Market-beating return

Over the past few decades, the FTSE 100 has turned out a steady average annual return of around 8%. Private hospital provider NMC Health (LSE: NMC) has smashed this record by a wide margin. 

Over the past five years, the shares have produced an average annual total return of just under 64%. At this rate, if you’d invested £1,000 in the company back in 2013, today your investment would be worth approximately £12,000.

The question is, can investors expect a similar rate of return over the next five years? I believe there’s a good chance that they can.

Bigger and better

Since 2013, NMC’s management has achieved an outstanding record of earnings growth. Earnings per share (EPS) have risen by approximately 160% in five years (to the end of 2017). Analysts expect this trend to continue. EPS growth of 47% is projected for 2018, followed by an increase of 30% in 2019. 

And if the company meets these forecasts, EPS will be up just under 400% in seven years. For a PLC with a market capitalisation of £7.6bn, this rate of growth is nothing short of outstanding.

Unfortunately, NMC’s potential is well known, and the market is placing a significant premium on the shares. They currently trade at a historical earnings multiple of 49.7. However, on a forward-looking basis, the shares are trading at a 2019 P/E of 26. That’s not too demanding, but plenty could go wrong over the next two years.

Still, I’m confident that this private healthcare provider is well placed to continue to snowball, not just for the next two years but for the next several decades. The group operates healthcare facilities around the globe although its assets are primarily concentrated in the United Arab Emirates, the wealthiest country in the world on a per capita basis. 

As demand for healthcare is only going to grow, NMC is unlikely to struggle long term. So if you are looking to add to your retirement portfolio, in my opinion NMC is indeed worthy of further research.

Unlocking value 

Another business that looks as if it has attractive long-term prospects is children’s services provider Cambian (LSE: CMBN). Today, this company announced that it had achieved a 7% increase in revenues for the first half of 2018, along with a 40% jump in adjusted earnings before interest, tax, depreciation and amortization reflecting revenue growth and a reduction in overheads. 

Net cash on the balance sheet increased to £75m following the payment of a special dividend at the beginning of 2018.

These results are likely to be the company’s last as an independent business. CareTech Holdings is buying the firm for 100p in cash and 0.267 of a CareTech share, for a total consideration of 190p. The deal is expected to generate approximately £6m in cost savings. Considering the strengths of the Cambian business, I believe this could be an excellent combination. 

Cambian shareholders will end up owning approximately 34% of the enlarged business allowing them to benefit from further growth in the years ahead. City analysts believe that as one, Cambian/CareTech will see earnings growth of nearly 10% in 2019.

The post Have £1,000 to invest? An expensive (but market-beating) FTSE 100 champion could help you to retire early appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended NMC Health. 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 I’m looking at two potential dividend growth buys. Can either of these stocks help you retire rich?

A growth market

The ageing populations of most developed countries should be good news for ConvaTec Group (LSE: CTEC), which produces a range of disposable products needed by patients with chronic conditions such as incontinence and stomas.

The group’s focus is on products which require regular repeat purchases, and where demand is expected to grow. ConvaTec’s share price initially performed strongly after its flotation in 2016, but the stock fell sharply in October last year after it warned that sales would fall below expectations due to supply disruptions.

A buying opportunity?

This fall could be a buying opportunity. The group’s recent results showed a fairly stable performance in 2017. And although supply problems are expected to impact sales during the first half of the year, organic sales are still expected to rise by 2.5% to 3% in 2018.

Analysts expect adjusted earnings to rise by 12.5% to 18 cents per share in 2018, putting the stock on a forecast P/E of 15.3. The dividend is expected to climb 20% to 6.8 cents per share, giving a prospective yield of 2.5%.

ConvaTec’s net debt remains a little too high in my view, at $1.5bn or 3 times EBITDA. But cash generation is generally good, which should help with debt reduction. If you buy into this company’s structural growth story, the current share price could be a decent entry point.

Specialist services

Cambian Group (LSE: CMBN) provides a range of specialist services to support children with behavioural problems and learning difficulties. Its share price slipped 4% lower today after the group reported a pre-tax loss of £9m for 2017.

This loss was the result of £11.2m of exceptional costs incurred last year, as the company repositions itself to focus on higher severity services, which are presumably more profitable.  

