition can greatly benefit both consumers and agents.”

The investment community is becoming more and more sceptical over Purplebricks’ ability to continue disrupting the traditional estate agency market in the UK and further afield, however, with sentiment worsening as its expansion programme is eating significantly into its bottom line.

The City is expecting the property play to finally move into profit in the year to April 2020, but as geographic expansion lifts costs and conditions in its UK marketplace worsen, I reckon this prediction is looking a little optimistic right now.

Profits poised to reverse?

I would be very tempted to sell Purplebricks today given the possibility of more scary details emerging when it releases its six-month trading update on November 6.

And another share in the Woodford Income Focus Fund that I’d be happy to cut adrift today is BCA Marketplace (LSE: BCA).

The car auctions specialist advised earlier this month that “the year has started strongly,” and City brokers are expecting earnings at the FTSE 250 company to continue rising too — a 5% advance is currently forecast for the 12 months to March 2019.

But I’m concerned that analyst estimates could be subject to swingeing downgrades in the months ahead as the Brexit saga hobbles economic growth and thus consumer and business confidence in the UK. And worryingly, the market does not seem to be factoring in the high probability of such forecast reductions, as reflected by BCA’s slightly-high forward P/E ratio of 16.2 times.

Latest car sales data from the Society of Motor Manufacturers and Traders (SMMT) outlined the precarious outlook for the used vehicle segment, August’s recent report showing that 2.09m units were sold during the April-June quarter, down 0.4% year-on-year.

This annual drop may not have been shocking but, as the deadline to Britain’s planned exit from the European Union draws ever closer, I for one am expecting the decline to become much more pronounced. The SMMT itself is also expecting the used car market to remain in trouble, the body advising last month that “with used sales so closely reflecting the new car market, some cooling is expected over the coming months.” In my opinion holding BCA shares is a high-risk business today.

The post Purplebricks isn’t the only Neil Woodford share I’d sell today 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.

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.

In a recent article I took a look at two of the worst-performing FTSE 100 dividend shares so far in 2018, and considered whether or not they’re worthy of investment right now.

This time around I’ve scoured the FTSE 100 and FTSE 250 for shares that have been making headlines for all the right reasons. Here is what I’ve found.

Plastic fantastic

A stream of strong trading updates has allowed Victrex’s(LSE: VCT) share price to bulge in 2018, up 21% since the bells rang in New Year’s Day.

In its latest release in July, the FTSE 250 plastics manufacturer advised that group sales volumes in the nine months from last October were up 19% year-on-year, reflecting in part positive market conditions. Although sales are expected to cool in the fourth quarter Victrex remains positive that it can meet current projections.

Speaking of which, City analysts are forecasting a double-digit profits improvement in the 12 months to September, an estimate which supports predictions of a 124.9p per share dividend, up from 121.8p last year.

A prospective P/E ratio of 26.4 times might be toppy on paper. But a corresponding dividend yield of 3.9% helps to take the edge off. I wouldn’t be surprised to see Victrex maintain its momentum in the months ahead.

Paper champion

Smurfit Kappa (LSE: SKG) is another tasty dividend share that has flown in 2018, its share price expanding by 28% since the turn of January.

The paper packaging giant jumped in March when news emerged that International Paper was circling it. Smurfit Kappa may have fought off its US rival’s takeover bid, but its share price has remained stable, the FTSE 100 business helped by a slew of positive updates. Just last week it announced that operating profit before exceptionals jumped 48% during January-June.

Yields might be lagging those of Victrex, but the rate at which Smurfit has raised dividends in recent years — and is likely to continue doing so — makes it a genuinely great pick for income-chasers in my opinion.

In the immediate term, a payout of 94 cents is forecast, up from 87.6 cents last year and yielding 2.6%. This, allied with an undemanding forward P/E ratio of 14.2 times, makes the Irish firm a terrific buy today.

Poised to reverse?

BCA Marketplace’s(LSE: BCA) value has also swelled in the year to date, up 16% to be precise. But I am a lot less optimistic over the car auctioneers’s share price prospects going forwards than those of Smurfit Kappa’s.

The FTSE 250 company — most famous as the UK’s largest auction house as well as the owner of online vehicle buyer WeBuyAnyCar.com — has accelerated on the back of its resilience in a tough marketplace. It has also been the subject of takeover action in recent months, attracting the wistful glances of Apax Partners, although it has also been quick to bat away the interest.

I’m worried about the firm’s ability to keep earnings on an upward slant as the UK economy toils, even though City forecasts suggest further growth in the year to March 2019. The dividend is also expected to expand from 8.55p per share to 9.1p, resulting in a large 3.9% yield. In my opinion, though, a forward P/E ratio of 19.4 times doesn’t fully reflect the risks to earnings growth, in the current year and beyond. I would give the share a wide berth today.

