System1 Group

System1 Group (LSE: SYS1) shares have been on fire in 2017, rising over 60% this year. Formerly known as BrainJuicer Group, System1 is a marketing and brand consultancy, with proprietary market research and advertising solutions based on the field of behavioural science. In layman’s terms the company focuses on understanding how people make decisions.

In the past, the research industry has assumed that humans make choices consciously and rationally. However according to System1, a growing body of evidence suggests these assumptions are wrong and that humans often make unconscious decisions that are influenced by their social, personal and environmental context. This is where System1 adds value – by helping its clients understand how decisions are made.

The £104m market cap company has enjoyed robust revenue and earnings growth over the last five years with revenue increasing 50% to £31.2m for the 12 months to the end of 2016, and earnings more than doubling in this time, from 15p to 32p. Cash generation has been impressive and the company generated a high return on equity of over 40% in 2016. System1 also has no debt.

The group is changing its year-end date from 31 December to 31 March, and earlier this week updated the market on trading for the 12 months to the end of March. Revenue grew 27% (13% on a constant currency basis) to approximately £33m, gross profit increased 29% (15% constant currency) to £27m, and management stated that the company has “continued to trade strongly since December 2016.”

With the shares up 60% year-to-date is it too late to buy? City analysts forecast earnings of 39.3p per share for FY2017, placing the company on a forward-looking P/E ratio of around 22.5 at the current share price. The group’s enterprise value (EV)-to-sales ratio is approximately 3.1. At those multiples, the stock isn’t cheap, but in my opinion it’s not overly expensive either given the growth record. I therefore wouldn’t be surprised to see the share price continue trending upwards.

Swallowfield

Another small-cap performing well in 2017 is £55m market cap, Swallowfield (LSE: SWL), rising 24% this year.  

Swallowfield is engaged in the development, formulation and supply of personal care and beauty products, and owns brands including The Real Shaving Company and MR Jamie Stevens.

Revenue increased 10% in FY2016, and adjusted earnings per share spiked 91% to 12.6p. Analysts anticipate sizeable earnings growth for 2017, with 20.7p per share forecast. That places the company on a forward-looking P/E ratio of 15.9, a reasonable valuation given the growth in earnings in recent years. An EV/sales ratio of 1.04 is also undemanding.

Although Swallowfield recently stated that the fall in sterling and global inflationary pressures could bring uncertainty in the months ahead, the company also stated that it remains “confident that our strong overall trading momentum will compensate in the current year.” As a result, I see no reason why the share price can’t continue to move upwards over time.

The post Two small-caps that have outperformed Hurricane Energy plc this year 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?

Edward Sheldon 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.

UK companies are particularly attractive. Thanks to the fall in the value of the pound, UK firms are now cheaper for foreign predators. 

Marketing agency BrainJuicer Group (LSE: BJU) is a great example. Its growth over the past few years has been nothing short of outstanding and the company is now looking to expand around the world after a successful rollout in the US.  To this end, the head of the group’s Americas business, Alex Hunt, has been promoted to lead the market research account management side of the business worldwide.

Group revenue expanded by a quarter last year, or 15% at constant currency and profit before tax rose 38%. Over the past three years, profits have increased more than 300%. 

With a market capitalisation of £100m, BrainJuicer is one of the smaller marketing agencies trading in London. The company’s size makes it the perfect acquisition target for a larger peer that can absorb the business and use existing connections to boost growth. The only problem is the shares look pricey, trading at a forward P/E of 26.3. But for the right buyer, BrainJuicer could be a juicy acquisition. 

Industry consolidation 

IG Group (LSE: IGG) is another firm that could find itself becoming prey to a larger peer. Thanks to regulators’ crackdowns on CFDs and spread betting, there’s a heightened chance of a deal as companies consolidate to lower costs and drive growth. As the UK’s largest CFD provider, IG would have to be acquired by a bigger fish, but there’s no shortage of large banks and asset managers looking to improve revenue while at the same time keep costs down. 

After recent declines, the shares are trading at an attractive forward P/E of 11.3 and support a dividend yield of 6.1%. 

City analysts expect the firm’s earnings to fall next year as the regulatory crackdown comes into force. Earnings per share are slated to fall 11% before rebounding by 6% the year after. 

Retirement sale

Renishaw (LSE: RSW) could be a possible takeover candidate for two reasons. Firstly, the group is one of the UK’s leading engineers and secondly, two of the company’s largest shareholders, chief executive and chairman David McMurtry and deputy chairman David Deer, are aged 76 and 78 respectively. 

Together these managers own around half of the company’s outstanding shares, and they could be contemplating a retirement sale. They’re also more likely to be open to hostile offers for the business with retirement on the horizon. 

That said, the company has a strong working culture, and management has always worked hard to keep jobs rather than cut them during cyclical downturns. So if management is approached, it’s likely they’ll seek to do the best deal for workers. 

Shares in Renishaw currently trade at a forward P/E of 27.9. 

The post Merger mania: 3 under-the-radar takeover targets appeared first on The Twelfth Magpie.

