Earnings results are a great way for investors to judge a company. They’re used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here’s an earnings preview for three FTSE firms reporting results this week.

It’s always best to compare firms’ new quarterly/half-year numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. The new figures that are due can also be useful to determine whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. It’s a shame that analysts in the UK don’t normally publish earnings previews for quarterly or half-year periods.

Royal Mail (Q1 trading update)

Royal Mail (LSE: RMG) is Britain’s biggest postal service and courier company. The group runs the brands Royal Mail and GLS (an international logistics company). The FTSE 250 firm is expected to provide a trading update for its most recent Q1 performance ending June 2022 on Wednesday 20 July. The company’s financial year ends in March 2023.

Analysts covering Royal Mail are predicting a slowdown in both its top and bottom lines for the current financial year. The board painted a gloomy picture for the group in its Q4 earnings call, which sent the share price crashing. Lockdown tailwinds have dissipated, and the logistics group is locked in discussions with staff over its latest pay round, with the threat of possible strike action. Pair that with a slowing British economy and high fuel costs, and it seems to me that the only way for its share price to go is down. Making matters worse, EPS for its current year has seen a steady decline from £0.54 to £0.45 over the last 90 days. Nonetheless, if revenue figures come in above 2020 levels, there could be a surprise rally.

Howden Joinery (H1 earnings)

Howden Joinery (LSE: HWDN) is the UK’s number one trade kitchen supplier. It provides thousands of products across kitchens, joinery, and hardware. The FTSE 100 firm is expected to post its half-year earnings for its six months performance ending June on 21 July. The company’s financial year ends in December 2022.

The overall consensus is that Howden Joinery is expected to continue growing its top and bottom lines. Analysts have also revised their EPS targets for the current year upwards, by nearly £0.01 in the last 90 days. That being said, investors will be paying attention to the guidance provided on Thursday in order to determine whether the supplier can beat its previous year’s record figures.

Dunelm (Q4 trading update)

Dunelm (LSE: DNLM) is a British home furnishings retailer that operates throughout the UK. It’s one of the largest homewares retailers in the country with an ever growing market share. The FTSE 250 firm will be posting its Q4 trading update for the period ending June 2022 on Thursday 21 July. The company’s financial year ends in June 2022.

While public listed companies normally release their full year results along with their Q4 numbers, Dunelm will only report its FY earnings on 14 September. This is most likely due to its financial year only ending three weeks ago. Therefore, the trading update will be more akin to an earnings preview.

Having said that, the revenue figure will be watched closely as specific bottom line figures will only be released in September. Comments from the board will also be closely monitored as investors look to determine whether EPS estimates will be met. Nevertheless, analysts have revised their EPS targets from £0.79 to £0.80 in the last 90 days. Despite that, a slowdown in retail sales in the last quarter should be kept in mind. It may have impacted Dunelm’s top line figure, along with higher fuel and labour costs. These macroeconomic factors could see analysts’ EPS being revised lower, if management hints at lower margins in the trading update.

The post Earnings preview: Royal Mail, Howden Joinery, Dunelm appeared first on The Twelfth Magpie.

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John Choong owns shares of Dunelm. The Motley Fool UK has recommended Howden Joinery Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

What’s happened?

This morning’s stonking gain is the result of yet another positive update from the laser-guided equipment manufacturer.  

Thanks to “stronger than anticipated trading” across the pond over the last six months, Somero now expects to beat its previous guidance on full-year revenue and earnings. The company had been expecting the former to come in around $100m and adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) to hit $31m. Importantly, this previous guidance was only given in May.

So, business is booming?

Today, Somero predicted that revenue would now hit $110m and adjusted EBITDA would be around $35m. It also expects its net cash position to rise above $33m. 

Positively, recent performance hasn’t been restricted to Somero’s main market. Elsewhere in today’s update, the small-cap stock stated that its operations in Europe and Australia had also made “meaningful contributions to growth“.

It sounds like there’s more to come too. Having enjoyed a seriously good last couple of months, it said today that trading momentum had continued into H2. With the US playing catch-up thanks to the pandemic, the AIM-listed company added that project backlogs still extend into next year. The growing need for warehouses and flat-as-a-pancake concrete floors thanks to the explosion in online shopping was also highlighted.

Would I still buy this small-cap stock today?

