If you’re intent on achieving financial independence earlier than most, however, you may wish to focus on promising small-caps instead. It is, after all, easier for these firms to rapidly grow revenue and profits than it would be for your typical FTSE 100 juggernaut. Today, I’m looking at two market minnows doing just that. 

“Another strong year”

D4t4 Solutions (LSE: D4T4) focuses on helping businesses collect, manage and analyse their data. It’s been around for 34 years now, albeit under the name of IS Solutions before rebranding in 2016. 

Hailing “another strong year of profitable growth,” the company today posted a near-37% rise in total revenue (to £25.2m) for the year to the end of March. It reported “notable sales success” in both the US and Europe, including winning its largest contract to date for its Celebrus software in the latter. At £6.34m, pre-tax profit was near double that achieved in the previous financial year.  

Unsurprisingly, D4t4’s finances continue to strengthen with £11m in net cash at the end of March — a rise of 185% in just one year. Although unlikely to be a priority for holders, the 20% rise in the dividend to 3p underlines just how confident the company is on future trading.

According to CEO Peter Kear, D4t4 “enters the new financial year in robust shape after closing a number of significant contracts in the second half of the year benefitting 2018-19 and subsequent years.” 

Shares were trading on almost 19 times earnings before the market opened, and are now up around 4%. While some profit taking wouldn’t be a surprise, I can see this business getting a lot more attention from investors going forward.

In a sweet spot

Another small-cap company growing at a fair clip is AIM-listed Cake Box (LSE: CBOX). Yesterday’s full-year results from the franchise cake manufacturer and retailer appear to have gone down well with those already invested.

The £67m-cap recorded a 33% rise in revenue to £16.9m in its first year as a listed business. After taking into account the costs of its IPO, adjusted pre-tax profit came in at £4m — a 19% rise.

Cake Box’s estate is also growing. Over the 12 months, it added 27 new franchise stores, giving a total of 113 now in operation. Like-for-like store sales grew 6.5%, while online sales rocketed 58% to £4.4m.

Like D4t4, Cake Box has plenty of cash on its balance sheet (£3.1m). A 50% hike to the final dividend resulted in a total payout for the year of 3.6p, giving a trailing yield of 2.1% at today’s share price.

Like D4t4, the company was also upbeat on its outlook, highlighting how it plans to open two stores a month as part of a growth strategy that has also included the purchase of two new production and distribution centres. According to CEO Sukh Chamdal, “there is still significant scope for expansion” into other regions.

While it’s understandable if some investors are wary following the collapse of Patisserie Valerie, Cake Box looks an interesting proposition. Trading on a little less than 17 times forecast earnings, it’s earned a place on my watchlist. 

The post 2 promising small-cap growth stocks I think could help you achieve financial independence 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 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.

While the past is certainly no guide to the likelihood of more success in the future, here are two that have caught my eye recently.

Star performer

I’d bet that most retail investors haven’t heard of £180m cap, AIM-listed Bioventix (LSE: BVXP). Assuming the company is able to continue performing as it has over the last few years, however, this could be all set to change. 

For background, it develops and supplies antibodies that are then used in blood testing machines in laboratories and hospitals. These tests are employed in fields such as fertility, cancer and heart disease.

Although the company has been fairly quiet over the last few months, October’s results for the full year to the end of June were hugely encouraging. Revenue jumped 21% to £8.8m with pre-tax profits climbing 19% to £6.9m.

Those who like to see strong balance sheets may also like to know that Bioventix was debt-free and had £7m in cash when these numbers were announced.

While dividends aren’t of much interest to a lot of growth investors, it’s worth mentioning that the small-cap returned 61p per share to holders last year — a near 20% increase on 2016/17. There was also a special dividend of 55p per share.

Perhaps unsurprisingly, Bioventix’s share price has rocketed almost 75% over the last year. Had you bought the shares when the company first listed back in 2014, you’d have multiplied your money well over five times. 

The only negative with this — at least for prospective buyers — is that the stock now trades on a seriously expensive valuation of 32 times forecast earnings. 

Would I buy the shares now? Probably not. The general sell-off in equities towards the end of 2018 was a reminder of the dangers of paying too much for any company, regardless of its quality. With Brexit coming next month, the possibility of stock markets becoming choppy once again is real.

That said, if markets do dip, I’m certainly not ruling out buying a slice of Bioventix at a better price.

