A UK share ready to fizz

As a holder of the stock, I never expected today’s final results from drinks firm AG Barr (LSE:BAG) to be all that impressive. And so proved to be the case.

Due to the enforced closure of bars and pubs, the producer of thirst-quenching brands such as IRN-BRU and Rubicon has been hit hard by the pandemic. Revenue fell 11.2% to £227m over the 12 months to 24 January. Pre-tax profit also decreased — by 12.3% — to £32.8m (or £26m once one-off costs were deducted). Despite this, there were a few bits of good news.

Partly as a result of steps taken to control costs, Barr ended the year with £50m in net cash. That’s up significantly from the £10.9m logged at the end of the previous financial year. This comforts me. As an investor, I need to know a business I part-own has a sufficiently robust balance sheet to negotiate inevitable periods of ‘sticky’ trading. 

In other news, CEO Roger White said the company had “the clear intention to recommence dividend payments in 2021.” The fact that it hasn’t done so already is actually a positive for me. As nice as dividends are, I don’t want a business showering me with cash until it’s confident in its outlook. 

All told, I’ve no problem staying invested. That’s not to say I expect the share price to motor back to its 2019 high for a while. 

While the lifting of restrictions should be good news for AG Barr, it would be foolhardy to assume there won’t be obstacles ahead. The possibility of a third wave of the coronavirus can’t be ignored. Especially if the vaccine programme runs into trouble.

This is a UK share for the ‘bottom drawer’. 

Sweet treat

Of course, there are other ‘reopening’ options available in the small/mid-cap space. Chocolatier Hotel Chocolat (LSE: HOTC) is another example of one that could do very nicely in time. 

Now, it’s quite reasonable to say that sales of chocolate are unlikely to rocket as we approach summer. This is particularly the case if we get a heatwave! 

As a counter to this argument, I suspect HOTC’s next update on trading could be better than some in the market are expecting. It should, after all, take into account trading in the Easter period. If reports are to be believed, many in the UK are treating this weekend as a second Christmas and spending lots on decorations and, very likely, chocolate eggs.

On top of this, the recent decision by rival Thorntons to abandon its high street stores could prove a boon to the £500m-cap. It should allow HOTC to assume pole position at the luxury end of the UK market.

Like AG Barr, I wouldn’t buy Hotel Chocolat stock if I were only considering holding it for a few weeks or months. Investing requires patience. Trying to predict where a share price will go in the very near term is asking for trouble.

On a mid-to-long-term basis, however, I’m confident these UK shares could do very well for holders.

The post 2 UK shares to buy for the great ‘reopening’ appeared first on The Twelfth Magpie.

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Paul Summers owns shares in AG Barr. The Motley Fool UK has recommended AG Barr. 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.

I’m not so sure. Before explaining why, let’s look at today’s interim results from the company — originally intended for release in mid-May. 

Revenue hit

Of course, a lot of this morning’s numbers won’t really matter all that much since they only reflect trading in the 26 weeks to 28 March – not long after the UK went into lockdown.   

Nevertheless, at £510.5m, revenue was almost 8% down compared to the same period in the previous year. Underlying pre-tax profit was even worse, tumbling almost 72% to just £9.4m. This was despite sales to the end of February being “broadly in line” with the previous year. 

To its credit, the company has done what it can to minimise the impact of the lockdown on its finances. Expenditure has been slashed and 93% of its staff have been furloughed, with the remainder taking a 20% hit to their salaries. It’s also made use of government grants and reliefs where possible. 

Taking all this into account, what are the arguments in favour of taking a stake now?

Glass half full

First, it seems at least some UK drinkers are desperate for pubs to reopen. As a result, the idea that revenues may bounce back seem logical. Whether this happens in practice is something entirely different, of course.

Second, the recently-announced deal to combine its brewing business with Carlsberg UK should allow management more time to focus on its pubs and accommodation. 

It’s also good for its finances. Assuming the deal goes through, Marston’s will have a 40% stake in the new company. It will also receive a cash payment of £273m, which can be used to reduce debt.

Third, it’s worth highlighting, as Marston’s did today, that its pub estate is mostly freehold and located outside city centres. The fact that nine out of 10 of these pubs have outside space could prove very important as drinkers adapt to the new ‘normal’. 

Last, it’s certainly possible the company could actually grow market share as more competitors go out of business.