I think I would still buy it. There are a few reasons, in addition to the positive outlook mentioned above.

First, the valuation is still pretty tempting. While the cyclical nature of the construction industry will always be unattractive to some in the market, a forecast P/E of 15 before markets opened this morning looked very reasonable. Let’s not forget that Somero scores well on an enviable amount of ‘quality’ metrics for a small-cap stock. These include stonkingly high returns on capital and operating margins.

Second, Somero has a history of rapidly increasing its dividends. Sure, there will be the odd wobble along the way, such as last year. However, I think investors can be confident that they’ll continue receiving bumper payouts for some time to come. Although a growth investor by heart, I certainly won’t turn this income down. Since reinvested dividends contribute meaningfully to long-term returns, I’ll simply be throwing the money back at the company. 

Third, Somero isn’t resting on its laurels. The Fort Myers-based business is busy developing its pipeline of new products with the aim of expanding its market. Encouragingly, some of these are due for release in H2. I suspect there could be more positive news on this when interim numbers are confirmed in September. 

So, there are no risks?

Yet there are definitely still risks. A resurgence of Covid-19 could see construction projects delayed again. Should this happen, Somero’s status as a small-cap stock could prove a double-whammy. After all, the share prices of minnows can be very volatile in times of trouble. 

Nevertheless, I’m very encouraged by today’s news. As long as I can sit on my hands through inevitable setbacks, I continue to think this company will generate a fine return for my portfolio.

The post This small-cap stock is exploding today. Here’s why appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Somero Enterprises, Inc. The Motley Fool UK has recommended 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.

Return to form

At the end of last month, I said I’d be prepared to snap up FTSE 100 equipment provider Ashtead (LSE: AHT) based on my belief that there wouldn’t be any nasty surprises in today’s Q4 trading update. Positively, this has proven to be the correct call — the share price is up almost 3.5% as I type, on some very attractive numbers.

Revenue jumped 23% to £1.27bn in the final three months of Ashtead’s financial year as the company returned to growth. Understandably, the vast majority of this came from rental revenue. For FY21 as a whole, a 3% rise was logged at constant exchange rates (£5.03bn).

All told, Ashtead reported a pre-tax profit of £220m for Q4. That’s a stonking 158% jump compared to the same period in 2020. Nevertheless, a final figure of £936m for the entire year was 1% down due to the impact of Covid-19. 

Other highlights from today’s statement include the 75% jump in free cash flow to record levels (£1.38bn) helping to reduce leverage from 1.9 times to 1.4 times. Although most definitely not a high-yielding stock, the 3.7% increase to the total dividend was also indicative of a company recovering well.

So, would I buy?

Actually, yes I would. In addition to already-excellent operating margins and an international presence, Ashtead begins its new financial year “with clear momentum”, according to CEO Brendan Horgan. With leaders including President Joe Biden intending to spend big on infrastructure, this doesn’t sound like hyperbole. In fact, I think Ashtead is, quite literally, one of the best picks and shovels plays around.

Of course, there’s no sure thing in investing. A rise in the number of infections in Ashtead’s key markets may cause delays to projects, as might a shortage of materials. One also wonders if the company’s valuation — 28 times forecast earnings before the market opened — might prove too rich for some. 

Naturally, Ashtead isn’t the only option. Another of the best British stocks to buy in this sector, in my opinion, can be found lower down the market.

Growing flat-out

I’ve been bullish on laser-guided equipment manufacturer Somero Enterprises (LSE: SOM) for ages now. Some of this is probably down to old-fashioned bias (I hold the stock). However, recent stronger-than-expected trading in the US provides some substance. Assuming the company reports more good news in today’s annual general meeting, previous guidance could be exceeded again. 

Somero products ensure concrete is perfectly level. This may sound dull, but it’s essential for buildings like warehouses. And thanks to the explosion of online shopping following multiple lockdowns, those warehouses will be in even greater demand from retailers going forward.

Again, there are risks. Like Ashtead, Somero could be impacted by a slowdown in projects. Its minnow status also means the latter’s share price could prove more volatile than its FTSE 100 peer.  

Then again, on 17 times forecast earnings, Somero is considerably cheaper. It also generates far higher returns on capital (ROCE), has net cash on its balance sheet, and frequently showers its investors with cash. As such, I’d have no issue buying more today.

