Subdued market

Today’s statement started well enough. Having made the most of the last financial year, CMC said that client assets under management (AuM) continued to hit “near-record levels“. The number of active clients had also remained fairly consistent over the five months to the end of August and was up “around a third” from before the whole coronavirus crisis kicked off.  

However, it was at this point that the tone shifted. According to CMC, “subdued” market activity during July and August has meant lower trading by new and existing clients. Having attracted so many people to its platform over the last year or so, CMC also reported that client income retention has been “moderately below” its 80% target.

If the recent lack of activity continues, it believes net operating income for FY22 will now come in somewhere between £250m and £280m.  

Clearly, news like this (as well as an indication that operating costs were increasing) was never going to be greeted enthusiastically by the company’s investors. But is a 25% fall truly justified? 

Has the CMC Markets share price fallen too far?

Personally, I think the fall is overdone. Having benefited so much from the incredible volatility seen in markets last year, there was always going to come a time when trading moderated. Let’s not forget that, before today, the CMC Markets share price had increased 35% in just 12 months. Nothing rises in a straight line. 

There’s also a lot still to like about this company, at least in my view. It appears to have a sound strategy for growth and an incredibly robust balance sheet. The returns on capital metric beloved of UK star fund manager Terry Smith has been high for many years. A potential 16.9p per share dividend also has this stock yielding a chunky 5.5% at its new, much lower price. Now, no income stream can be guaranteed. Even so, this does strike me as adequate compensation for what could be rough times ahead.  

On the downside, the small ‘free float’ means the share price is potentially far more volatile than that of other stocks. Today would appear to be clear evidence of that! Second, the threat of increased regulation in this industry can never be discounted. Third, there’s no shortage of competition for clients. 

Letting it settle

I’d need to be very careful before adding CMC Markets to my portfolio. After all, I already own shares in the market leader IG Group. Having too much exposure to one industry invites trouble. It can be wonderful during the good times but a potential nightmare during the bad.

That said, if I didn’t own IGG, I’d be tempted to get involved with CMC at some point. This FTSE 250 member presents as a quality operator, albeit one that has become a victim of the sudden swing in Mr Market’s mood.  

Quite where the share price goes in the near term, however, is anyone’s guess. In recent weeks, we’ve seen several previously-loved stocks tumble and continue tumbling. Avon Protection and Best of the Best spring to mind.

If I did cave in and buy, I’d wait for the dust to settle first.

The post Here’s why the CMC Markets share price (CMCX) has crashed 25% today appeared first on The Twelfth Magpie.

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Paul Summers owns shares in IG Group. The Motley Fool UK has recommended Avon Protection. 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.

Doubling my ISA: what will it take?

To double the value of my portfolio, I need to achieve an annualised return of around 15%. In other words, I need my capital to grow 15% in 2021, another 15% in 2022, and so on. This is how things would look if I used the nominal sum of £1,000.

Compound interest really is a wonderful thing. And this doesn’t include the impact of any reinvested dividends!

So, how do I hit this target?

Clearly, being invested in the best stocks helps. But what makes a company better than others? Everyone will have an idea about this.

A ‘meme stock’ investor would say that AMC Entertainment and GameStop would qualify. I respectfully disagree. Their share prices have certainly ‘popped’ in 2021 but have since flagged. They’re best left to traders, in my opinion. 

Personally, I don’t think I need to take on such risk to get a 15% annualised return. For me, the best ISA stocks are those that are leaders in niche markets, boast fantastic brands, have strong growth potential, and/or generate great returns on the money they invest. I think I have several in my portfolio already. These include kettle appliance maker Strix, equipment manufacturer Somero Enterprises, and online behemoth Boohoo. 

But let’s take a step back here. The fact that something is achievable does not mean it will happen, of course. Let’s briefly look at what things could stop me from achieving my goal.

What could go wrong

Unfortunately, there’s no guarantee my ISA stocks will perform. Last week alone showed just how unforgiving other investors can be with the share prices of Best of the Best and Avon Protection being pummelled. Both have previously scored highly on the things I usually look for.