High confidence

Another company that’s been in fine form recently is D4t4 Solutions (LSE: D4T4). Ignore the questionable name for a second. Over the last year, the data solutions provider’s valuation has increased 55%.

November’s half-year results showed evidence of strong revenue growth. At just under £14m, this was almost 200% higher than over the same period in the previous year. The company also reported an adjusted pre-tax profit of £3.35m compared to a £380,000 loss in 2017.  

Commenting on the company’s outlook, CEO Peter Kear reflected that the business had “a strong pipeline of opportunities” and that D4t4 was looking forward to the rest of the year “with a high degree of confidence“. 

Interestingly, unlike Bioventix, the stock isn’t all that pricey for a business experiencing such growth — a little under 19 times earnings for the current year (ending 31 March).

Dividends are fairly negligible at this point (a yield of 1.2%) but these are rising fast.  The interim dividend was raised 12% to 0.7p per share. There’s also no debt and a solid cash position (just over £12m at the half-year point).

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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.

During the same time though, the BAE (LSE: BA) share price has dropped by around 15%. Part of this fall is due to the stock going ex-dividend, but even with this factored in, the company has still significantly underperformed the wider index.

Looking ahead, could it offer recovery potential versus the FTSE 100? And does its valuation now suggest that it is worth buying alongside another stock which released an update on Monday and also seems to offer a wide margin of safety?

Improving outlook

The company in question is data platforms specialist D4T4 (LSE: D4T4). It released a trading update that shows its revenue increased by 194% to £19.95m in the first half of the year. This marked a return to a more normal trading cycle after an unusual phasing seen in the prior year. The company’s adjusted profit is due to be in line with expectations, while its strategic partnerships have moved forward during the period.

The company has made progress in global partnerships, with its addressable market increasing in size. It has also moved ahead with a number of strategic initiatives, while improving its international offering.

Looking ahead, D4T4 is expected to report a 12% rise in earnings in the next financial year. This puts the stock on a price-to-earnings growth (PEG) ratio of around 1.4, which suggests that it could be undervalued at the present time. With it seemingly confident about its long-term growth prospects, the stock could deliver capital growth in the coming years.

Changing business

The underperformance of the BAE share price in recent weeks is clearly disappointing. However, the long-term prospects for the business seem to be gradually improving. The defence industry offers stronger growth than it has done for a number of years, with US defence spending now on the rise following a period of cutbacks. As the biggest spender on its military in the world, the US could prove to be a significant catalyst on the company’s growth outlook.

Clearly, tension involving Saudi Arabia has hurt investor sentiment towards BAE, with the Kingdom accounting for one-sixth of its total sales. While there could be further volatility as political risk remains high, it could also prove to be an opportunity to buy a high-quality company on a relatively low valuation.

For example, the stock now has a price-to-earnings (P/E) ratio of around 16. With earnings forecast to grow by around 9% next year, the company appears to have a bright future outlook. And since its dividend yield now stands at around 3.7%, it could deliver strong total returns in the long run. They could be enough to reverse its recent underperformance versus the FTSE 100.

The post The BAE share price has lagged the FTSE 100 by 10% in the last month. Time to load up? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of BAE Systems. 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.

Of course, global shares such as Santander (LSE: BNC) could also benefit from a bright future for the world economy. Its dividend growth prospects appear to be bright, which means that it could be worth buying alongside another stock which released an upbeat update on Thursday.

Encouraging performance

The company in question is data solutions specialist D4T4 (LSE: D4T4). It released an update to coincide with its AGM that showed the business remains confident in its future outlook, with organic revenue growth of 13.7% being delivered in its recent financial period. The company’s focus on its higher-margin real-time customer data platform software, as well as on its hybrid cloud data platform services, seems to be paying off. And with its business investment programme delivering high returns, the prospects for the stock appear to be improving.

D4T4 also confirmed in its investor update that it intends to maintain its progressive dividend policy. In the last three years it has increased dividends per share from 0.56p to 2.5p. Despite this, its dividend is expected to be covered 4.3 times by profit in the current year. This suggests that further dividend growth could be ahead – especially with the company expected to post earnings growth of 12% next year.

While the stock’s dividend yield of 2% may be relatively low, it appears to have growth potential when it comes to shareholder payouts. As such, now could be a good time to buy it for the long term.

Low valuation

Santander’s dividend growth potential may also boost its investors’ retirement prospects. The bank is expected to report a rise in earnings of 5% in the current year, followed by further growth of 9% next year. This means that it has a forward dividend yield of 5.2% for the 2019 financial year. And with shareholder payouts expected to be covered 2.3 times by profit, its dividends could rise at a faster pace than profit over the medium term.