The post Top British stocks to buy for the infrastructure boom appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Somero Enterprises. The Motley Fool UK has recommended 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.

The Ibstock (LSE:IBST) share price hasn’t been performing particularly well over the last 12 months. In fact, it’s only up by around 9% and still trading firmly below pre-pandemic levels. But is this all about to change? Let’s take a closer look at rising trends and see whether I should be adding this business to my portfolio.

The hidden potential of the Ibstock share price

Ibstock is a leading UK manufacturer of building materials. It primarily focuses on producing clay bricks and other concrete-based products through its network of 16 manufacturing sites and 18 active quarries. This is hardly the most exciting business out there. But there are some promising signs of an imminent surge in demand for these types of materials.

The pandemic significantly hampered the residential construction industry, with many projects being postponed. This naturally led to a sudden collapse in demand for materials like bricks. And so I’m not too surprised that the Ibstock share price fell by nearly 50% within the first three months of 2020.

However, thanks to the rapid rollout of vaccines, construction sites are once again becoming active. And so the demand is back on the rise. This is undoubtedly good news for the company, especially since the existing shortage of bricks has granted the firm some pricing power.

I believe this will definitely accelerate Ibstock’s recovery. But its growth potential doesn’t end there. The UK has been in short supply of bricks for almost a decade as national manufacturing capabilities have been unable to keep up with accelerating home construction efforts. Until recently, many bricks were imported from Europe. But following Brexit, this import process has proven to be challenging and is subsequently pushing up the price of this material even further.

Given roughly 80% of new build properties use clay bricks and the need for additional housing doesn’t appear to be slowing, my opinion is that Ibstock’s share price is heading for sustained, long-term growth. What’s more, its first-quarter results for 2021 indicates this growth already starting as sales volumes came in higher than expectated.

There is a risk of a slowdown

Ibstock has already begun expanding its production volume capabilities at its Atlas facility. However, as more companies follow suit, it may lead to an oversaturated market, especially if the demand for housing begins to fall.

The latter is particularly concerning as government support schemes like Help-to-Buy are coming to an end in the near future. If the affordability of new-build properties starts to waiver, homebuilders will likely slow their construction efforts. This, in turn, will lead to lower demand for bricks. Needless to say, this wouldn’t be good news for the Ibstock share price.

But all things considered, even with the potential risk of a slowdown, I believe Ibstock is in a prime position to grow over the long term. And so I’m definitely considering it as a potential addition to my portfolio.

The post Is the Ibstock share price about to explode? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Ibstock. The Motley Fool UK has recommended Ibstock. 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 rising Kier share price

Over the last five years, Kier racked up a lot of debt. But due to its already significant level of leverage, the management team also had to raise capital from shareholders and cut dividends to zero, just to keep the lights on.

Needless to say, this is not the hallmark of a healthy business. And the disruptions from Covid-19 didn’t exactly help matters. In fact, the Kier share price was still heading in a downward trajectory throughout most of 2020. But around the end of October, the stock suddenly started climbing again. And in the fourth quarter of last year, the share price increased by nearly 65%. What happened?

The firm published its full-year 2020 results. They weren’t exactly great, given both revenue and profits continued falling. However, there were some positive signs of recovery thanks to the restructuring process that is still underway. Free cash flow once again became positive, reaching £66m compared to -£89m in 2019. Meanwhile, the management team was able to achieve an annual cost saving of around £100m. And at the same time, Kier secured new contracts to push its order book up to £7.9bn by the end of June last year.

To me, this looks like the start of a potentially successful turnaround. And it seems investors agree because the rising Kier share price appears to have been triggered by the closing of prominent short positions.

What lies ahead?

While these results show some promise, the company still has a long road ahead. Debt levels continued to grow significantly in 2020. And now, these obligations represent nearly 82% of the firm’s capital structure. Given the limited level of underlying profitability, I wouldn’t be surprised if the management team decides to raise additional capital through investors to keep up with interest payments.

But I think it is worth mentioning that the CEO, CFO and Chairman of the board were buying up shares last year. Generally, this is an indicator that the management team believes that the Kier share price is too low and implies that the company can make a comeback.

The bottom line

Looking at the most recently published results, it looks like the turnaround plan is starting to bear fruit. As of December 2020, the total order book continued to rise to £8bn, and free cash flow stayed in the green.