The post The 3 best dividend stocks of 2018 (so far) 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 recommended Victrex. 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 Wednesday morning, ITV (LSE: ITV) chief executive Carolyn McCall revealed her plans for the future of the broadcaster. The former easyJet boss said that under her watch, “ITV will be more than TV”.

Alongside advertising revenue, it aims to continue expanding its production business and increase its direct relationships with consumers. This will be done by offering “a range of content and experiences with a really trusted brand”. Examples include subscription services such as ITV Hub+, pay-per-view, voting, competitions and live events such as the Emmerdale Studios Experience.

A changing business

During the six months to 30 June, ITV’s total external revenue rose by 8% to £1,593m.

The bulk of this increase came from the ITV Studios business, where revenue rose by 16% to £803m. In contrast, total advertising revenue only rose by 2%, despite 48% growth in sales of online advertising.

Profits were hit by the World Cup, which resulted in “higher schedule costs”. This meant that although the adjusted operating profit from ITV Studios rose by 6% to £118m during the half year, profits from Broadcast & Online fell 12% to £257m.

Too cheap to ignore

It could take a couple of years for the CEO’s planned changes to deliver results. But the underlying fundamentals of this business still look very good to me.

Today’s figures show an operating margin of 17.9%, consistent with last year’s figure of 17.7%. Today’s results confirm plans to pay a dividend of 8p per share in 2018 and 2019, giving the stock a forecast yield of 4.6%. Alongside these attractions, the forecast P/E of 11.1 looks good value to me. I believe ITV shares could be worth buying at this level.

A winner at auction

Car re-marketing business BCA Marketplace (LSE: BCA) sold more than a million cars in the UK last year, mainly through its auction arm. The company also sold 362,000 cars overseas, highlighting the potential to expand into other markets.

For investors looking for a more aggressive growth opportunities than ITV, this £1.9bn FTSE 250 firm could be an opportunity. Its shares have nearly doubled in value since its flotation in 2014. Last year saw pre-tax profit rise by 34.5% to £87.6m and the group recently attracted a bid approach from private equity group Apax Partners.

Ultimately the two sides didn’t manage to agree a deal, as management reckoned the Apax proposal undervalued the company. Their confidence is backed by forecasts for earnings growth of 10% this year and an 8% hike to the full-year dividend.

What could go wrong?

BCA operates a number of large auction centres. In a UK recession, car dealers could see demand fall, reducing throughput via these facilities. This could lead to a substantial drop in profit. The group’s 3.6% operating margin is already slim, and could tumble if volumes fall.

A second risk is that the shares already look quite fully-priced to me, on a forecast P/E of 19. Although the forward yield of 3.9% is quite attractive, earnings cover is expected to be slim, at around 1.3 times. Overall, I feel there’s a growing risk of disappointment here. I’m not convinced this is the right time to buy.

The post Why the ITV share price could crush the FTSE 100 appeared first on The Twelfth Magpie.

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Roland Head owns shares of easyJet. The Motley Fool UK has recommended ITV. 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.

With takeover talk still fresh in the minds of holders, where next for the mid-cap’s share price?

Record performance

Thanks to a combination of strong organic growth and the full-year impact of acquisitions, revenue rose just under 20% from £2.03bn to £2.43m in the 12 months to the end of April — more than the £2.3bn analysts were expecting.

BCA achieved “increased volumes across all divisions” over the reporting period, including a 6.5% rise in the UK where the company shifted more than one million vehicles. International Vehicle Remarketing sales rose 4.3% to 362,000 and WeBuyAnyCar delivered its sixth consecutive year of double-digit volume with 219,000 sales (up 12.9%). All this helped the company achieve a 17.6% rise (to £159.5m) in adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) and reduce net debt by 26.4% to £191.6m.

Having already rejected a £1.6bn bid (equivalent to 200p per share), today’s record results have clearly come at the right time for BCA and will help to justify the company seeking an improved offer from private equity firm Apax. Whether this materialises before the 8 July deadline, however, is questionable. 

The fact that BCA has managed to turn things around following concerns over falling demand for new and used vehicles in the UK (causing the shares to sink to as low as 150p back in March) could mean that Apax no longer sees value in the deal. Should this be the case, a spate of profit-taking might kick in as traders see limited upside. Given BCA’s already punchy valuation before today, there’s some logic in that. 

It’s a hard one to call. Since it would be against the Foolish philosophy of buying great companies and holding for years rather than days, I certainly wouldn’t recommend picking up the stock as a short-term punt.

Another bid target

Of course, BCA isn’t the only company attracting attention right now. That said, the situation at serviced office provider IWG (LSE: IWG) feels more complicated. 

Yesterday’s update on trading wasn’t well received by the market with shares falling almost 3% as the company announced that operating profit would be between £15m-£20m lower than that previously forecast.  