Even if the companies I own do very well, they could still be held back by general market jitters. These days, investors are getting increasingly worried about rising inflation, for example. And even if this does prove ‘transitory’, there will always be another potential setback waiting in the wings to knock confidence. 

How I can improve my chances

Aside from hoping my stock-picking is on form, there are four other things I think I can do. 

1) Keep investing. This includes periods in which markets head south. It sounds simple but it’s harder to do in practice.

2) Go small. Smaller companies have the ability to grow at rates larger companies simply can’t. This can often lead to a huge uplift in share prices. 

2) Use up my ISA allowance. As well as continuing to invest, it would also be a good idea to use my £20,000 ISA allowance in full. The more money I put to work, the greater the potential impact of compounding.

3) Avoid frothy markets. A final, debatable point is that it might make sense to avoid markets (and companies) where valuations are looking stretched. Having more than doubled over the last year, the US market looks a little too hot to me right now. 

The post How I plan to double my Stocks and Shares ISA in 5 years appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Strix, Somero Enterprises and boohoo group. The Motley Fool UK has recommended Avon Protection, Somero Enterprises, Inc., and boohoo 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.

Today however, the shares have crashed well over 20% in value, at the time of writing. What’s going on? 

Profits soar at this UK growth stock

It’s surely not down to the full-year numbers. Supported by multiple UK lockdowns, BOTB’s competitions clearly provided a welcome distraction to what was going on in the world. As a result, revenue jumped over 150% to £45.68m in the 12 months to the end of April. Pre-tax profit hit a staggering £14.06m. In the previous financial year, this figure was £4.19m. 

Sure, the pandemic couldn’t have been predicted. However, these figures do serve to endorse BOTB’s earlier decision to move completely online. Running competitions via apps allows the money saved from not operating in sites such as airports to be funneled into marketing and player recruitment instead. 

In addition to the above, a final dividend of 5p per share was announced by BOTB. This is a 66% hike on that returned in 2020. A lovely special dividend of 50p per share was also confirmed. 

So why has BOTB crashed?

It looks to be down to comments made by CEO William Hindmarch. In his statement, BOTB’s leader reflected that the company had seen “a reduction in customer engagement since the latest easing of lockdown restrictions on April 12, 2021, specifically relating to the understandably long-awaited re-opening of hospitality and non-essential retail.”

In other words, people are doing more of what they couldn’t and less of what they could.  

This all makes perfect sense, especially given the great weather we’ve seen in the UK recently. The question is, has BOTB’s purple patch come to an end, or is this a wonderful opportunity for me to get involved?

To buy or not to buy

Right now, I’m torn. On the one hand, there’s a lot to like about Best of the Best. The company consistently generates great returns on the money it invests and operating margins have soared in recent years. On top of this, BOTB is financially sound with zero debt. Investors also need to remember that no company’s valuation rises in a straight line, particularly one with less than half of its shares available for purchase on the market.

On the other hand, I’m not entirely convinced by management’s assumption that levels of customer engagement will “return to normal levels before too long.” No concrete reason is given for this belief, other than by appealing to the company’s “flexible business model, growth strategy and plans for the year ahead.“

The problem is that having an inherently great business counts for little if customers don’t continue using it. If the UK really does fully unlock on 19 July, one wonders whether things could get worse before they get better.

Bottom line

Based purely on BOTB’s numbers, today’s fall looks massively overdone and I suspect some sellers may end up regretting their decision in time. Then again, I also think that the murky outlook means shares will remain volatile for a while to come.

As such, this UK growth stock remains on my watchlist for now. 

The post This UK growth stock just crashed 20%. Here’s why appeared first on The Twelfth Magpie.

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

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.

Best of the Best

This time last year, shares in online competition firm Best of the Best (LSE: BOTB) were changing hands for 395p. Yesterday, the price closed at a staggering 3120p. Clearly, people have been very keen to win cars and other prizes while being forced to stay at home.