However, as encouraging as these figures may be, the high level of debt is concerning, in my opinion. And it will likely require a multi-year process to bring it back under control, as will the recovery of the Kier share price. Personally, I won’t be adding this stock to my portfolio, because I think there are far better investment opportunities out there.

The post Is the Kier share price about to recover? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Kier. 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 demand

The Newcastle-based business said this morning that it expects housing revenue for the year to increase by over 13% to £2.5bn, amid continued strong customer demand which has been underpinned by the Help to Buy initiative and the ongoing availability of cost effective mortgage finance. The average selling price of homes sold rose by 2.9% to a record £260,000, while the number of housing completions grew by 10.6% to 9,644.

These figures place Bellway in the top quartile of the housebuilding sector in terms of growth. And looking ahead, it is well placed to continue its recent outperformance as it has significant capacity for further volume growth, which is supported by its strong balance sheet and its operational ability to open new divisions in areas of strong demand.

Admittedly, the cyclical nature of the housebuilding sector means investors will always worry about the next property downturn. And although recent surveys have suggested slowing house price growth in the UK market, I remain confident about the sector’s prospects given high employment levels and the chronic shortage of affordable new homes.

At current levels, I reckon shares in Bellway are trading far too cheaply right now. The housebuilder trades at just eight times its expected earnings next year, against the sector average of 14.9. What’s more, there’s also plenty for income hunters to get excited about too, with shares forecast to yield 3.8% this year.

Cost inflation

Meanwhile, things aren’t exactly smooth sailing for construction materials supplier SIG (LSE: SHI). Underlying operating profits in the six months to 30 June fell by 16.1% to £45.7m amid continuing competitive market conditions and cost inflation pressures in the UK.

Although SIG has raised prices in response to higher raw material costs, demand for insulation and interior products in the UK remained relatively soft, putting pressure on its top-line growth. In addition, the impact on its bottom-line was only partially offset by a modest improvement in gross margins, which rose from 22.9% in second half of last year, to 24.5%.

Looking ahead, SIG remains concerned about continued macroeconomic uncertainty in the UK, although this may partly be mitigated by continuing improvement in confidence in its mainland European markets. In the first-half, underlying profits there rose by 2.1%, which compared favourably to the 21.7% decline from the UK and Ireland.

In this tricky environment, the City expects SIG’s underlying earnings per share to slip 1% for the full-year, although clearly this estimate is in danger of being downgraded should market conditions indeed remain challenging. Fortunately, the situation is expected to improve for the coming year, as analysts are currently pencilling in an 11% earnings improvement, to 10.64p, for 2018.

Trading at a forecast valuation of 14.8 times its expected 2018 earnings, SIG looks reasonably priced. What’s more, its forecast yield of 2.4%, which is backed by 2.8 times earnings, adds to the investment appeal of the stock.

The post 2 stocks for savvy growth hunters appeared first on The Twelfth Magpie.

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Jack Tang 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.

Looking ahead, more uncertainty could lie ahead for the firm and here are three reasons why I remain bearish the stock.

Dilution

The first reason I’m staying away from Carillion’s shares right now is the risk of being diluted from a need to raise funds to support a restructuring.

The company wallows in £695m of net debt — that’s up by 18% since December, and set to get even worse as a result of a deterioration in cash flows on its construction contracts, combined with higher working capital outflow going forward.

As such, some analysts reckon Carillion might need to raise at much as £500m via a rights issue or a debt-for-equity swap. By all accounts, that would represent a massive dilution for existing shareholders as the company’s market capitalisation currently stands at £244m.

Counterparty risk

Looking ahead, Carillion could struggle to keep contractors onboard and win new contracts due to concerns about higher counterparty risk, given the company’s overextended balance sheet and delays to payments on public-private partnership contracts.

Already, Oxfordshire County Council said it would end in September a 10-year deal with the company to build schools and supply property management services, a contract reportedly worth around £500m.

On a more positive note though, Carillion did recently win some lucrative work to build and design part of the HS2 rail project as part of a joint venture with Kier and Eiffage.

Further writedowns

Carillion has so far made provisions for a £845m writedown, but further writedowns are possible as a new management team takes a thorough re-examination of its legacy construction contracts. As many of these contracts are typically long term, there’s a great deal of uncertainty over the eventual profitability of these construction prospects, and as such, there’s huge potential for further revisions on its provisions.

