Looking at the figures published by the company this morning for the three months to the end of January, I believe that this valuation undervalues the group and its prospects. 

Improving returns 

The company reported this morning that it managed to increase its number of vehicles on hire (VOH) for the first time in three years in the last fiscal quarter. During the period, the number of VOH ticked higher by 0.7%, which, considering the lack of growth over the past three years, is an impressive achievement. The firm expects this trend to continue for at least the first half of 2018. 

This turnaround follows the introduction of some self-help measures outlined by management during the Capital Markets Day on 4 October 2017. As well as improving sales trends, the firm is also looking to optimise its capital base by selling vehicles only when they have reached an age which maximises cash returns for shareholders. 

This should lead to an improved return on capital — a measure of how much profit a business makes for every £1 invested — for the group as it squeezes more life out of its asset base. Getting more life out of its vehicles will also mean lower levels of capital spending, which could translate into higher returns for shareholders, great news for dividend-seeking investors. 

Overall, with cash returns likely to increase going forward and growth returning, shares in Northgate look absurdly cheap right now.

Market rebound 

Another small-cap income stock that I believe looks too cheap to pass up is Braemar Shipping Services (LSE: BMS). Over the past few years, this shipping company has struggled as a glut of large transport ships has depressed the market. From a net profit of £6.8m in 2012, Braemar crashed to a loss of £0.5m in 2017. Nonetheless, analysts expect earnings to recover for 2018 with a net profit of £6.5m pencilled in and earnings per share of 21.4p. 

And it looks as if the company is on track to hit these figures. Alongside the firm’s interim numbers, chairman David Moorhouse said, “We are well placed to deliver a stronger second half business performance compared with the first half of our financial year, as Braemar’s improving momentum continues.” 

Still, despite management optimism, the market is unconvinced. The shares currently trade at a discount forward P/E of 9.4 and support a dividend yield of 6.4%. The payout is covered 1.5 times by earnings per share and is also backed up by £6.4m of cash on the balance sheet. 

The post 2 small-cap dividend stocks that look absurdly cheap right now appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Northgate. 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.

A turnaround opportunity

Property and energy group Hargreaves Services (LSE: HSP) is midway through a transformation that should see it move out of the coal industry and become a property and renewable energy group.

Although the gradual decline of the group’s coal mining and distribution business has been painful, it’s become apparent that the company owns a lot of valuable land, equipment and coal stockpiles.

Many of these assets have now been sold, while the land is being channelled into alternative energy, industrial and residential developments. Management expects to generate £35m of value from land assets by 2021 — a significant amount for a £115m firm.

Alongside this, the group has continuing operations in the transport and construction sectors, as well as a specialist coal trading operation in Germany, where the industrial market for coal is much stronger.

Available at a 20% discount

Hargreaves published its interim results today. Revenue fell by 12% to £150.3m due to lower levels of asset sales, but underlying operating profit rose by nearly 10% to £2.3m. The group’s underlying earnings per share rose from 0.3p to 2.7p, supporting guidance for full-year earnings of 5.4p per share.

A fall in debt helped to lift the group’s net asset value from 406p to 423p per share. Based on the current share price of 350p, this suggests the group’s shares could climb by at least 20% as value is gradually realised from its assets.

Having followed this stock for several years, I’m comfortable with the company’s projected figures. The group’s guidance to date has been very accurate. Another attraction is that chief executive Gordon Banham owns an 8% stake in the company, so his interests should be closely aligned with those of shareholders.

Trading on a 2018/19 forecast P/E of 15 and with a 2% yield, I continue to rate this stock as a value buy.

This could sail away

Shipping services group Braemar Shipping Services (LSE: BMS) has faced difficult conditions over the last few years. Downturns in both the oil and shipping sectors caused demand for its broking and technical services to slump.

However, both oil and shipping appear to be turning a corner. Braemar has also cut costs and made several acquisitions which will increase the range of financial services it can offer.

Trading has been stable and full-year profits are expected to rise modestly this year. Brokers covering the stock have turned increasingly positive — forecasts for 2018 earnings have risen from 19.6p per share in February 2017, to 21.4p per share today.

This increase hasn’t yet been matched by the share price, which is currently slightly lower than it was a year ago. In my view, this could be a buying opportunity.

Like Hargreaves Services, Braemar has a strong balance sheet with very little debt. I can see no danger of financial distress, and the company’s cash flow has allowed it to continue paying a dividend, albeit reduced.

