The incredible recovery seen since the March 2020 market crash makes that meltdown something of a blip. This is why I already have a list of stocks to buy when share prices (inevitably) head south again.

Having looked at the FTSE 100 and FTSE 250 in previous articles, today I’m focusing on three stocks from the small-cap (non-AIM) space.

Treatt

Ingredients manufacturer Treatt (LSE: TRT) supports the global flavour, fragrance and consumer goods markets. That may not sound particularly racy compared to a glitzy tech share. However, the returns generated over the last year and five years (+63% and +405% respectively) speak for themselves.

On top of this, the gradual reopening of hospitality venues across the world should be a great tailwind for the company which remains a leader in its field. 

Of course, there are still potential headwinds ahead. A resurgence in Covid-19 cases and the subsequent re-introduction of certain restrictions could put the brakes on this momentum. As solid a business as this is, a P/E of 36 for the current financial year (ending 30 September) doesn’t give me much of a margin of safety either.

Personally, I’d much prefer to snap up this stock when investors are throwing the baby out with the bathwater. 

Bloomsbury

Harry Potter publisher Bloomsbury (LSE: BMY) is another small-cap star I’d buy in a general market crash.

A huge beneficiary of multiple UK lockdowns, revenue and profit soared in 2020 as many people opted to lose themselves in a novel or seven to pass the time.  And, consequently, his has boosted the share price considerably ( up 75% over the last 12 months alone).

Quite whether this momentum can be sustained is another thing. While indulging in a book will hardly break the bank, I wonder if a lot of casual readers will now focus on more active pursuits. Should this be the case, it’s surely inevitable that earnings will moderate.

It’s also worth remembering that publishing — like the movie, music and gaming industries — can be unpredictable. There’s no guarantee a particular title will sell as many copies as hoped.

Sure, BMY’s current valuation is hardly excessive, at 19 times forecast earnings. There’s a nice dividend stream too. Even so, I’d be inclined to really pile into this stock when the company’s purple patch has ended.

Motorpoint 

Car seller Motorpoint (LSE: MOTR) is a third small-cap stock I’d potentially buy if/when we experience another market crash.

Thanks to the shortage of semiconductors for new vehicles, MOTR has seen strong demand for second-hand cars as the UK emerges from lockdown. Accordingly, the company reported “record sales” in the first two months of its new financial year back in July.

Importantly, these sales were also “significantly ahead” of numbers logged in the year before Covid-19 began wreaking havoc. Add in a commitment to becoming an e-commerce-led business and I think the future looks bright for the £330m-cap.  

Then again, MOTR arguably involves the most risk of the three companies mentioned here. After all, few people think about buying a car when troubled times arrive. This is also a low-margin business in a competitive industry, making the forward P/E of 23 appear a bit expensive. 

Having climbed almost 33% in value in the last 12 months, I’m not sure that now’s the best time for me to buy. 

The post 3 small-cap stocks I’d buy in the next market crash appeared first on The Twelfth Magpie.

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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 recommended Bloomsbury Publishing, Motorpoint, and Treatt. 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.

How’s it been doing?

It’s doing very well. Revenue moved 19% higher over the 12 months to the end of May, supported by many/most of us being confined to our homes. The £90.7m logged was a record for the company. A maiden contribution from Frontier Foundry — its label for third-party publishing — was another positive. 

All told, earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 21% to £38.1m, lending great support for Frontier’s ‘launch and nurture’ strategy. This is where it releases a game and then updates it over time; the idea being that a player will become increasingly invested in a game and continue playing the title for years to come. To date, FDEV has four such franchises: Elite Dangerous, Planet Coaster, Jurassic World Evolution and Planet Zoo.

Can all this continue?

This growth stock’s next game — Jurassic World Evolution 2 — is due for release in early November in time for Christmas. Frontier Foundry will also release three titles in the current financial year (Lemnis Gate, FAR: Changing Tides and Warhammer 40,000: Chaos Gate — Daemonhunters). As a result, the mid-cap thinks revenue will come in somewhere between £130m to £150m. That’s a huge jump on today’s already great numbers.