With these three risks, I’m happy sitting safely on the sidelines.

Mitie

Meanwhile, rival outsourcer Mitie (LSE: MTO) may be a better pick. After announcing its own profit warning around a year ago, it now has in place a new management team with an ambitious turnaround plan.

CEO Phil Bentley is betting heavily on technology to drive a recovery in the outsourcer’s financial performance. It has invested in a major transformation programme to improve its customer proposition and is already halfway through its £45m cost-saving programme.

While uncertainties remain, I reckon there’s considerable upside potential as the benefits of its investment programme could well feed into top-line growth and margin improvement. As such, Mitie seems to me like a lower-risk option at the moment.

The post 3 big reasons to stay away from Carillion plc appeared first on The Twelfth Magpie.

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Jack Tang 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.

Favourable tailwinds

First up is Ashtead Group (LSE: AHT). The international equipment rental company is benefiting from favourable tailwinds as a weak pound and improving US construction activity underpin expectations of continued earnings growth.

As the US market accounts for more than 80% of the group’s revenues, Ashtead has much to gain from the country’s improving economic outlook. And in addition to cyclical tailwinds, the group’s growth prospects are also bolstered by structural factors, such as the chronic underinvestment in critical infrastructure over past decades, which has created an urgent need to repair, renovate and replace its roads, bridges, and other infrastructure projects.

As expected, given the nature of the business, its rental operations are extremely cash generative and this has meant its dividend has been covered comfortably by free cash flow. And although the stock has a prospective yield of just 1.9% for the current year, I reckon there’s plenty of scope for dividend growth given that the forecast payout ratio is just over 25%.

Two reasons

There are two reasons for why I prefer Ashtead to others in the sector. First, the company has a great earnings track record, which demonstrates the robustness and resilience of its business model.

Over the past five years, underlying earnings per share grew by a compound annual growth rate (CAGR) of 44.6%. And looking ahead, City analysts expect the group to continue to grow earnings in double-digit percentage terms, albeit somewhat more modestly, with forecasts of underlying EPS growth of 15% this year, and 11% in 2018.

Second, the company’s size gives it a significant competitive advantage. Its larger scale allows it to spread overhead costs more broadly and helps it to negotiate better prices with suppliers. This has enabled it to deliver EBITDA margins of almost 50% and produce returns on investment ahead of its peers.

With a forward P/E of 13.4, the stock may not be as cheap as some in the sector. However, it’s valuation doesn’t seem too demanding given that the average FTSE 100 company trades at 14.6 times their expected earnings this year.

Growing order book

Also offering upbeat growth potential is Morgan Sindall (LSE: MGNS). Business at the construction and infrastructure group is booming as growth from regeneration projects drives its order backlog higher. At the end of last year, its order book rose 29% to £3.6bn, while adjusted operating profits increased 26% to £48.8m.

The group has been making good progress on its development portfolio to regenerate town centres and has a strong visible pipeline of future regeneration opportunities. Morgan Sindall is also targeting improved operational performance as it continues with its cost reduction focus, particularly for its new contracts.

The stock looks affordable to me. City analysts forecast adjusted earnings of 97.4p per share this year, putting the stock on a forward P/E of 12.7. What’s more, investors could look forward to an expected 14% dividend hike this year, which would push the payout up to 40p a share and give it a prospective yield of 3.2%.

The post Why I’d buy these promising growth stocks appeared first on The Twelfth Magpie.

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Jack Tang has a position Ashtead Group plc. 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.

Operating profits before amortisation rose by 18% to £37.8m for the year to 31 March, while revenue increased by 19% to £248.7m. The impressive growth was supported by improving infrastructure, housebuilding and construction markets, which more than offset continued weakness from energy and mining markets.

Optimistic

Moreover, the Harrogate-based equipment rental specialist is optimistic about the future. Neil Stothard, Vp’s chief executive, said the business has “good momentum” in 2017, with growth set to be enhanced by the two acquisitions it made earlier in the year.

“Notwithstanding the increased prospect of inflationary pricing pressures, the UK election and Brexit negotiations, subject to a stable economic backdrop, Vp is well positioned to deliver further progress for the business,” he added.