In addition to stating that its UK business wasn’t performing as well as expected, IWG revealed that plans to grow its network to satisfy increasing demand would now cost in the region of £30m more than the £200m originally forecast thanks to management’s desire to increase the number of locations from 230 to 275.

With four prospective buyers (Terra Firma, TDR Capital, Starwood Capital and Prime Opportunities) eyeing up the company, the timing of this news wasn’t great. While having multiple suitors will give some reassurance to those already holding stock in the £3bn cap, the fall in profit guidance might lead it to be sold for less than previously hoped.

Clearly, a lot depends on just how patient a buyer is willing to be in order to reap the “good returns” IWG’s management think are possible following the planned investment. With world markets looking increasingly jittery over recent weeks, however, a deal may not look as appealing as it once did. 

The post What next for these top FTSE 250 takeover targets? appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

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.

So, here are two income stocks with dividend yields of 4% or more that should be able to continue to return chunks of cash to investors for many years to come.

Timely deal

BCA Market (LSE: BCA) might not be a household name, but it’s more than likely you have heard of the company’s flagship We Buy Any Car Brand. 

Since changing its name from Haversham Holdings plc, BCA has consolidated its position in the vehicle re-marketing business both here in the UK and overseas. In many ways, the company has almost no competitors in this market, so over the past five years growth has exploded. Since its IPO at the end of 2014, it has surged from a loss to a net profit of £41m for 2017. City analysts have pencilled in a net profit figure of £85m for 2018. The business is going from strength to strength.

With profits surging, and its virtual monopoly over the vehicle re-marketing market in the UK, it was only a matter of time before the company attracted takeover interest. And today we’ve had confirmation that private equity firm Apax Partners is now running its rule over the business. 

Following rumours that emerged over the weekend, according to a press release issued today, Apax offered 200p to buy BCA at the beginning of May. This initial deal was rejected, and so far, there have been no further approaches.

Income play 

It is rare for investors not to welcome a takeover offer at a premium to the prevailing market price, but in this case, I believe BCA has more potential as an independent business — as the recent price action in the stock shows. 

Shares in the firm are currently changing hands at just under 230p, 15% above Apax’s offer price. Clearly, the market believes the company is worth more, something I agree with.

According to City figures, BCA’s earnings per share are expected to leap 114% for 2018, followed by growth of 11.2% for 2019. Based on these figures, shares in the company are trading at a forward P/E of 18 for 2019, which may look expensive, although considering its growth history, in my view, it won’t be long before the stock grows into this multiple. 

What’s more, the dividend is set to grow in line with earnings per share, rising to 4.1% by 2019. The distribution is covered 1.4 times by earnings per share.

With BCA’s earnings set to surge and buyers circling, it certainly looks to me as if this is one income stock that’s worth a place in any income portfolio.

Beating the market 

Staying in the automotive sector, another income play that has recently caught my eye is Marshall Motor Holdings (LSE: MMH). This is a traditional car dealership business. The company sells vehicles through franchise agreements with vehicle manufacturers.

Last year the company reported revenue growth of 19.5%, or 3.5% after stripping out the positive impact of newly acquired sites during the year. Set against the backdrop of falling new car sales (sales fell 6.2% for the UK market as a whole), this performance is highly impressive. The bulk of the growth came from its used car division. Here sales grew 7% for the year (compared to a market decline of 1.1%) with after-sales revenue (the firm’s most profitable line of business) rising 2.3%.

The City believes its strong performance compared to the rest of the car market will continue throughout 2018. At the beginning of the year, the UK Society of Motor Manufacturers and Traders was forecasting a decline of 5.6% for the UK new car market in 2018. Despite this forecast, analysts believe the company can chalk up earnings growth of 15% in 2018 as it doubles down on the used and after-sales market.

Management has also taken action to reinforce Marshall’s balance sheet by selling the group’s leasing division for just under £50m. The sale enabled the enterprise to materially reduce net debt from £119m to £2m at the end of fiscal 2017, giving the company more flexibility to handle market weakness and, more crucially, support its dividend.

The shares currently support a dividend yield of 4%, and the payout is covered 3.5 times by earnings per share. As well as this market-beating dividend yield, the stock trades at a discount valuation of only seven times forward earnings.

The post These two 4% dividend bargains could help you beat the FTSE 100 appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

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.

The BCA share price has fallen by 20% over the last six months, as investors fretted that a slower UK market and rising debt levels could limit the group’s profitability. So today’s news should mean that shareholders such as fund manager Neil Woodford can breathe easy, for a while.

I’d like more detail

BCA provided very little detail in today’s trading update. Strong trading seems to have been driven by “a number” of new remarketing contracts plus “continuing renewals”. Remarketing is the group’s main auction business and accounted for around three quarters of operating profit during the first half of the year.