It potentially gets even better the following year. In FY23, between £160m and £180m is expected thanks to contributions from its hotly-anticipated first Formula 1 management game and its Warhammer Age of Sigmar IP real-time strategy title. The latter is licenced from market darling and FTSE 250 constituent Games Workshop.

So, what are the risks?

One potential issue is that more casual gamers will want to do other things with their time post-pandemic. In this way, Frontier is no different from other lockdown winners such as Bloomsbury Publishing and musical instrument seller Gear4music. This is inevitable to some degree but its impact should not be discounted.

Another potential drawback is that earnings at any developer can fluctuate from year to year. This is usually due to the irregular release of games. Even if release dates were consistent, there’s a chance that a particular game won’t be popular. Moreover, a competitor could release something that generates higher interest. In this way, gaming is no different from the music or movie industries.

Even nailed-on winners can suffer teething issues. Frontier experienced this itself in the last year following the release of a bug-laden Elite Dangerous: Odyssey. Although things now seem to be fixed, the episode certainly did its reputation with gamers no favours. It might also explain why this growth stock has been quite volatile in recent months.

Considering these potential headwinds, Frontier’s forward P/E of 38 feels punchy, to say the least. Then again, I wouldn’t be surprised if a deep-pocketed suitor submitted a generous bid for the whole company at some point anyway. That’s exactly what happened to one of FDEV’s highly-rated peers earlier this year.

Cash rich

Potential obstacles aside, I remain positive about this UK growth stock. Backed with over £42m in net cash on the balance sheet, I reckon this is a cautious buy for my own portfolio. 

The post 1 UK growth stock I’d buy following today’s record results! appeared first on The Twelfth Magpie.

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• 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?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Frontier Developments. 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.

Both stocks have performed brilliantly since then. But would I buy either now?

Worth a gamble?

Shares in 888 are up a little over 250% since I suggested they were likely to suffer less than rivals from the cancellation of sporting events. So proved to be the case, with the company seeing a huge rise in the number of people playing its games.

Today’s latest update contained some more good news with trading being “slightly ahead” of what management had been expecting.

Total revenue increased by 10% to $247m over the quarter to the end of June, primarily driven by strong growth in regulated markets including the UK, Italy and Spain. Unsurprisingly, revenue from sporting events jumped thanks to the lifting of restrictions. On the flip side, revenues from the firm’s poker and bingo offerings were down, albeit from understandably high levels in 2020. 

While nothing can be guaranteed, 888 now predicts full-year adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) will come in “slightly ahead of the prior year“.

Would I still buy now? That’s a tricky one.

Today, 888 reported that average daily revenues in the UK have been “approximately 20% lower than the year-to-date period before that” since Boris Johnson allowed shops to open on 17 May. Although not a complete surprise, I do wonder if some investors may interpret this as a sign that this growth stock’s purple patch is ending.

Then again, 888’s strategy remains appealing. News of a partnership with Sports Illustrated in the potentially very lucrative US market is encouraging. Confirmation of a sports-betting licence in Germany also bodes well. At 21 times forecast earnings before markets opened, the valuation isn’t excessive either.

On reflection, I think 888 remains a good bet in a crowded industry. Even so, I’m not sure I’d go ‘all in’ today. 

Solid hold

Since my bullish call in March 2020, shares in Bloomsbury have climbed 82%. This great performance isn’t all that hard to fathom. With nowhere to go, it was inevitable that many would reach for a book or two (or 20) to ease lockdown boredom. Again, so proved to be the case.    

Back in June, BMY reported a 14% increase in full-year revenues to just over £185m. This was far better than the wider industry’s 2% rise. Pre-tax profit also jumped 31% to £17.3m.

Positively, this momentum has continued into the new financial year. Bloomsbury already expects revenue to be “ahead” and profit to be “comfortably ahead” of market expectations.