Stripping out these one-off costs gives an adjusted pre-tax profit of £2.2m for 2017, compared to a loss of £0.4m for 2016. The group’s after-tax adjusted earnings rose by 50% to 3.6p last year.

Cash returns

Cambian sold its Adult Services division at the end of 2016. Much of the cash from this sale was used to repay debt. Most of the remaining cash has now been returned to shareholders, who received a special dividend of £50m (27.1p per share) in 2017. A further £15m (8.2p per share) was returned to shareholders in February.

I’m pleased that management is showing discipline and returning surplus cash to shareholders. However, it does leave me wondering whether the company’s expansion opportunities may be limited.

My view

Chief executive Saleem Asaria says that 2018 will be “a year of consolidation” that’s needed before the company can return to growth. City analysts expect the group’s adjusted earnings to rise by 80% to 6.3p per share this year, and are forecasting an ordinary dividend of 2.9p.

These figures put the stock on a forecast P/E of 32 with a prospective yield of 1.4%. Given the uncertainty over future growth, the stock looks too expensive to me. I’d like to know more before considering an investment.

The post Could this pharma stock help you become an ISA millionaire? appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Cambian era

The market response to the group’s unaudited results for the six months ended 30 June has been lukewarm, with the share price down around 3.42% at time of writing. The children’s behavioural services and specialist education business reported solid enough revenue growth of 6% to £100.6m, as it generated extra fees from its new strategy of taking on higher severity cases.

However, adjusted EBITDA of £8.4m rose only slightly from £8.3m in the first half of 2016. This reflects the loss of temporarily stranded assets following the sale of its adult services business, and temporarily higher overheads. Markets are clearly underwhelmed, even though the group also reported a strong balance sheet with net cash of £122.3m after repaying all bank debt at the end of 2016, funded by the adult services disposal.

Child-centred

The sale also allowed the group to return £50m to shareholders in the shape of a special dividend on 15 September. Management previously scrapped its dividend because of concerns over the group’s financial performance but this has now been reinstated with an interim payment of 0.14p per share. The return of the dividend had already been flagged up in April. A cost reduction programme is also underway.

CEO Saleem Asaria said the results were broadly in line with expectations, as the business positions itself as a specialist provider of children’s services, and concentrates on “high severity” cases. The return of the dividend reflects a strong balance sheet and confidence in the medium-term outlook.

Good behaviour

Investors are disappointed at the lack of any positive surprises, having to make do with “a stable performance during a period of transition”. Cambian has emerged as a more focused operation, with approximately 88,000 children now falling into its core target market, as it aims to become the highest quality provider of specialist education and behavioural health services for children.

It has a market cap of £377m and is rumoured to be pursuing bolt-on acquisitions to grow the business faster and build on its market-leading status. Today’s results show a company moving in the right direction but it needs to deliver a bit more excitement to tempt investors to buy a stock that is now trading at a whopping forecast valuation of 44 times earnings.

A bit pricey

That’s what can happen if your share price more than doubles in a year. Its heady valuation also prices-in plenty of future growth although things do look promising on that front, with City analysts forecasting full-year earnings per share growth of 88% in 2017 and another 36% in 2018. Definitely one to watch, although I would struggle to justify buying the stock at today’s price.

The post This under-the-radar stock turned £5,000 into £11,000 in just 1 year appeared first on The Twelfth Magpie.

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• With a 7% yield, is this dividend share a no-brainer?
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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?

Hdrvey Jones 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.

As an antidote, it’s worth remembering that the hat-trick of shocks we’ve had over the last year hasn’t stopped the shares of some companies from doing very well indeed. Here are just two of the best performing small-caps on the main market over the last 12 months.

Back on form

Shares in specialist behavioural education and care services provider Cambian (LSE: CMBN) are on something of a roll. Having climbed just over 150% in the last year, the £313m cap business is the best performing market minnow over the last 12 months. That’s right – the best. 

Back in April, it was announced that revenue over 2016 had climbed 13% on the previous year to £182m due to increased occupancy at its specialist schools and residential care homes. Following the recent sale of its adult services division for £379m, the company also reflected on the “significant opportunities for margin improvement and growth” that come from its decision to focus solely on the fragmented market in children’s services. Having now secured a £30m medium-term revolving credit facility and boasting a solid balance sheet, it seems only a matter of time before management keeps its word and announces a series of bolt-on acquisitions designed to further cement its market-leading status.