More reading

• This red-hot growth and dividend stock just entered the FTSE 100. Should investors consider buying it?
• 3 UK stocks to consider snapping up if the stock market crashes this month

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

Small cap, big growth

Veterinary medicine supplier Animalcare Group (LSE: ANCR) may not be a company that’s on your radar. But the group’s shares have risen by 56% over the last 12 months and recent results suggest that the shares may be worth a closer look.

Animalcare’s sales rose by 12% to £7.97m during the six months to 31 December. Operating profit rose by 23% to £3m, while the group’s operating margin rose from 21% to 23.2%. Retailers’ profit margins often rise as they sell more stuff, because their fixed costs per unit sold fall. This is known as operational gearing.

The shares now trade on a 2016/17 forecast P/E of 21, with a prospective yield of 2.1%. That’s not cheap, but the group’s £7m net cash balance and high profit margins should help to limit downside risk. I’d continue to hold.

Shareholder returns could rise

Trading is expected to improve over the coming year at fashion giant Burberry (LSE: BRBY). The impending arrival of the firm’s highly-rated new chief executive, Marco Gobbetti, could provide a further catalyst for the stock.

After a period of poor performance, there are already signs of improvement. Underlying sales rose by 4% to £735m during the third quarter, with comparable sales growth of 3%. The firm’s Asia Pacific division returned to growth and Burberry notched up comparable sales growth of 40% in the UK, thanks partly to tourists cashing in on the weaker pound.

Burberry shares aren’t cheap, on 22 times forecast earnings and with a 2.3% dividend yield. The weak pound has also boosted profits.

However, the group’s profit margins are attractive, and a high percentage of earnings are converted into free cash flow each year. Net cash of £529m means that there is scope for further share buybacks, dividends or even acquisitions. I’d hold, and would be a buyer below 1,500p.

Juicy performance could reward shareholders

BrainJuicer Group (LSE: BJU) may have a crazy name, but the group’s business is highly relevant and growing fast.

BrainJuicer is a hi-tech marketing consultancy. It uses in-house systems to help companies strengthen their brand appeal and make their advertising more effective.

For investors, the attraction is that earnings per share have risen by an average of more than 15% each year since 2011.

This stock has risen by 29% so far this year. An upbeat trading statement in January was followed by strong results in February. BrainJuicer reported a 24% rise in revenue and a 38% increase in pre-tax profit for 2016. Net cash was £7.75m at the end of the year, despite the firm returning £5.25m to shareholders in 2016.

In my view, BrainJuicer’s biggest weakness is that forward earnings visibility is limited. The group’s track record suggests this is an acceptable risk, but the stock’s forecast P/E of 17 doesn’t leave much room for error. I’d hold at current levels.

The post 3 growth stocks that could make you rich appeared first on The Twelfth Magpie.

More reading

• This FTSE 100 share pays no dividends. Could that change?

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

At the time of writing, BrainJuicer is up by just under 16% on the day, capping what has been a spectacular year for the company. Indeed, this time last year it looked as if the market had turned its back on what was perceived to be a struggling business. At the beginning of February 2016 the shares hit a low of 273p, but since then there’s been nothing but good news from the firm. As a result, over the past year shares in BrainJuicer have gained a staggering 145% excluding dividends. Including dividends, the shares have produced a return of 153% for investors. 

And today’s update indicates that further gains could be on the cards. For the full year gross profit increased by approximately 15% as BrainJuicer’s Advertising Testing and Brand Tracking services delivered strong growth. Gross profit from these two businesses alone rose by 80% and now represents 39% of BrainJuicer’s total gross profit, compared with 27% in 2015. 

As its legacy business continued to report strong growth, the group’s new venture, the System1 creative advertising agency, launched in early 2016, got off to a promising start with costs already offset by revenues. System1 was set up with a relatively small capital budget of £300,000, so a quick payback is likely. 

Cash machine 

Shareholders will also be pleased to know BrainJuicer continues to churn out cold hard cash at an extremely impressive rate.  The firm finished the year with a cash balance of £7.8m, up from £6.4m at the end of 2015 despite paying out £5.2m in regular and special dividends over the year. Based on these figures I estimate free cash flow is around £6.6m per annum. 

After these impressive results, it’s no surprise that shares in BrainJuicer are trading at a high multiple of 19.6 times forward earnings. Still, with earnings per share growth of 20% pencilled-in for 2016, the shares don’t seem that expensive compared to the estimated growth rate. 

A cheaper bet? 

Another cash cow that trades at a more attractive valuation is Gocompare.com (LSE: GOCO). 

Gocompare issued its full-year 2016 trading update last week, reporting a 30% year-on-year increase in adjusted operating profit. Revenue rose 19% to £142m. However, the most important figure was cash generation. For the period, the company generated enough cash to bring its operating leverage down from 2.8 times at the time of its demerger from Esure to two times at the end of the year. Considering the business has only been independent since the beginning of November, this is impressive.

Based on current earnings forecasts, shares in Gocompare are trading at a forward P/E of 13.9 for the year ending 31 December 2017. Analysts expect the company to pay dividends to investors of 1.7p per share over the year for a yield of 2.1%, although with cash generation strong, I wouldn’t rule out special dividends during the year. 

The post After jumping 140% in a year, is there still time to buy BrainJuicer Group plc? 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 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.