Naturally, nothing can be guaranteed. We won’t stop reading, of course. However, the full lifting of Covid-19 restrictions does mean that people will do other things with their money and time. Personally, I’d prefer management to be a little more cagey and surprise on the upside.

No matter. Like 888, Bloomsbury looks a solid long-term hold. It has a clear strategy to build its digital offering and stacks of cash on the balance sheet. At 19 times earnings, the shares remain reasonably priced compared to other growth stocks. 

I wouldn’t necessarily back up the truck for my portfolio, but the next chapter could still be engaging so I’ll keep watching it.

The post I was spot on about these UK growth stocks. Here’s what I’d do now 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?
• 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?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bloomsbury Publishing. 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.

Earlier this week, I picked out three FTSE 100 stocks I’d consider buying with my £20,000 ISA allowance. Today, I’m focusing on two smaller UK shares — one of which I already own — which would also make the cut. As luck would have it, both have just released positive news to the market.

Hot UK share

Today’s full-year results from kettle safety control supplier Strix (LSE: KETL) go some way to reminding me why I’m already invested in this wonderfully ‘boring’ company.

While revenue fell 1.6% to £95.3m over 2020, this was “significantly ahead” of what Strix believed might happen because of Covid-19. This was due to a “marked recovery” in the second half of the year.

Moving to the bottom line, pre-tax profit climbed 2.4% to £30.9m. Although a 41.2% rise in net debt (to £37.2m) would usually cause me concern, the reasons for this increase look sound. Over 2020, Strix acquired water filter firm LAICA and spent money on its manufacturing operations in China.

Comments on Strix’s outlook were also encouraging. Today, CEO Mark Bartlett reflected that the “much-improved performance” in the second half of last year had carried on into this year. A strong order book for kettle safety controls and the launch of new products suggests the Isle of Man-based business will enjoy a better 2021.

Ironically, my one concern with this UK share is that its share price has more than doubled over the past year. This leaves it trading on a valuation of 17 times forecast earnings. That’s not excessive. But it’s vastly different from the single-digit P/E valuation the AIM-listed company had when I first began investing in it.

I do wonder if we might see a wave of profit-taking over the next few weeks and months. This could be compounded by the trend for investors to move away from defensive stocks (which Strix arguably is) and into battered travel and leisure shares.

As such, I’m inclined to add to my holding gradually over the next few months. 

Lockdown winner

Another stock I’d feel comfortable spending some of my ISA allowance on is Harry Potter publisher Bloomsbury (LSE: BMY).

In another positive trading update, the UK small-cap announced profit for the year to the end of February will now be “significantly ahead” of the £14.8m expected by the market. This follows an “exceptional sales performance” last month as millions of us sought to pass the time by reading. In addition, Bloomsbury also saw an increase in demand for remote access to learning materials by academic institutions. 

As great as this is, the shares aren’t devoid of risk. Even the company has no idea whether recent performance will continue once restrictions are lifted. Like Strix, Bloomsbury also traded on 17 times forecast earnings before markets opened. It will be even higher after today’s 7%+ share price rise. Again, this isn’t an absurd valuation. However, it does imply that some (much?) of the good news is now priced in. 

Still, I remain a fan of this company. It might not grab the headlines like other UK shares, but I think that’s part of the appeal. Another is the £54m in net cash Bloomsbury had on its balance sheet at end of February.

Should shares fall back, I’ll be ready with at least some of my ISA allowance.

The post I’d buy these top UK shares with my ISA allowance 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?
• 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?

Paul Summers owns shares of Strix Group. The Motley Fool UK has recommended Bloomsbury Publishing. 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.

Momentum share for a stock market rally

Harry Potter publisher Bloomsbury (LSE: BMY) enjoyed a magical 2020 thanks to more of us picking up a book or 10 during lockdowns. Back in October, the firm revealed a 10% rise in revenue (to £78.3m) and 131% jump in pre-tax profit (to £3m) over the six months to the end of August. Since we’re now into our third national lockdown, I can see this performance lasting a while longer.