Back in February, the company revealed that strong trading had continued into the third quarter and that it remains likely to outperform management’s previous expectations. In fact, things have been going so well that BOTB has now removed its ‘for sale’ sign.  

Despite rising by so much, I think this UK share could head higher. Analysts are forecasting a 14% jump in earnings in the next financial year. This gives BOTB a price-to-earnings (P/E) ratio of 21. That still looks very reasonable when you consider the outsize returns on capital and decent operating margins it achieves.

On the flip side, one does need to consider whether trading will remain quite so stellar once lockdown restrictions are fully lifted. So, as much as I like to ‘run winners’, I’d be mightily tempted to take some money off the table if I were invested.

Rainbow Rare Earths

A second company worth highlighting is Rainbow Rare Earths (LSE: RBW). One year ago, its shares were 1.45p. Yesterday, they closed at 17.75p! 

Much of this momentum is probably due to the buzz surrounding renewable energy. Rare earth metals (such as neodymium and praseodymium) are used in magnets for electric vehicles and wind turbines. Importantly, they have no known substitute.

Rainbow looks well placed to capitalise on demand eventually outstripping supply. Its Gakara Project in Burundi gives out one of the highest-grade concentrates in the world. 

However, where the RBW share price goes in the rest of 2021 is difficult to say. Mining stocks are notoriously volatile and some profit-taking would be understandable after such a strong recovery.

Then again, I also wouldn’t be surprised if many investors elected to stay put. With countries looking to secure their supply chains (China already controls 80% of the rare earth market), there could still be quite a bit of upside ahead.

Naked Wines

A final UK share that’s done extremely well for holders is online wine seller Naked Wines (LSE: WINE). Sure, the share price hasn’t performed quite as brilliantly as BOTB or RBW but we’re still talking about a gain of 200% or so. If only I’d backed my judgement back in 2020!

As one would expect, Naked has benefited hugely from the UK lockdowns. Back in November, it revealed a near-80% rise in revenue (to £157.1m) for the six months to 28 September. Since we’ve had yet another lockdown in 2021, I believe the full-year numbers will be just as good. An update is due in a couple of weeks. 

The question, however, is whether demand is likely to moderate when we’re allowed to visit the pub again.  I suspect this might be the case. For this reason, I would probably only take a small position now.

The post 3 UK small-cap shares I wish I’d bought one year ago appeared first on The Twelfth Magpie.

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• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

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, what is this company, and can it still make you money? Read on for my take.

What does Best of the Best do?

Best of the Best has been around since 1999. Up until recently, it was best-known for running competitions in shopping centres and airports. Those buying a ticket stood a chance of winning the rather nice car on display.

These days, however, everything the company does is online. This is understandable when you consider just how many more competitions it can run (and people it can target) via this medium.

Its new business model also means the AIM-listed company is no longer burdened with a high-cost retail estate and can funnel what it saves into things like marketing instead.

Why are the shares flying?

So why is the business continuing to perform so well?  A couple of reasons.

First, recent trading has been very encouraging. In last week’s full-year results, Best of the Best reported a 20.1% rise in revenue to £17.8m in the 12 months to the end of April. Pre-tax profit pretty much doubled to £4.2m. 

With numbers like these, it’s perhaps no surprise that the market minnow has decided to shower cash on its owners. A total dividend of 3p per share — up 50% from 2019 — is due in October. Even better, a special dividend of 20p per share is coming in July!

The second reason follows on from the first. Since releasing these numbers to the market, BOTB’s management claims to have received “very preliminary expressions of interest which could potentially lead to an offer or offers being made” for Best of the Best.

With a ‘formal sale process’ to engage with potential suitors now set up, the company could be snapped up in short order.

Can you still make money?

The huge rise seen in the share price clearly goes some way to reflecting recent trading and the potential sale. As such, gains are unlikely to be as great going forwards. 