These shares currently trade on a forecast P/E of 11.5 with a prospective yield of 5.9%. I rate the stock as a buy, and may add more to my personal holding.

The post 2 small-cap dividend stocks I’d buy with £2,000 today appeared first on The Twelfth Magpie.

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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head owns shares of Hargreaves Services and Braemar Shipping Services. 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.

Marine services group Braemar Shipping Services (LSE: BMS) has had a mixed few years. Its recovery from the shipping downturn hasn’t been as convincing or rapid as some rivals. But I’ve been attracted by the group’s strong cash flow and modest valuation, relative to its historic profits.

Braemar published its half-year results on Monday, revealing a mixed picture. The group’s revenue from continuing operations fell by 5% to £66.6m, but operating profit, excluding acquisitions, rose from £1.4m to £2.3m. This helped to increase the group’s underlying operating profit margin from 1.9% to 3.4%.

Although much of this gain was due to a reduction in restructuring costs, I was encouraged to see that improved cash flow resulted in net cash of £6.4m, broadly unchanged from £7.1m at the end of February.

An improving outlook

The company says that its shipbroking and logistics divisions are now trading well, with new business in many areas. The technical division – which is heavily exposed to the oil and gas industry – has now been restructured. This is expected to result in annual cost savings of £6m. I’d expect this to allow the division to operate profitably at lower levels of activity.

Chairman David Moorhouse says that Braemar is “well placed to deliver a stronger second half” and the group is “in line to meet our objectives for the full year.”

My reading of this is that full-year results are expected to be in line with current forecasts. If that’s correct, then the shares currently trade on a forecast P/E of 14, with a prospective yield of 4.9%. I believe this could be an attractive entry point, and I’m considering adding more shares to my personal holding.

This is different

Shares of troubled outsourcing group Carillion (LSE: CLLN) spiked nearly 50% higher following September’s half-year results. But the stock has since given up these gains.

I’m not surprised by this. Carillion reported average half-year net debt of £694m in its results, and indicated that the average figure for the full year is likely to be between £825m and £850m. That’s seems far too high to me, given that the company is only expected to report an adjusted net profit of about £103m this year.

A second red flag is that the company’s equity or ‘book’ value – the amount left when liabilities are subtracted from assets – turned negative during the first half of the year. This implies that in a liquidation scenario, the company would be unable to satisfy all its creditors, leaving nothing for shareholders.

Carillion’s management is trying to address these problems by selling parts of the business and cutting costs elsewhere. This may succeed. But in my view the debt burden is so large that some kind of refinancing is likely to be necessary to strengthen the balance sheet and stabilise the group’s finances. This could be highly dilutive for shareholders.

The shares currently trade on a forecast P/E of just 2. In my view, this rating indicates the high risk of losses facing Carillion shareholders. I would continue to avoid these shares.

The post One high-yield turnaround stock I’d buy instead of Carillion plc appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head owns shares of Braemar Shipping Services. 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 past three years have been rough for Braemar Shipping Services (LSE: BMS). Despite improving global growth, overcapacity in the shipping sector has kept rates under pressure, which means revenues across the industry have slumped. 

It doesn’t look as if this malaise will dissipate any time soon as low-interest rates are helping zombie shipping firms survive in a highly competitive market.

Today’s trading update from Braemar confirms this worrying trend. Group underlying operating profit collapsed to £3.5m for the year ending 28 February 2017, from £13.8m for the previous year. Revenue declined to £139.8m from £159.1m, and the group’s cash balance contracted to £7.1m, down from £9.2m. 

Considering these dismal results, management has recommended a final dividend payout of 5p per share, giving a full-year dividend of only 14p compared to last year’s payout of 26p. Underlying basic earnings per share for the period hit 8.7p.

Steady recovery 

After a year of restructuring, City analysts expect Braemar’s earnings to rebound by as much as 112% for the fiscal year ending 28 February 2018, but even after this growth, the shares still look unattractive. 

Indeed, if earnings per share recovered to the City target of 18.5p, shares in Braemar will be trading at a forward P/E of 17.2 — an extremely demanding multiple for a company that has seen earnings per share cut in half over the past five years.

Overall, considering the headwinds currently facing the shipping industry and Braemar’s expensive valuation, this is one small-cap I believe investors should avoid.