The company didn’t provide any indication of how far profits had risen ahead of forecasts. And while net debt is now expected to be “lower than market forecasts”, there was no indication of what this might mean.

I’m not convinced

I’ve been cautious about BCA in the past, due to what I see as a weak balance sheet. The group’s half-year accounts showed total liabilities of £1,026m versus tangible assets of just £637.1m. This left the group with a negative net tangible asset value, a situation I prefer to avoid.

My view is that recent years’ profits have been boosted by rising volumes of nearly-new cars and add-on services such as “Partner Finance”, which provides credit for customers. With new car sales now falling, maintaining this rate of growth could soon become difficult.

I may be overcautious, but I’m not sure that this is a good time to invest in this business. I’ll be staying away, for now.

Trucking ahead

Another relatively new arrival on the stock market is Eddie Stobart Logistics (LSE: ESL). The trucking and logistics group has a strong brand and works with a wide range of blue chip customers.

Former parent company Stobart Group spun out this business into its own stock market listing back in April last year. Since then, the group’s operational performance has been good, but the shares have flopped. Is this a buying opportunity?

So far, so good

This week’s full-year results contained a fairly large number of adjustments. But if we accept the group’s picture of underlying performance, last year was quite good. Revenue rose by 13.6% to £623.9m, while adjusted pre-tax profit climbed 57.5% to £37.8m.

Thanks to IPO proceeds totalling £118m, Eddie Stobart was able to reduce net debt from £165.5m to £109.5m in 2017 and spend £43.2m on acquisitions. Alongside this, the group paid a maiden dividend of 5.8p per share, giving the stock a trailing yield of 4.6%.

The right time to buy?

My concern is that the business went through a number of changes last year. Seeing through these isn’t that easy, so I’d like to see a ‘clean’ set of accounts before investing.

Despite this, the picture looks reasonably positive to me. Broker forecasts suggest that earnings should climb 22% to 12p per share this year, putting the stock on a forecast P/E of 10.5, with a prospective yield of 5.1%.

I think there’s a good chance that this week’s results will mark the low point for Eddie Stobart’s share price. I’m going to keep this one on my watch list.

The post 2 Neil Woodford dividend growth stocks that could keep rising 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.

In 2015, it raised a further £263m to fund two acquisitions. One gave it infrastructure in key markets for the commercial launch of its allergy treatments (“once approved”) and the other gave it a pipeline of complementary products in the respiratory diseases space.

Unfortunately, its flagship cat allergy treatment failed a Phase III study in 2016. And after its house dust mite treatment also failed, it abandoned its entire allergy programme. It was left with its respiratory products and a deal for certain commercial rights to two AstraZeneca products. The shares are now trading below 100p and its market cap is about half that of its flotation.

Testing patience

Circassia was at one time a top 10 holding in Woodford’s Patient Capital Trust but he shifted it into his Equity Income fund last August at a time when he was increasing Patient Capital’s exposure to riskier unquoted stocks. Not that Circassia isn’t risky. It’s never made a profit and analysts are expecting an £86m pre-tax loss on revenue of £47m when it posts its results for 2017. And losses are forecast to continue for the foreseeable future.

Due to the uninspiring history and lossmaking outlook, I view Circassia as a stock to avoid at this stage. I also note that a hedge fund (Mangrove Partners) has increased its position significantly over the last 12 months, from below 2% to 5.42%. I’m not privy to Mangrove’s thesis on Circassia but it tells us: “We focus on companies that are executing a flawed business plan or strategy, engaging in fraud, or capitalizing on a fad.”

Frankenstein creation

Another Woodford-backed company on my list of stocks to avoid is BCA Marketplace (LSE: BCA). Not all companies grow from small acorns. Some £1bn businesses are constructed within the blink of an eye. Team an entrepreneurial executive with a corporate finance house, and heavyweight backing from City fund managers and banks, and a new industry giant can be conjured by buying up a clutch of existing businesses.

BCA is one such company. An AIM cash shell in 2014, it’s now a £1.4bn FTSE 250-listed group. It’s a major player in the secondhand vehicle industry, with businesses across the market. I’m not keen on Frankenstein creations of this type. They’re often launched in a ‘hot’ sector and if the sector is cyclical, there’s every risk of overpaying for assets at the top of the cycle. I fear this could be the case with BCA.

The group reported rising revenue and profit in its half-year results in November but as my Foolish friend Roland Head noted, the car market looks like it could be heading for a downturn. BCA’s net debt of £287m may not seem too onerous but I see considerable risk behind the face of the balance sheet (and off it) in the event of a downturn. A forecast P/E of over 16 at a share price of 167p offers an insufficient margin of safety for the risk, in my view. I also note that four hedge funds have disclosed short positions in the stock, totalling 2.35%.

The post 2 Neil Woodford stocks I wouldn’t touch with a bargepole appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

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.