Glass half empty

On the other hand, there are some solid reasons for continuing to give Marston’s a wide berth for now. Another round of the coronavirus can’t be ruled out. And while a second lockdown seems unlikely, this would be a nightmare for an already-wounded industry.

Even if a second wave is avoided, the psychological impact of the virus could prove a drag on earnings for a while.

In addition to all this, you have a number of more general issues facing the pub industry. These include rising costs and the fact that an increasing number of us, particularly young people, are choosing to ditch alcohol completely.

The great unknown

As investors, we’re told to be “greedy when others are fearful.” As profitable this strategy has been for investing legend Warren Buffett, I’m not feeling the urge to snap up Marston’s right now. Even if the share price is still roughly 50% below where it was at the start of 2020.

With such an uncertain outlook — and no dividends to tide investors over — this is one for the watchlist at best.

For me, there are far less risky ways of making money in the market. 

The post Is cheap pub stock Marston’s now a screaming buy? appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

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

Does today’s cost-cutting measure mean the shares are now a canny contrarian play? Here’s my take.

Were Royal Mail’s numbers that bad?

There certainly weren’t great. While revenue came in at £10.84bn over the 12 months to 29 March (up 3.8% from last year), adjusted operating profit was 13.6% lower (£325m). 

Broken down, it’s the UK Parcels, International and Letters division (UKPIL) that continues to be a drag. Revenue here grew 1.6% to £7.72bn but adjusted operating profit fell a worrying 41.2% to £117m.

The vast majority of the remaining revenue was achieved via the company’s Europe-focused subsidiary (GLS), where adjusted operating profit rose 17.5% to £208m.  

It doesn’t look like things will get better soon either. Over the first two months of the new financial year, year-on-year revenue is down £29m at UKPIL. Moreover, total costs are already up £80 due to overtime, staff absences and social distancing measures.

Clearly, the company needs to take action and that’s what it’s done.

Job cuts

Commenting on today’s numbers, interim Executive Chair Keith Williams reflected that the UK business had “not adapted quickly enough” to people sending a greater number of parcels and fewer letters. The pandemic “has accelerated those trends,” Mr Williams said, “presenting additional challenges”. 

As such, the company has announced that it’s looking to cut 2,000 management roles — roughly a fifth of its management total. It’s also reducing capital expenditure by around £300m over the next two years.

Bargain buy?

Of course, there comes a point when even the most hated stocks have the potential to make money for brave investors if they’re cheap enough. Based on the company’s own outlook, however, I’d continue to give Royal Mail a wide berth.

In spite of the plan announced today, the company stated that the coronavirus pandemic means its future is “challenging and volatile”. UKPIL is expected to be “materially loss-making in 2020” and profits at GLS “may potentially be reduced”.

Assuming coronavirus-related restrictions lift after June and UK GDP falls by ‘only’ 10%, year-on-year revenue is expected to fall by between £200m and £250m. Costs from the virus will reach £140m with a further £110m hit predicted from higher parcel volumes.

Should things turn out a lot worse than this (say, GDP declines by 15%), like-for-like revenue would likely fall by between £500m and £600m. Costs would be even higher.

Whichever scenario plays out, this is pretty tough reading for its owners, even if some of this is already reflected in the share price.

Don’t expect dividends

Aside from the above, would-be investors need to be aware that there will be no dividends paid in the new (current) financial year. Personally, the idea that these will return in FY22 strikes me as optimistic. 

It’s also worth mentioning that the company is the fifth most shorted stock as I type, according to shorttracker.co.uk. Put simply, this means a lot of market participants are betting that the shares will continue to fall in value.

All told, I think there are far better options right now than Royal Mail, particularly for income hunters. The road ahead will be long and hard. Don’t expect the shares to deliver any time soon. 

The post Royal Mail shares crash AGAIN, but are they now a bargain buy? appeared first on The Twelfth Magpie.

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• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

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

Are these FTSE 100 titans now great picks for savvy, contrarian investors wanting to double their money? Here’s my take.

Lloyds Bank

The fact that the Lloyds share price has halved in recent weeks isn’t all that surprising. The UK economy is, after all, expected to contract at its fastest rate for centuries in 2020 and take an estimated three years to fully recover. 

This puts the FTSE 100 constituent in a sticky spot. With businesses shut and the prospect of rising unemployment, many firms and their workers may struggle to make payments on loans and mortgages, even with the introduction of ‘holiday’ periods. Incredibly low interest rates continue to be a drag on profits too. 