Moreover, there can be no guarantees of an offer being submitted. And even if one is forthcoming, holders may believe it doesn’t accurately reflect the true value of the company.  

Another thing worth pointing out to potential buyers is the exceptionally low free-float. With just 17% of the company’s shares available to investors in the market, it only takes a few sell orders to send the share price tumbling. This could easily happen if enough want to bank profits, or we get another general market crash. 

That said, the outlook for this business is undeniably encouraging, even if an offer isn’t forthcoming. Recent buoyant trading has apparently continued post-period end and management expectations continue to be exceeded.

The £130m-cap also scores highly on quality metrics. Margins and returns on capital employed are high, there’s £5.21m in cash on the balance sheet, and there’s no debt. If I were going to invest now, this is what I’d be focusing on. 

Best of the Best still has the potential to make money for new investors, I feel. Just don’t rely on a takeover to be the reason.

The post Up almost 300% since the market crash, are Best of the Best shares still a buy? appeared first on The Twelfth Magpie.

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

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.

Unfortunately the firm’s shares fell by more than 25% on Wednesday after it was forced to issue a profit warning. This setback is due to a change in the tax rules governing such competitions. It seems that new tax rules mean that Best of the Best will now have to pay Remote Gaming Duty instead of VAT.

A sizeable hit

Helpfully, management has provided detailed guidance about the likely impact of the changes.

Pre-tax profit was £1.5m for the year ending 30 April. This is expected to fall to “not less than £1.4m” during the current year as the new changes take effect part-way through the year. A drop to “not less than £1.2m” is then forecast for the 2018/19 financial year.

I estimate this could be equivalent to earnings per share of about 12.7p this year and 10.9p next year, compared to previous broker forecasts of 13.1p and 13.7p per share.

Any good news?

There was also some potential good news. Best of the Best is currently in the process of trying to claim back £4.5m of VAT. That’s equivalent to 44p per share. If the claim succeeds, I’d expect some of this cash to be returned to shareholders.

Another potential positive is that the company now plans to buy back some of its shares from the market. Over time, this should help to support earnings per share and improve the firm’s ability to pay larger dividends.

My view

The change which triggered today’s warning looks like a one-off and does not appear to be the fault of management.

Given the group’s history of growth and cash generation, I’m inclined to take a fairly positive view of the shares.

A fashionable choice

Shares of fashion retailer Joules (LSE: JOUL) have drifted lower over the last couple of months, but at 268p the shares are still worth 37% more than when the group floated in May 2016.

This week’s trading update provided a fresh view on performance in a difficult market for retailers. Unfortunately, the company’s statement did seem to be a little short on detail.

Although we learned that sales grew by 18.2% to £96.2m during the six months to 26 November, no information was provided on like-for-like sales growth from its stores. As 10 new stores were opened in the period, it would have been useful if the group had broken out like-for-like growth and internet sales from this total.

On a similar note, I wasn’t sure what to make of the group’s outlook. Chief executive Colin Porter commented that “trading conditions will remain challenging” but said that the brand had “performed well” so far this year. On balance I suspect that results are expected to be in line with expectations.

On that basis, earnings per share are expected to climb by around 20% this year and in 2018/19. This gives the stock a PEG ratio of about 1.5, falling to 1.1 next year.

In my view these figures suggest the shares may be fairly priced at current levels. I’d rate the stock as a hold.

The post Should you consider falling knife Best of the Best plc after 25% drop today? appeared first on The Twelfth Magpie.

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

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.

Despite this, there could still be a number of stocks with investment potential. Many shares have high growth rates which may not yet be fully reflected in their share prices. Here are two companies which could fall into that category.

Strong results

Reporting on Thursday was competition specialist Best of the Best (LSE: BOTB). The company announced a rise in revenue of 7%, with profit before tax increasing by 42.7%. This was aided by the success of the company’s strategy, with its revenue continuing to shift towards online and away from physical sales. In fact, around 80% of sales are now generated online, which reduces the company’s risk profile since new sites are not necessarily required.