Bloomsbury’s financial year ends next month. However, it probably won’t be until May that the company reveals how it’s performed over the last few months. That said, this does allow me time to take a position before the news is announced. 

Of course, whether the company can sustain recent momentum once the stock market rally has run its course isn’t a given. But I’m encouraged by it having plenty of cash on its balance sheet and reinstating dividends.

Rocketing revenue

With its share price soaring in recent months, my decision to buy a stake in laser-guided equipment manufacturer Somero Enterprises (LSE: SOM) in 2020 was one of my better calls.

Somero expects to post revenue of roughly $88m for the full year thanks to excellent trading in North America. This is far more than the $80m analysts were predicting. Adjusted earnings (EBITDA) of about $26m will also be “significantly ahead” of the $21m previously expected.

I can see Somero carrying this form into 2021, even if further planned investment in staff will temporarily impact profits. Demand for its products in the US looks likely to be sustained based on feedback the company has received. A revival of business in Europe and other markets once Covid-19 is conquered is also possible.

Factor-in a special dividend from cash-rich Somero and a forecast P/E of 14 for FY21 and it looks attractive to me in a stock market rally.

Looking good

Bath-based eyewear maker Inspecs (LSE: SPEC) is another small-cap stock showing positive momentum.

It wasn’t always this way. The shares fell 25% not long after their debut on the market last February. After recovering over the summer, they fell again in September and October, highlighting the volatility of small-cap shares that investors need to be aware of.

More recently, the performance has been much better. The shares have almost doubled in value since November. That’s quite a result considering we’ve heard very little from Inspecs over this period. No matter. I think the best stocks for me to own are often the ones not making headlines.

On 28 times forecast FY21 earnings, Inspecs looks expensive. But I think the PEG (price-to-earnings ratio/earnings growth) ratio of 1.6 is worth paying attention to. This implies the shares may actually be trading at a fair-rather-than-excessive valuation given the company’s potential. Add in its global reach and non-cyclical market (those who need glasses get glasses) and I think the £350m cap becomes an increasingly enticing investment proposition.

The post With £3,000 to invest in the stock market rally, I think these UK small-cap shares will keep rising in 2021 appeared first on The Twelfth Magpie.

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• 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?

Paul Summers owns shares of Somero Enterprises, Inc. The Motley Fool UK has recommended Bloomsbury Publishing and Somero Enterprises, Inc. 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.

Here are three minnows that jump out, warranting a closer look and perhaps a tentative first purchase. 

Bloomsbury 

Books are likely to prove a very popular (and cheap) form of entertainment over the next few weeks. Despite UK shop closures, this could be good news for Harry Potter publisher Bloomsbury (LSE: BMY). I say ‘could’ because, right now, the company said it can’t really estimate the extent to which coronavirus has impacted trading.

Nevertheless, I’d be surprised if it failed to sell a decent amount of hardbacks, paperbacks, ebooks and audiobook downloads over the next few weeks/months.

In addition to the possibility of earnings remaining fairly stable, Bloomsbury’s prudent handling of its finances means it’s entered lockdown in a strong position. Net cash of £31m on the balance sheet is a nice buffer to have. 

Considering the shares are down roughly 25% from the highs achieved towards the beginning of 2020, now could prove to be a decent entry point. 

888

The decimation of the sporting calendar, including the postponement of Euro 2020 and the Olympics, is having a huge impact on gambling firms, such as William Hill and GVC. One stock that may turn out to be less affected than most is online gaming provider 888 Holdings (LSE: 888).

Last week, the company reported “increased customer activity” around its Casino and Poker products. It’s hoped this will make up for the impact on its Sports division (which made up 16% of revenue last year).

Obviously, no investment is risk-free. If sporting events are disrupted until September, the earnings hit could be in the “high single-digit millions of dollars,” according to the small-cap. So caution is still advised.