At the start of April, shares in Lloyds went for 27p a pop. Although they’ve recovered slightly over recent days, they’ve not rallied anywhere near as much as other listed stocks. This suggests to me the market is still very cautious about the bank’s near-term outlook.

Thanks to regulators, Lloyds is in a far better state as a business than it was back in 2008. That said, I don’t think there can be any doubt the road ahead will be long and hard. With no dividends to keep investors incentivised, the idea it will quickly double its £21bn valuation is (very) optimistic.

If you’re determined to take a position, I’d at least wait until after the bank releases its Q1 statement on Thursday. 

Royal Dutch Shell

Shell, of course, has its own set of ‘coronavirus complications’ to deal with. A lack of demand for the black stuff around the world has led to a collapse in the oil price and concerns the company may finally lose its ‘most reliable dividend payer’ crown. 

This makes perfect sense. As long as uncertainty persists over when lockdowns might be fully lifted, the price of Brent crude will likely remain stubbornly low and Shell will be burning through cash. The share price may be almost 50% higher than March’s low, but it’s still down 40% year-to-date.

So, what might help from here? The easing of restrictions around the world will certainly be a boost. More cars on the roads mean a greater demand for oil. The agreement between Russia and OPEC to cut output from next month may also help to provide a floor on the oil price for a while.

For Shell’s share price specifically, news of reduced spending and falling production costs helping to secure its much-coveted dividend will likely go down well. 

We won’t have long to wait for an update. Like Lloyds, the company also releases a Q1 statement on Thursday. 

Bottom line

I fancy both Lloyds and Shell could double new investors’ money in time, albeit slowly (the former in particular). This assumes, of course, the UK and other countries manage to avoid significant ‘second waves’ and further economic pain.  

As always, we at the Fool UK see any stock purchase as a long-term commitment. I’d caution against taking a ‘punt’ on either company if you aren’t prepared to stay invested for the duration.

The post Can you double your money with Lloyds Bank and Royal Dutch Shell? appeared first on The Twelfth Magpie.

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

A little over a year ago, the company was in the doghouse as it fought against weak sales and rising costs. Since then, however, the turnaround under CEO Peter Pritchard has been nothing short of superb. From a low of around 115p in November 2018, shares in the Wilmslow-based business have appreciated a touch over 150%.

Today’s trading update suggests there could be more upside ahead with the company reporting a “record-breaking performance” in its Retail division in Q3. Revenue here rose 7.2% with omnichannel sales (which includes orders placed online) rocketing 23.4%.

Highlighting just how lucrative anything related to our furry (and not so furry) companions can be, a 14.4% rise in revenue at its veterinary services was also logged “with mature practices growing ahead of the market“.

All told, total revenue growth of 7.9% to just under £256m was recorded for the 12-week period from 11 October to 2 January. Based on this performance, Pets made no changes to the financial guidance it issued back in November, stating that expectations for underlying pre-tax profit remained “in line with current market consensus“. 

Clearly not the bargain they once were, the shares were trading on 20 times earnings before the markets opened this morning. While I wouldn’t necessarily fight to build a position at the current price, the resilient nature of the industry leads me to think that those already holding shouldn’t dash to bank profits either. A projected total dividend of 7.53p per share in the current year gives a yield of 2.6%, covered almost twice by profits.

Back on track

Another stock that’s recovered well in recent times has been laser-guided equipment manufacturer Somero Enterprises (LSE: SOM). Available for 187p a pop back in October, the shares now trade a little over 50% higher following today’s reassuring update on trading. 

Thanks in part to better weather in the US allowing previously delayed building projects to commence, Somero announced that it had seen “strong, profitable trading” in the final quarter of its financial year. As a result, management now predicts annual revenue will come in “modestly ahead of the top end of guidance” provided back in July 2019.

Looking ahead, it said that it expects 2020 will be “a profitable year” for the company. That said, revenues and earnings are likely to be similar to those seen in 2019 due to increased investment in its SkyScreed product. Issues in non-US markets already impacted by economic uncertainty are also likely to “slightly temper” growth expectations, the small-cap said.

Somero’s shares were changing hands for a little less than 10 times forecast FY20 earnings before markets opened. Even after taking today’s 10% rise into account, this kind of valuation still looks cheap for a firm with operating profit margins and returns on capital of around 30% and 50% respectively, 

The bulletproof balance sheet is also worth mentioning. Net cash of $23m at the end of 2019 — far better than the $18m predicted last July — should ensure that Somero is able to stick with its generous dividend policy going forward.