On the other hand, landscaping products company Marshalls (LSE: MSLH) looks to me to be an attractive investment. Over the past five years, shares in the company have returned more than 340%, excluding dividends and today the shares are trading up by 3.4% after the company published yet another upbeat trading update. In the update, management noted that group revenue for the four months ended 30 April 2017 was up 6%, and cash generation has remained strong with net debt falling to £19.1m, from £33.1m at the end of 2016. 

Further growth ahead

Over the past five years, Marshalls’ earnings per share have grown nearly fourfold as management has pursued an aggressive expansion strategy. Since year-end, 2013 pre-tax profit has risen by 280% as revenue has increased by a third. 

City analysts are expecting further growth in the years ahead as management presses ahead with its 2020 strategy. This strategy is focused on cash generation and select acquisitions to grow earnings and revenue at a steady, sustainable rate. As this plan unfolds, City analysts are projecting annual earnings per share growth in the high single-digit range for the next few years 

Even though shares in Marshall’s trade at a relatively high forward earnings multiple of 19.3, with this plan for steady growth in place, I believe it’s worth paying a premium for the shares. The company looks set to continue to produce stable returns for investors going forward.

The post One small-cap I’d avoid and one super growth stock I’d buy appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Marshalls. 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.

Not as cheap as it seems

At first glance, housebuilder Inland Homes (LSE: INL) looks good value. At 62p, its shares trade at a 28% discount to their post-tax EPRA net asset value of 87.05p per share. The forecast P/E of 2017 is just 9.3 and the stock offers a 2.1% yield.

When a housebuilding stock trades at a discount to net asset value, it usually means that the firm’s assets in their current state are thought to be worth more than the share price. But Inland’s use of the EPRA net asset value alters this. The EPRA calculation — a European standard — allows companies to include “unrealised value within projects” within their calculation of net asset value.

This makes a big difference. Inland’s balance sheet net asset value is £118m, or 55.3p per share. But the company expects to make a profit of £67m, or 31.4p per share, from its current projects. Adding these two figures together gives the EPRA net asset value of 87.05p.

The risk is that this unrealised value depends on market conditions remaining favourable in the future. So I think it’s reasonable for the shares to trade at a discount to EPRA NAV, especially as Inland has net debt of £61m and seems to lack the strong free cash flow of larger housebuilders.

In my view, the balance sheet net asset value of 55p per share is probably a good guide to the fair value of the stock. I’d rate this firm as no more than a hold at current levels.

This stock could sail away

One stock I have bought recently is shipping broker and marine services group Braemar Shipping Services (LSE: BMS). Shares in this firm have fallen by 29% over the last year, as weak market conditions have caused profits to tumble. But Braemar stock has risen by 24% over the last month.

What’s interesting to me is that this surge of buying comes ahead of next week’s full-year results. This suggests to me that investors in the market believe the shares have been oversold and that Braemar’s full-year results will put a more positive spin on the outlook for the firm.

One potential attraction is the group’s dividend. In a trading update in January, Braemar reported a net cash balance of £1.7m and indicated plans to pay a final dividend of 9p per share for the year to the end of February. That gives a total dividend of 14p for the year, equivalent to a yield of 4.3%.

Broker consensus forecasts suggest that Braemar’s profits will rebound sharply this year, helped by the start of a recovery in the oil and shipping markets. Current estimates indicate that the after-tax profit could climb from £2.4m to £6m in 2017/18.

This would put the stock on a forecast P/E of 14, with a prospective yield of 4.4%. In my view, that’s an attractive entry point, given the group’s net cash balance and history of strong cash generation.

The post One small-cap growth stock I’d buy, and one I’d avoid appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head owns shares of Braemar Shipping Services. The Motley Fool UK has recommended Inland Homes. 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 same terminology can be applied to fallen dividend angels — those companies once considered dividend champions but now unloved by income investors. 

Out of favour

Talktalk Telecom (LSE: TALK) is one such fallen dividend angel. This time last year the company was considered a safe bet for income investors. Operating in the traditionally defensive market of telecoms, Talktalk paid out most of its income to investors via dividends and was highly praised by income investors. But storm clouds are gathering over the firm. 

Talktalk’s management is still committed to the company’s dividend payout. At the time of writing, the shares support a dividend yield of 8.6%, and management has stated the payout will be maintained at this year’s level during 2017. 