Another positive worth noting is Cambian’s intention to resume paying dividends to shareholders in this financial year — the actual amount for the interim payout being dependent on how the business performs over the period.

Woodford-backed beauty

Online booking platform (and Neil Woodford-favourite) Hostelworld (LSE: HSW) is another company whose shares have performed particularly well over the last year, having climbed 140% to sit at 366p each. While not the deal they once were, I can see this stock continuing to hit the radars of an increasing number of investors as we advance through the second half of 2017.

In his AGM statement at the start of this month, Chairman Richard Segal revealed that the “improved trading momentum” seen towards the end of 2016 had continued with Total Group bookings in the year to date were being ahead of those over the same period in the previous year. Importantly, this was seen in all regions, even if the demand for European destinations wasn’t quite as strong as elsewhere.

Sensibly however, Hostelworld’s board isn’t getting carried away. While remaining confident that expectations for the full year will be met, a lot will still depend on how the cash-generative company fares during the key summer holiday period. Given the many factors and events that can impact on sentiment towards the travel industry, success can never be taken for granted.

Like Cambian, shares in Hostelworld aren’t cheap, trading on a price to earnings (P/E) ratio of 22 for 2017, assuming a 186% increase in earnings per share. As such, this is another stock that I’d refrain from buying at the current time.

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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.

Strong performance

Thursday’s trading update from private healthcare group Mediclinic (LSE: MDC) shows that its current strategy is working well. Its largest platforms in Switzerland and South Africa, as well as its Dubai business, all performed in line with expectations in 2017. While its Abu Dhabi business was negatively impacted by regulatory change as well as operational difficulties, this was already priced into the company’s valuation. As such, its shares moved over 3.5% higher on the day of release.

Mediclinic is rightly focused on stabilising its underperformance in the Middle East. It remains optimistic about the long-term growth opportunities which the region offers. However, the reality is that it may take some time to turn around the disappointing performance in Abu Dhabi. As such, a downgrade to forecasts cannot be ruled out over the next couple of years.

Still, Mediclinic is expected to record a rise in its earnings of 23% in the current year, followed by growth of 14% next year. Since it trades on a price-to-earnings growth (PEG) ratio of 1.1, its shares seem to offer a sufficiently wide margin of safety to merit investment. While risk may be relatively high, the potential rewards on offer could be much higher than those of the FTSE 100.

Improving investor sentiment

Since the start of the year, the share price of specialist behavioural health services company Cambian (LSE: CMBN) has risen by 21%. This indicates that investor sentiment is improving and could continue to do so over the medium term.

Although Cambian is due to report a fall in its bottom line of 53% for the 2016 financial year, its upbeat growth outlook could lead to further capital gains for its investors. For example, its earnings are forecast to rise by 35% this year and by a further 20% next year. This could prompt further improvements to investor sentiment. Despite this positive outlook, the company’s shares trade on a PEG ratio of 0.9, which indicates there is scope for further capital gains over the medium term.

Certainly, Cambian’s track record of growth is relatively unstable. This means that its shares could be volatile over the coming months. However, there appears to be scope for it to outperform the FTSE 100 – especially while it trades at a relatively high level which is close to an all-time high.

The post 2 growth stars set to beat the FTSE 100 appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• 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?

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.

Today’s update from recycled packaging company DS Smith (LSE: SMDS) shows that it is making solid progress. Its performance is in-line with previous expectations and the trends described in its 9 March trading statement have continued. Encouragingly, DS Smith has enjoyed good volume growth across its business, with return on sales and return on capital improving versus the same period of the prior year.

Looking ahead, DS Smith continues to invest heavily in expanding its geographic footprint and customer offer. In fact, it has invested €600m in acquisitions in the last year and with growth in sales from its large pan-European customers having been particularly strong, it seems to be on the road towards becoming a more diversified business.

With DS Smith trading on a price to earnings (P/E) ratio of 12.9, it seems to offer good value for money. That is further evidenced by the forecasts for the company’s bottom line, with DS Smith’s earnings expected to rise by 13% this year and by a further 7% next year. As such, its price to earnings growth (PEG) ratio stands at just 1.3, which indicates that it could prove to be a profitable long term buy.