The cyclical nature of the business may still be enough to put some investors off but, like Pets, I see no reason for relatively new holders to bag profits just yet.

The post This FTSE 250 stock isn’t the only company bouncing back to form appeared first on The Twelfth Magpie.

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Paul Summers owns shares of 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.

Harshly treated

Go back roughly 18 months and fashion/lifestyle retailer Ted Baker (LSE: TED) saw its share price riding high. Since then, a perfect storm of consumer jitters, bad weather, product issues and allegations of ‘forced hugging’ made against (and vehemently denied by) founder and former CEO Ray Kelvin have sent the value of the company crashing. At the close last Friday, the very same shares that were trading around 3,000p back in March 2018 could be yours for just 952p.

I still think the market has been a little too harsh on the company. Ted Baker remains a great brand with solid growth potential overseas and a history of generating high returns on the capital it invests. The recent product licence agreement reached with FTSE 100 clothing stalwart Next is another positive that many seem to have quickly forgotten about. 

That’s not to say I’d throw caution to the wind just yet. Ted reports to the market this Thursday. If there’s more bad news on trading (we’ve already had two profit warnings since February) the share price will likely continue its journey southwards for a while yet. Of course, any glimmer of recovery and the stock could soar.

Should the former be the case, I think this would only increase the likelihood of the company being taken back into private hands, possibly involving Kelvin himself. In the meantime, Ted starts the week valued at just 10 times earnings and yielding 5%. 

Woodford-inspired sell-off

Another small-cap that could turn out to be a great contrarian buy is doorstep lender Morses Club (LSE: MCL). Like Ted Baker, the market minnow’s shares have been on a downward trajectory for a while now, falling by a third in value since March. 

Why the big fall? At least some of this can surely be attributed to Neil Woodford’s decision to offload a proportion of his £13m holding in the company in an effort to raise cash to cope with the huge number of redemptions his flagship Equity Income fund will surely receive when it returns from suspension.

Such is the way the market works, a number of other investors are likely to have followed his lead in order to preserve their capital and not because there’s anything wrong with Morses per se. Indeed, this month’s update stated the company is trading in line with expectations and “continues to make strong progress” on the strategy of diversifying its product portfolio.

On a positive note, this surely gives prospective investors an ideal entry point. The business is now valued at nine times forecast FY20 earnings and has a price-to-earnings-growth (PEG) ratio of 0.5 — far below the 1.0 threshold legendary growth investor Jim Slater said investors should be looking for. The balance sheet looks solid and the stock comes with a massive 6.8% yield.

With concerns the UK economy may slip into recession in the near future, and the consequences this could have for our finances, Morses Club could suddenly find itself in something of a purple patch. 

The post Is this cheap small-cap stock a perfect contrarian buy? appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

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

If you haven’t done so already, I urge you to read my Foolish colleague Rupert Hargreaves’s summary of the company’s current situation after coming under scrutiny from US investigative research firm Muddy Waters.  

Unfortunately, Burford’s decision to issue a statement designed to counter the latter’s claims that its investment returns were misleading has backfired. The share price declined 54% yesterday as investors fled for the exits and traders joined Muddy in betting against the company.

But Burford isn’t the only Woodford holding that’s been a target for short-sellers. Another has been breakdown recovery provider and insurer AA (LSE: AA) — currently the joint second ‘most hated’ share on the London Stock Exchange.

Road to recovery

Releasing a pre-close trading update to the market this morning, AA predicted that earnings over the six-month period to the end of July will be “ahead of last year”, although FY2020 performance will still be weighted to the second half.

Positively, the company stated that its paid personal membership base was stabilising (falling roughly 0.5% compared to the 1.1% over the same period in 2018) and that it would start growing again in the next financial year. Elsewhere, AA’s Insurance arm was performing as predicted with its motor and home books growing by 10% and 1.3% respectively.

Looking ahead, the small-cap said that it’s on track to deliver full-year earnings growth in line with what the market is expecting and “strong” free cash flow of around £80m. 

Having declined over 80% in value over the last three years, AA’s shares can be picked up today for just 5 times forecast earnings. That might appear screamingly cheap in light of today’s numbers and recent developments (including a deal with Admiral to offer breakdown services to its customers), but I’m still wary.