Despite this, 888 would be my clear preference in the gambling space. Its online-only business model means it can dodge the fixed costs associated with maintaining a physical estate. The company also reported having almost $100m in cash at the end of 2019. 

Boku

A final pick of small-cap firms likely to see a rise in demand is independent carrier commerce company Boku (LSE: BOKU). Put simply, Boku’s technology allows consumers to pay for things using their mobile phone number. Based on recent figures, this is proving increasingly popular.

Last year, the £200m-cap managed to grow revenue by 42% to just over $50m. It also announced its maiden post-tax profit ($400,000 compared to a loss of $4.3m in 2018).

This demand has only got stronger over the last month. It remarked on “significant increases in new users” of its platform. The focus was “particularly for streaming video services and gaming in those countries hardest hit by Covid-19.”

Unsurprisingly, this encouraging news has been reflected in the behaviour of Boku’s share price. It fell in tandem with everything else during March. But it’s now back to where it was at the start of the month.

Things are likely to stay volatile. But risk-tolerant investors may wish to consider taking a stake sooner rather than later.

The post As the coronavirus lockdown continues, I think these small-cap stocks could be worth buying appeared first on The Twelfth Magpie.

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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.

Personally, I’m also partial to looking further down the market spectrum for my dividend fix, particularly as these companies also have at least the potential to grow revenue and profit at a far more rapid rate than your average FTSE 100 beast.

With this in mind, here are three examples of market minnows that rarely grab the headlines but offer decent payouts to investors.

Cheap income

Clearly, anyone considering buying a slice of a business involved in the volatile mining industry must go in with their eyes wide open, especially given current concerns over slowing global growth. Nevertheless, my first pick is Central Asia Metals (LSE: CAML).

One big attraction of this copper, zinc and lead-focused firm is that it’s a great source of dividends (in sharp contrast to many of its smaller peers). A mooted 14p per share total return in 2019 equates to a stonking 7.5% yield based on last Friday’s closing price. Normally, I’d be wary of such a sizeable cash return but cover of 1.8 times by profit suggests holders should be able to sleep at night. 

The shares are down 30% since April, not helped by the ongoing trade friction between Donald Trump and China. Should a resolution be found in the near future, we could see a bounce. In the meantime, prospective investors will only be paying a little under 8 times earnings to acquire the stock.

Another company that pays great dividends is logistics firm Wincanton (LSE: WIN). After a tricky few years of trading, the Chippenham-based business appears to be in a far better place with May’s full-year results including a 28.2% rise in pre-tax profit and a 34.6% reduction in net debt. More recently, the company announced that it had won a five-year contract with Morrisons to provide transportation services from three distribution centres to the latter’s stores.

It might not shoot the lights out in terms of capital growth, but a mooted 11.7p per share cash return this year leaves Wincanton yielding 5.1%. Again, the fact that this is likely to be covered almost three times by earnings means anyone holding probably won’t need to question the sustainability of these payouts for a while. 

Despite operating in a low-margin industry, one might also argue that Wincanton’s stock is simply too cheap. A forward price-to-earnings (P/E) ratio of a little less than 7 gives a decent margin of safety in my book. 

A final stock that I think warrants further attention from income investors is publisher Bloomsbury (LSE: BMY), best known for introducing Harry Potter to the world. 

Following a decent couple of years in which its share price has climbed 37%, Bloomsbury isn’t quite the bargain it once was and now changes hands at 14 times forecast FY2020 earnings. That’s not ludicrously expensive, but it is fairly high relative to others in the industry.

The dividends still look attractive though. An 8.4p per share return in the current financial would mean a yield of 3.6% covered twice by profits. Bloomsbury also has no debt (appealing in the unpredictable world that is publishing) and, with the next illustrated version of JK Rowling’s still-outrageously-lucrative series due in October, should enjoy a good end to 2019.

The post 3 small-cap dividend stocks I think you may be overlooking 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?

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.

Works’ share price is up by 12% at the time of writing today, after an upbeat trading update reversed some of October’s losses. Do I think this the right time to invest in this potential growth story?