Delivering growth

Also updating the market today on its progress has been London Stock Exchange Group (LSE: LSE).  It recorded a strong performance in its first quarter, with all main business divisions delivering growth on an organic and constant currency basis. There was particularly strong performance in LCH revenues, with them rising by 12% at constant currency versus the comparable period from last year.

With LSE’s planned merger with Deutsche Borse set to create a larger and more enticing growth opportunity, this is an exciting time for investors in LSE. And with the company forecast to grow its bottom line by 19% this year and by a further 14% next year, it seems to be performing exceptionally well as a business. Furthermore, with it having a PEG ratio of only 1.4, its margin of safety appears to be sufficiently wide to merit investment at the present time.

Overly ambitious

Meanwhile, shares in Cambian (LSE: CMBN) were among the major fallers today after it released a rather disappointing set of full-year results. The specialist behavioural health services provider recorded a wider loss compared to the prior year, with its pretax loss amounting to £16.4m versus £4.2m in 2014. Part of the reason for this was an overly ambitious expansion plan, but with Cambian taking remedial actions, its future could be much brighter.

Furthermore, Cambian continues to experience strong demand for its services and it is confident that growth will be restored for the full-year. In fact, it is forecast to return to profitability this year and with Cambian’s shares trading on a PEG ratio of 0.4 they seem to offer a relatively appealing risk/reward ratio. Therefore, for less risk averse investors, Cambian could be worth a closer look.

The post Are DS Smith plc, Cambian Group plc and London Stock Exchange Group plc 3 stocks to avoid following today’s updates? appeared first on The Twelfth Magpie.

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

Paving the way for plump returns

Landscaping play Marshalls (LSE: MSLH) has emerged as one of the FTSE’s strongest performers in end-of-week trading, after releasing excellent full-year financials.

The company was last dealing 11% higher following news that revenues advanced 8% in 2015, to £382.6m, a result that helped propel pre-tax profit 57% higher to £35.3m. As a consequence Marshalls hiked the full-year dividend by almost a fifth, to 4.75p per share, and agreed to pay a 2p special dividend.

On top of this, Marshalls advised that the strength of the construction sector has underpinned a strong start to 2016 — orders are currently up 6% year-on-year despite tough comparatives.

The City expects Marshalls to enjoy earnings advances of 25% and 16% in 2016 and 2017 respectively, meaning a P/E rating of 16.5 times for this year, falling to just 13.8 times for 2017. I reckon this is exceptional value given the firm’s strong upward momentum.

Financial fevers?

Shares in health services provider Cambian Group (LSE: CMBN) collapsed on Friday, following the publication of a disastrous market update. The stock was last dealing 15% lower from the previous close.

Cambian advised that “it is likely that, in light of the ongoing finalisation of costs and the completion of its audit in respect of [fiscal 2015], results for the year will be slightly lower than previous guidance.”

As a result Cambian has breached financial covenants on its loans, it said, although the firm has been granted a temporary waiver while it enters into discussions with lenders. The firm hopes to conclude these talks before its full-year results announcement, scheduled for late April.

With Cambian having already warned of problems in its cost management processes — an issue that is expected to have “significantly impacted the second half of the year” — I believe investors should steer well clear until the picture becomes clearer.

Jumbo contract news

Oil services provider Petrofac (LSE: PFC) furnished the market with news of a massive contract win in Friday trade, although investors have refused to pile in and the stock was last 1.5% lower on the day.

Petrofac announced it had won a five-year, $250m contract to act as duty holder to support Anasuria Operating Company, a joint venture between Hibiscus and Ping Petroleum in the North Sea. The services play “will assume responsibility for the FPSO operations as well as for monitoring and managing the pipelines and wells with the exception of the Cook well,” it announced.

Of course new contract wins should be cause for fanfare. But despite today’s developments, I believe Petrofac remains a risk too far for investors, as the prospect of prolonged crude price weakness could lead to further project scalebacks across the oil and gas industries.

It could be argued that Petrofac’s P/E rating of 11 times for 2016 — based on predicted earnings of 128 US cents per share — reflects the company’s high risk profile. But I believe the potential for colossal bottom-line downgrades still renders the services giant an unattractive growth pick.