Regardless of its ability to throw off cash, few would deny that the company’s net debt (£2.7bn at the end of the last financial year) is still nothing short of terrifying for a company only valued at £300m. Moreover, I’d want proof that recent, substantial investment is paying off and membership numbers are actually growing, especially as the competitive breakdown industry could become even more so in the event of an economic downturn as more of us hunt for bargain cover.

AA may be spluttering back to life but it remains firmly in my ‘avoid’ pile until there’s clear evidence of it moving into a higher gear. 

Too risky

Returning to Burford, it seems likely that the share will remain under pressure until the company has a) taken formal action against Muddy Waters, b) management has taken advantage of the share price collapse to top up their holdings, or c) both. The fact that the shares aren’t bouncing as one might reasonably expect following a huge fall and investors’ collective love for a bargain is an ominous sign.

Taking a contrarian stance when presented with all the facts is one thing, but I think there’s simply too much uncertainty at the current time for Burford to be considered anything more than a punt. And that’s not the Foolish way.

The post The Burford Capital share price isn’t the only Neil Woodford disaster stock I’m avoiding appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

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

Based on today’s trading update for the first quarter of its financial year (and the market’s reaction to it), I think there could be more to come. 

“Slightly above expectations”

Hailing a “strong start to the year“, Pets reported a 9.9% rise in revenue to £303.4m over the 16 weeks from 29 March to 18 July. Interestingly, £266.4m of sales came from the company’s traditional bricks and mortar retail stores and only £26m from orders placed online, suggesting lots of room for growth in the latter going forward.

Although still making a relatively small contribution, revenue growth at its veterinary division, at £37m, was even better (+18.8%). This follows the “recalibration” of this part of the company during which Pets bought out 55 joint venture practices and marked over half for closure. According to the Wilmslow-based business, this process is now “largely complete“.

Thanks to the above, Pets now expects underlying profit for the year will be “slightly above current market expectations” with all other previous guidance left unchanged. On a day when markets are fretting over the latest development in the US/China trade war, it’s perhaps understandable that the stock was one of the few risers in early trading — up a little over 4%.

Although there can be no guarantees when it comes to investing in any company (and the probability that a few contrarian investors will decide now is the time to bank some profit is high), I continue to think that the £1bn cap could be a decent medium-term hold. 

Defensive pick

Like fund manager Terry Smith, I’m generally positive on any investment opportunities relating to pets, simply because many people now consider their furry (or not so furry) friends an irreplaceable member of the family. This makes it very likely we’ll tighten the purse strings everywhere else in tough economic times before considering spending less on them, giving Pets At Home a rather defensive feel.   

This is why I particularly like the fact that the firm is trying to take as big a chunk of owner spend as possible by offering a growing number of services in addition to the traditional retail offering. The recent partnership with Tailster.com — a site that allows people to find pet walkers and sitters — is a good example of this.

The strategy seems to be working too. Today’s statement included news that the number of VIP club members who bought both products and a service had grown 23% year-on-year. On top of this, the company stated that it now had 765,000 subscription customers (defined as those who have a health plan from its Vet Group or an arrangement with one of its omnichannel platforms).  

Before this morning, shares in Pets were changing hands on 15 times forecast FY2020 earnings. Even if the company could only state that it was “cautiously optimistic” on its outlook as a result of Brexit-related uncertainty hitting the retail sector, this still looks fairly reasonable to me. There’s a forecast dividend yield of around 3.6% on offer, covered 1.8 times by expected profits.

The post A once-hated FTSE 250 stock has almost doubled in value in 2019. Would I buy? appeared first on The Twelfth Magpie.

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• Should I buy this dirt cheap stock to start earning passive income?

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

So it’s always worth keeping an eye out for companies making positive moves in the market and here are two of July’s biggest winners from lower down the spectrum.

On the mend

Despite an awful 2018 in which the share price pretty much halved in value, I’ve always had a soft spot for veterinary services provider CVS Group (LSE: CVSG). After all, pet-obsessed Brits spend a huge (and growing) amount of money on their companions every year. That won’t change, regardless of what happens on 31 October. 

Aside from operating in a resilient industry, last week’s update for the year to the end of June also suggested trading at CVS has bounced back to health. At £406.5m, total revenue was 24.2% higher than in 2017/18. Earnings are also expected to be in line with the new targets set by analysts following the company’s positively-received update in June. 

Importantly, CVS revealed it had seen a fall in the number of vacancies for veterinary surgeons and nurses — an issue that had dogged the company for some time. This has, in turn, led to a reduction in locum spend and overall employment costs over H2. 