The company announced a special dividend of 6.5p per share, with a 1.4p ordinary dividend also set to be paid. This puts the company on a yield of 2%, with dividends being covered 1.7 times by profit. Therefore, there could be scope for further growth in shareholder payouts in the long run.

However, it is with regard to the company’s earnings growth potential where there may be even more appeal for investors. Best of the Best is making investments in its online marketing, while it is seeing margin growth because of improving scale and competition frequency. This is allowing it to negotiate better prices on cars purchased, which is a trend that could continue in future. Therefore, while a relatively small company which has a high risk profile, it could prove to be a sound buy.

Low valuation

Also offering strong growth potential is online bingo operator Jackpotjoy (LSE: JPJ). While its bottom line is forecast to fall by 7% this year, it is due to reverse this decline with growth of 11% next year. This has the potential to gradually improve investor sentiment in the stock as the company’s financial performance improves.

Since Jackpotjoy trades on a price-to-earnings (P/E) ratio of just 6.3, it seems to offer excellent value for money. In fact, when combined with its forecast growth rate, its rating translates into a price-to-earnings growth (PEG) ratio of only 0.6. This suggests that share price growth could lie ahead after its 6% gain of the last month.

Clearly, the online gaming sector is becoming more competitive, and sector consolidation may therefore become more likely as incumbents seek to reduce costs. Due to Jackpotjoy’s relatively low valuation and upbeat growth prospects, it could be a realistic bid target. However, even if an offer does not come to fruition, it could still prove to be a strong investment for the long term.

The post 2 small-caps with stunning growth outlooks appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Peter Stephens 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.

Discussions are also ongoing with other potential investors, as well as with LGO’s bankers, BNP Paribas. The latter is regarding a possible extension beyond the end of this month of the waiver on payments on the funds drawn down by LGO’s subsidiary.

Due to its precarious financial position, LGO has ceased all drilling activities and is attempting to conserve cash in the current low oil price environment. Looking ahead, the dual challenges of a continued low oil price as well as the challenging financial outlook which the company faces mean that LGO’s shares are incredibly risky.

Certainly, the company’s asset base is appealing and as today’s update states, the Goudron field in Trinidad continues to offer long term potential. However, with other oil and gas plays being in stronger financial positions and offering good value for money, there appear to be better risk/reward opportunities available elsewhere.

Also among the biggest movers in the oil and gas sector today is Nighthawk Energy (LSE: HAWK). Its shares have risen by 8% today despite there being no significant news flow released by the company. However, investor sentiment has been relatively buoyant in the last month owing to strength in the wider resources sector and also as a result of a positive production update from Nighthawk.

In fact, the company announced on 1 February that it expects total revenues for the full-year to be significantly higher than current market expectations. And with Nighthawk forecast to return to profitability in the 2016 financial year with a pretax profit of £6.6m, investor sentiment could continue to improve over the medium term following its share price rise of 39% in the last month. As such, it may be worth a closer look for less risk averse investors.

Meanwhile, shares in competition company Best of the Best (LSE: BOTB) (where entrants can win a supercar) continue to soar and have risen by an additional 10% today. This takes their capital gain to an incredible 250% in the last year and with a special dividend recently announced, they are due to yield over 8.5% in the current year.

The special dividend seems to have improved investor sentiment in Best of the Best yet further, with it equating to 19.5p per share, which works out as 7.6% of the current share price. It is being paid because the company feels that it has excess cash sitting on its balance sheet which will not be required for working capital purposes over the next year. And with the company being cash generative and having a relatively strong balance sheet, it appears to have a bright long term future.

With shares in Best of the Best trading on a price to earnings (P/E) ratio of 31.8, they seem to be rather expensive given that earnings growth of 13% is forecast for the current year. But further gains simply cannot be ruled out, since there is still significant online growth potential on offer.

The post Which Small-Cap Should You Buy? LGO Energy PLC, Best Of The Best plc Or Nighthawk Energy Plc appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

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