However, Talktalk’s debt is rising, and City analysts are now openly calling for the company to cut its dividend and prioritise debt repayment as earnings fall. The company was recently forced to ask bankers for a £75m receivables purchase agreement to improve its financial position and almost all of the company’s debt now falls due within three years. Maybe it’s wise to avoid Talktalk for now despite its high-single-digit dividend yield. 

Regulator clampdown 

Shares in Plus500 (LSE: PLUS) plunged earlier this month after the FCA issued new rules on the promotion of CFDs to retail investors. These declines have left shares in the company supporting a highly attractive dividend yield of 11.7% but this yield might not be around for long. 

According to Plus500’s management, the new FCA rules will have “a material operational and financial impact on the UK regulated subsidiary.” The company’s dividend payout is only covered one-and-a-half times by earnings per share, which doesn’t leave much room for flexibility, indicating to me that the payout could be cut next year as regulations come into force.  

Shipping sector problems 

Braemar Shipping Services (LSE: BMS) has been hit by the general downturn in the shipping industry this year. The company’s shares have lost a third of their value as management has warned on profits and City analysts have downgraded forecasts. For the year ending 28 February 2017 analysts are expecting earnings per share to decline 39% to 21p, which means that even after recent declines, shares in Braemar are trading at a forward P/E of 12.9. The company’s dividend will be held steady at 26p for this financial year. 

Next year, Braemar’s financial position is expected to improve. City analysts have pencilled-in earnings per share of 27p for the year ending 28 February 2018, up 28% year-on-year. The payout is expected to be held at 26p. If Braemar’s earnings recover to this level, it’s likely the dividend will be maintained so the current 9.3% dividend yield could be here to stay. 

The post Are these fallen dividend angels too cheap to pass up? appeared first on The Twelfth Magpie.

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Rupert Hargreaves 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.

However, after the recent market rally, which has affected almost every stock trading on London’s main market (excluding AIM), there are only five stocks currently trading at, or close to 52-week lows according to data from Morningstar.

Cheap and cheerful 

Topps Tiles (LSE: TPT) is one of the five most unloved stocks in London today. Shares in Topps are down by 50% year-to-date despite the fact that the group recently issued a relatively upbeat trading statement. 

At the beginning of October, Topps reported that it expects to report a rise in revenue and profit for its full year ended October 1. Management expects like-for-like revenue to be up 4.2% against the prior year while adjusted pre-tax profit is expected to be in line with market expectations and new products seem to be selling well. 

The one negative in the report was the revelation that company trading performance deteriorated in the months after the Brexit vote. For the trading quarter ending October 1, revenue growth slowed to 1.4%, compared to 5.2% recorded for the same period a year earlier.

Still, the company looks cheap compared to City expectations for growth this year and next year. Earnings per share growth of 10% is expected for the company’s financial year ending October 1 and growth of 4% is expected for the year after. Earnings per share of 9p are pencilled-in for the fiscal year just ended, with earnings of 9.3p per share predicted for next year. 

Based on these estimates the company is trading at a forward P/E of 8.7. As well as the company’s attractive valuation, shares in Topps also support a dividend yield of 4.3% at current prices. This is one bargain stock that could be worth a closer look.

Shipping troubles 

One of Topps’ comrades in the bargain bin is Braemar Shipping Services (LSE: BMS). Shares in Braemar have plunged by nearly a third this year and are closing in on a five-year low as the company struggles with hostile conditions in the shipping industry. 

For the first six months of the company’s financial year, pre-tax profits collapsed to £150,000, down from £5.2m a year prior. Revenue dropped 12% to £70.2m. For the full year, management expects results to be “materially lower” than the prior year, with softer activity levels and freight rates amid a “marked slowdown” in the tanker segment dragging on its shipbroking revenue. 

City analysts are predicting a 38% decline in the company’s earnings per share for the year ending February 2017 but expect earnings to rebound 24% next year to 26.7p per share. Based on these estimates, the company is trading at a forward P/E of 14.3, which looks expensive. 

Braemar’s one redeeming feature is the company’s dividend yield, which currently stands at 8.1%, although considering the dividend payout won’t be covered by earnings per share this year, I wouldn’t bet on this yield for the long term. Based on Braemar’s falling earnings and unsustainable dividend, the shares appear to deserve to trade at a 52-week low.

The post Should you buy these two stocks trading at 52-week lows? appeared first on The Twelfth Magpie.

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Rupert Hargreaves 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.