In other good news, the firm said the disappointing performances of its three new divisions (The Netherlands, Farm and Equine) earlier in the financial year had been reversed as a result of actions taken by management. Existing holders may also be reassured by the decision to adopt a more cautious approach with regard to future acquisitions to ensure the company doesn’t overpay in attempts to expand its estate. 

Shares in CVS are up 25% in July and currently trade on a valuation of 19 times forecast FY2020 earnings. While not exactly cheap, I think anyone buying at this level will probably still do well, considering the recent return to form.

Seeing gains

Another market minnow making impressive gains over the last month has been driver monitoring specialist Seeing Machines (LSE: SEE). Shares in the £140m-cap — whose technology helps spot when people are tired or distracted behind the wheel — have accelerated 42% in July alone, thanks to a flurry of positive news.

Only yesterday, the company revealed it had won a four-year contract with coach operator National Express to have its Guardian Driver Safety system fitted in around 700 of the latter’s vehicles by the end of 2019.

This win follows hot on the heels of last week’s announcement that Seeing’s FOVIO driver monitoring system (DMS) had been selected by an automotive Tier 1 supplier to be installed in additional models for an existing German OEM customer in an effort to meet the safety targets set down by the European New Car Assessment Programme.

“This important milestone confirms Seeing Machines’ ability to scale our technology and participate in a broadening DMS market, including entry level solutions targeting Euro NCAP goals,” said new CEO Paul McGlone. 

With the European Parliament also calling for driver monitoring technology to become mandatory in all new cars sold in Europe from 2022, I’m optimistic that Seeing Machines will continue attracting more attention from (risk-tolerant) investors going forward.  

The post These under-the-radar stocks popped in July. I think there could be more to come appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
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Paul Summers owns shares in Seeing Machines. 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.

Go back three years and the stock commanded a price of around 270p a pop. Before this morning, the very same shares traded at 96p. That said, today’s first-quarter trading update from the small-cap suggests a recovery might finally be in sight.

As a result of the firm generating higher revenue per client and more business-to-business revenue from institutions, net operating income over the three months to the end of June was better than over the same period in 2018. According to CEO Peter Cruddas, trading activity in the company’s CFD and spread betting business “has now stabilised“, giving hope to existing holders that the worst might be over.

Although costs are expected to be slightly higher in the current year, CMC also stated that it was confident of hitting its full-year guidance on pre-tax profit.

After initially soaring, CMC’s shares were up a couple of percent by lunchtime, leaving the shares on a valuation of 13 times expected earnings and yielding 4.3% (assuming analysts are correct in estimating the company will return 4.2p per share to holders in the current financial year).

With the company keen to diversify its earnings and capitalise on its recent partnership with Australia and New Zealand Banking Group (aka ANZ), I think this could be a fair price for patient investors to pay.

Industry leader

Of course, CMC Markets isn’t the only option available to prospective investors in this space. Although there’s clearly an element of bias here (I’m already a holder of the stock), I think IG Group (LSE: IGG) — the oldest and largest player in the field — makes for an even better buy.

That’s not to say the FTSE 250 member has been immune to the problems faced by CMC. Earlier this week, the company revealed that net trading revenue had fallen 16% to £476.9m over FY19 as a result of the aforementioned increase in regulation and “less favourable” market conditions. Operating profit of £192.9m was a full 31% reduction on that achieved in the previous year. Nevertheless, I continue to think there are grounds for optimism.

IG continues to attract new clients, with 31,310 making their first trade over the 12 months to the end of May. When market volatility returns as a result of concerns over the growing possibility of a no-deal Brexit, slowing global growth or some ‘unknown unknown’, I can only see this number rising.

A likely 43.2p per share dividend for FY20 also makes IG the higher-yielding share of the two (at 7.5%), even if management has stated its intention to maintain rather than grow this payout until earnings get back on track.

This might not take that long. The company already believes it will return to revenue growth in FY20, helped in part by its two new businesses in the US and the EU. Importantly, the latter, based in Germany, ensures that IG can continue operating in all member states regardless of whether the UK crashes or saunters out of the EU in October.

On a forward price-to-earnings (P/E) ratio of a little under 14, I remain a buyer at these levels.

The post Is this battered small-cap stock now a canny contrarian buy? appeared first on The Twelfth Magpie.

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Paul Summers owns shares in IG Group. 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.