Inside ownership

One attraction is that The Works is chaired by Dean Hoyle, who founded the Card Factory chain of shops. Mr Hoyle grew Card Factory from a market stall to a company with annual profits of £50m in just 12 years.

Mr Hoyle sold some of his shares in The Works in the company’s IPO, but still has a 14.2% shareholding I estimate to be worth about £12m. This should mean his interests are well aligned with those of smaller shareholders.

Several of the firm’s senior managers also have stakes of around 1%, giving them a significant interest in the business.

Are the shares a buy?

The firm’s accounts suggest that this business isn’t quite as profitable as Card Factory. Sales of £192m in 2017/18 generated an operating profit of just £6.2m. That’s equivalent to an operating margin of just 3.2%, well below the greetings card retailer’s figure of 18%.

The Works is also operating with a significant amount of debt. Net debt was £24m at the end of April. That’s twice the group’s adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).

In addition to this, the company is committed to future lease payments of £135m on its store estate.

Analysts expect the firm to report adjusted earnings of 9.1p per share this year, rising by 30% to 11.8p per share in 2019/20. These forecasts put the stock on a price/earnings ratio of 16 for the current year, falling to a P/E of 12.3 next year.

Dividend payments are also expected, with a forecast yield of 2.5% this year and 3.2% next year.

The Works expects to open 50 new stores in 2018/19, and a similar number the following year. If this expansion can be achieved without any loss of profitability, then I think the shares could be a decent buy at current levels.

My concern is that the firm’s slim margins and big store estate leave it vulnerable to rising costs and the high street slowdown. For these reasons, I won’t be investing at this time.

One creative company I do own

Some of The Works’ customers are probably also customers of Harry Potter publisher Bloomsbury Publishing (LSE: BMY).

The schoolboy wizard isn’t Bloomsbury’s only success. The firm also sells academic books and non-fiction ‘coffee table’ titles, for example. Sales have risen from £109m to £161m since 2014, while profits have risen from £7.7m to £9.1m over the same period.

The group’s profit margins are slightly lower than they were, but cash generation remains strong and the group reported a net cash balance of £17m at the end of August.

Since peaking at more than 250p in June, Bloomsbury’s share price has fallen by more than 20% to about 195p. This puts the stock on forecast P/E ratio of 13.4, with a dividend yield of 4.1%

I hold the shares myself and would consider buying more at this level.

The post Should you keep buying The Works IPO after share price climbs 10%? 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?

Roland Head owns shares of Bloomsbury Publishing. The Motley Fool UK owns shares of Card Factory. 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 the end of the current tax year just around the corner, time is running out for investors to take advantage of their annual £20,000 ISA allowance. Fail to use it by April 5 and it’s gone forever.

For those seeking income from their investments, however, there’s another big reason to get things sorted. Thanks to the forthcoming cut to the dividend allowance (from £5,000 to £2,000), it’s now more important than ever to shelter big payers within these tax-efficient accounts.

With those investors in mind, here are three companies that I think look decent picks at the current time.

Grab those dividends

Harry Potter publisher Bloomsbury‘s (LSE: BMY) share price may have been somewhat erratic over the last year — bouncing around between 160p and 180p — but recent trading suggests that its ability to pay decent dividends isn’t in danger.

Last week’s update for the year to the end of February revealed that profits would be “well ahead” of management expectations as a result of “excellent sales” and “lower than anticipated returns“. At around £25m, the company’s net cash position is also likely to be “significantly ahead” of that predicted.

Shares in the small-cap come with a forecast 4% yield based on current earnings estimates for the next year. The fact that increases in the total payout have been remarkably consistent over the years at around 4%-5% is also worth highlighting.

All this for a forecast 14 times earnings. That looks a pretty good deal to me.

Next on my list of top picks for dividend investors would be £700m cap fantasy figure maker Games Workshop (LSE: GAW) — a company whose share price has climbed almost 350% in just two years, making it one of the best performers in the main market.