Looking ahead, I reckon Vp shares will act as a good proxy for the UK construction market. And as I expect to see continued growth in that market over the next few years, due to higher infrastructure spending and an increasing number of new housing starts, I’m bullish on the firm.

Although its shares are already up 16% since the start of the year, valuations remain tempting. That’s because, despite expectations of earnings growth in the mid- to high-single digits over the next two years, shares in Vp trade at just 10.9 times its expected 2018/19 earnings.

Revenue miss

Meanwhile, shares in identity data intelligence specialist GB Group (LSE: GBG) fell by as much 5% in early afternoon trading on Tuesday after the firm reported revenue growth that fell short of analysts’ expectations.

Revenue increased by 19% to £87.5m, against City forecasts of £87.7m, while adjusted operating profits rose by 27% to £17m. GB also announced a 13% increase to its proposed dividend for 2017 to 2.35p per share.

Structural growth

Despite the revenue miss, I remain positive about the exciting structural growth opportunities for the firm. GB Group provides ID verification services to companies and governments, which enables them to detect fraud, verify data and help protect the more vulnerable people in our society. And due to growing concern and awareness of cybercrime and identity fraud, there’s huge potential for the firm to cash-in on this rapidly growing market.

GB is mindful that data intelligence is a business that benefits from global scale, which explains why the firm has been making great strides in expanding its international presence. Its international revenues share rose from 26.4% last year, to 31.1%, with the firm having secured new contract wins from major blue-chip firms such as Saxo Bank A/S and Lufthansa.

Looking ahead, it intends to grow its capability with its acquisitions of IDscan and PCA Predict, and this is expected to widen cross-selling opportunities and help it to forge stronger relationships with existing customers.

GB Group seems rather expensive with shares in the company trading at 29.8 times its expected earnings in 2018/19. However, that’s to be expected for a quality structural growth play.

The post These 2 growth stocks have further room to run appeared first on The Twelfth Magpie.

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Jack Tang 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.

Short sellers

Construction and support services group Carillion (LSE: CLLN) is one such stock which has seen its share price slump and its dividend yield soar. After a 28% fall in its share price over the past 52 weeks, the stock currently yields 8.5%.

Carillion is one of the most heavily shorted companies in the FTSE 350 as hedge funds worry about its mounting debt and the uncertainty of its long-term revenues. Although the company continued to deliver steady double-digit revenue growth in 2016, investors seem increasingly sceptical that the company can continue to grow revenues at its current pace and avoid further margin pressure.

The company’s balance sheet is not looking too good either, with average net borrowing rising to £586.5m, up from £538.9m in the prior year. And it’s not just the company’s growing debt levels that investors have to worry about. Carillion also has a sizeable pension deficit, which has only gotten worse as bond yields have declined following the Brexit vote last June. In its final results for 2016, the company revealed that the deficit had widened to more than £800m, which is worth nearly 90% of its market cap.

As such, Carillion’s long-term dividend outlook seems uncertain. It’s likely that earnings will continue to deteriorate over the next two years, and there isn’t a great deal of financial flexibility given its weak balance sheet.

Under pressure

Another high-yield stock I’m staying away from is LSL Property Services (LSE: LSL), the UK’s second largest estate agency chain. Its dividend, which had been cut by 18% in 2016, could face another squeeze this year as analysts expect earnings to come under pressure from a weak housing market.

The company has in place a variable dividend policy, with LSL currently targeting a dividend payout ratio of between 30% to 40% of group underlying operating profit after interest and tax. This means falling profits would have a direct impact on dividends, especially as its 2016 dividend was at the upper end of its targeted dividend payout ratio.

On the upside though, LSL nearly halved its net debt to £20.3m from £39.9m last year, following the sale of its remaining shares in online property portal Zoopla. As such, the company benefits from a robust balance sheet with relatively low levels of gearing, which should help it to weather the downturn for longer than some of it peers.

LSL has also reacted decisively to the changing market conditions, by investing in its lettings and financial services businesses, which helped to offset the 10% decrease in residential sales exchange income.

Nevertheless, City analysts expect underlying earnings to fall 12% this year, which means LSL’s dividend yield is forecast to fall from its current figure of 5.1% to around 4.3%.

The post 2 risky high-yield dividend stocks you should probably avoid appeared first on The Twelfth Magpie.

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Jack Tang 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.