The post Should You Buy Friday Newsmakers Petrofac Limited, Marshalls plc & Cambian Group PLC? appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• 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?

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

In response, Cambian has put in place a number of changes in order to improve on its recent performance. For example, it expects to reduce capital expenditure by around £20m in 2016 and will restructure a number of business areas, including its human resources function. It will also seek to boost efficiency through better communication between its divisions, while cost reduction remains a key focus for the business moving forward.

Although today’s profit warning is disappointing, Cambian remains a highly profitable business with a bright future. As such, today’s share price fall appears to be an overreaction by the market and with Cambian trading on a price-to-earnings (P/E) ratio of just 7, it seems to be a strong buy for the long term.

Taking a roasting from Turkey

Also reporting today was Tui (LSE: TUI), with the travel company reporting a smaller loss in the first quarter of the year versus the same period last year. It continues to expect to report a rise in EBITA of at least 10% for the full-year despite weakness in demand for summer bookings to Turkey. In fact, they’re down by 40% versus the prior year, but with Tui having a relatively diversified business model, other areas should be able to pick up the slack.

With Tui trading on a forward P/E ratio of around 11.8, it seems to offer good value for money at the present time. Certainly, there are doubts surrounding the performance of the global economy and while there is the potential for downgrades to forecasts across the travel sector, Tui appears to have a sufficiently wide margin of safety at the present time to merit investment.

The burden of proof

Meanwhile, shares in mobile payment solutions provider Monitise (LSE: MONI) continue to disappoint, with them falling by 40% in the last month and showing no proof it’s mounting a successful comeback.

Clearly, it’s extremely difficult to catch a falling knife in terms of knowing when a turnaround will come, but progress regarding Monitise’s share price seems likely to be linked to its profitability rather than its potential. In other words, the market is waiting for confirmation that Monitise not only has a great product, but is a viable business too.

With the company having changed its management team and refreshed its strategy recently, its long-term outlook remains relatively positive. However, until it can provide evidence of its long-term sustainability as a business through a black bottom line, it may be prudent to watch, rather than buy, Monitise.

The post Are Monitise Plc, Tui AG And Cambian Group PLC Too Risky To Buy Today? appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• 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?

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

The reasons for the reduced forecast in profitability for the company are a significant increase in organic investment in new places, with capital expenditure of over £50m expected for the current year which is set to cause increased development losses. Furthermore, Cambian is also feeling the impact of staff vacancies which has reduced the number of admissions to its schools and children’s services.

Clearly, today’s update is hugely disappointing and investor sentiment has been dealt a major blow. However, Cambian is still set to make strong progress, with it due to deliver growth in the current year and, looking ahead, it expects that further investment in people and in its systems will underpin growth in 2016 and beyond.

In the short term, though, its shares could come under further pressure as the market digests today’s news flow. As such, it seems to be a stock to watch, rather than buy, until more information is gleaned regarding its ability to meet its future guidance.

Meanwhile, recruitment and outsourcing specialist Servoca (LSE: SVCA) has seen its share price soar by over 20% today after upgrading its guidance for the full-year. The company has stated that it now expects results to come in significantly ahead of expectations due to strength in both of its key divisions.

In the Education recruitment business, the crucial September month was hugely positive and Servoca now expects it to beat internal targets in the coming months. Furthermore, the Healthcare recruitment business carried strong momentum into the second half of the year and this pace of growth has accelerated, with the contribution to the company’s profitability from this space continuing to rise.

Looking ahead, Servoca was due to post a rise in earnings of 39% in the current year, which it now expects to beat. And, with further growth in net profit of 40% being pencilled in by the market for next year, it appears to be in the midst of a period of exceptional growth.

Despite this, it trades on a price to earnings growth (PEG) ratio of only 0.5 (using the lower growth forecasts which do not reflect today’s announcement) and this indicates that Servoca could be set to continue the run which has seen it soar by 83% since the turn of the year. Certainly, its shares could continue to be volatile but, for long term investors, they appear to be worth buying at the present time.

The post Buy Or Sell? Cambian Group plc Down Over 30%, Servoca Plc Up More Than 20% appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• 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?

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.