February’s (extremely brief) trading update was positive with the Nottingham-based business stating that recent growth trends had continued to the end of January. As a result, sales and profits for the current year to date were “slightly above expectations“. 

Even if owners are unlikely to see share price gains similar to those experienced in recent years, Games Workshop boasts excellent free cash flow, a robust balance sheet, repeatedly high returns on the capital it invests and great operating margins. A valuation of 13 times earnings still doesn’t feel excessive, particularly given the 5.3% yield on offer.

Mid-cap instant service equipment provider Photo-Me International (LSE: PHTM) may not grab many headlines but it looks another solid option for dividend hunters.

December’s interim results were decent enough with revenue up 7.8% (to £122.2) at constant currency. Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 7.9% to just under £45m as the company revealed “continual strong performance” in its various operations. Particularly noteworthy was the 75% rise in total revenues at its laundry business, going some way to explaining why this is now seen as a “primary growth driver” for the Bookham-based firm. 

Although net cash levels fell due to ongoing investment and — positively — higher payouts to shareholders, Photo-Me still had £47.1m at the end of the six months.

Perhaps the most important news for income investors, however, was the 20.1% hike to the interim payout. Based on current estimates, it looks likely that the stock will yield just under 5% in the current financial year. With the best instant access cash ISA offering a paltry 1.3%, I know where I’d rather put my money.

The post 3 top dividend stocks to consider before the ISA deadline appeared first on The Twelfth Magpie.

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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.

Good progress?

Perhaps we shouldn’t be too harsh. Pearson did at least manage to achieve underlying revenue growth of 1% in the first half of 2017 to just over £2bn. This was attributed to better sales and lower returns in the company’s key North American higher education courseware business and “modest growth” in its computer-based testing division. Sales growth was also seen in Australia, China and South Africa. That said, the impact of these gains was reduced by “expected declines” in US school assessment, economic concerns in Brazil and as a result of Pearson exiting markets in the Middle East.

Thanks to recent restructuring and favourable currency fluctuations, adjusted operating profit rose to £107m from just £15m in H1 2016. Full-year profit guidance was maintained at between £546m and £606m.

Pearson now intends to continue simplifying its business and reduce costs by an extra £300m by the end of 2019. In addition to cutting roughly 3,000 jobs, savings will be generated from greater use of shared service centres, increased automation, changes to procurement and office closures. 

Of course, slashing costs will always be popular with investors. Nevertheless, few are likely to be cheering the 72% reduction to the interim dividend, even if the company does plan a share buyback of £300m following the sale of its stake in Penguin Random House. While the former was seemingly inevitable, it does beg the question as to why anyone would choose to invest in Pearson over far more stable companies at the current time, particularly as its stock still trades on a still-rather-dear valuation of 14 times earnings.

A recovery in fortunes isn’t beyond the bounds of possibility but — following today’s dividend chop — I’d continue to avoid Pearson for now.   

A far better buy

Although very much a market minnow in comparison, I still think Harry Potter publisher Bloomsbury (LSE: BMY) is a far better buy.

In its recent Q1 trading update, the £129m cap reported a 19% year-on-year rise in total revenue for the three months to the end of May (13% in constant currencies). While much of this can be attributed to encouraging performance in its Consumer division, its Non-Consumer counterpart also registered a 16% rise in sales of digital resources. Bloomsbury Popular Music seems to be winning fans in academic library trials and Bloomsbury Professional Online has, according to the company, had a “strong start” to the year. Recent months have also seen the release of law resources and the company’s Design Library. 

The publication of two new Harry Potter-related books in October to coincide with an exhibition at the British Library should go some way to helping Bloomsbury meet analyst expectations of 14% earnings per share growth in the current financial year.

Although never likely to fly in price, the decently-covered 4% yield on offer suggests that Bloomsbury is one stock worth tucking away. 

The post Why I’d still avoid shares in this FTSE 100 basket case appeared first on The Twelfth Magpie.

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Paul Summers 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.