With Santander having improved its financial strength in recent years, it seems to offer a more appealing risk/reward ratio. Its diverse geographical exposure means that it could be catalysed by further global GDP growth, while challenges in one region could be offset by strong performance elsewhere.

Despite its improving prospects, the stock has a price-to-earnings growth (PEG) ratio of just 0.9. This suggests that it offers a wide margin of safety, and may deliver high capital gains as well as an impressive dividend yield. It appears to have the potential to beat the FTSE 100 over the long run.

The post Have £1,000 to invest? FTSE 100 dividend growth stock Santander could help you retire early appeared first on The Twelfth Magpie.

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Peter Stephens 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.

Despite this, there still seems to be further upside potential on offer. As such, now could be the perfect time to buy it for the long run.

Impressive outlook

D4t4’s performance in the latter part of the financial year to 31 March has been better than expected. It has won a handful of contracts which have boosted its performance, including its two largest ever contracts for the Private Cloud Analytics solution. This means that it has delivered a record level of bookings for the year after what was a relatively subdued first half. As a result, revenue and adjusted profit before tax for the 2018 financial year are due to be ahead of the previous year.

In the current year, D4t4 expects to benefit from the recent contract wins. It’s due to report a 13% rise in its bottom line which puts it on a price-to-earnings growth (PEG) ratio of just 0.7. This suggests that it could offer further upside potential – especially if it’s able to continue recent momentum with regards to contract wins.

And while its share price may have risen significantly in a short space of time, now could be the right time to buy it. A dividend yield of 2.1% from a payout which is covered 4.2 times by profit indicates that its total returns could be resiliently high. As such, its risk/reward ratio is enticing at the present time.

Upbeat prospects

Also offering upbeat capital growth prospects within the software and computer services sector is Sophos (LSE: SOPH). The IT security products specialist is expected to deliver a significant improvement in its financial performance over the next couple of years, with its bottom line forecast to rise by 96% in the current year, and by a further 62% next year.

This has the potential to cause a step-change in investor sentiment towards the company. In the last six months, its share price has fallen by around 20% and this means that it now trades on a PEG ratio of around 1. Given its size and the diverse nature of its business, this appears to be a relatively low valuation.

Certainly, Sophos may appear to be highly-valued due to it having a price-to-earnings (P/E) ratio of around 96. However, if it’s able to deliver on its forecasts then it may be able to reverse recent disappointment from an investment perspective. As such, with strong turnaround potential, now could be the perfect time to buy.

The post D4t4 Solutions plc is a cheap growth stock I’d buy after it gains 25% appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
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Peter Stephens 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.

However, having experienced an upgrade to its outlook in recent months, IQE (LSE: IQE) is a technology stock which could still have share price appreciation potential. Therefore, now could be the perfect time to buy it for the long run.

Improving sentiment

IQE focuses on the research, development and provision of engineering consultancy services to the compound semiconductor industry. So far, its share price performance in 2017 has been exceptional. It has soared by around 350% since the start of the year, and investor sentiment appears to be improving rather than declining.

One reason for this could be the company’s future prospects. IQE is forecast to grow its bottom line by 27% in the next financial year. Its growth potential for after 2018 also appears to be strong. A recent fundraising has improved the company’s investment potential and could allow it take advantage of new opportunities which require greater scale and investment.

Despite its positive outlook, the stock trades on a price-to-earnings growth (PEG) ratio of just 1.5. Given its improved earnings outlook following the cash injection it recently received, this appears to be a fair price to pay. Judging from the track record of various technology companies, if IQE can deliver on its potential then its valuation could move substantially higher. Therefore, while volatile, it could be a worthwhile buy for less risk-averse investors.

Uncertain outlook

While technology sector peer D4T4 Solutions (LSE: D4T4) also appears to have a bright long-term future, the company’s performance in the first half of the year has been disappointing. Its share price fell by over 20% on Tuesday in response to the release of its interim results. They showed a loss of 0.57p per share versus a profit of 5.44p per share in the prior year.

The main reason for this was the timing of client contracts during 2017. The balance of business intake has been similar to that experienced previously in 2014-15, insofar as a large proportion of business is expected to close and be delivered in the second half of the year. Furthermore, many of the contracts currently in negotiation are with existing clients who wish to either increase the footprint of D4T4’s software, or extend the use of its managed private cloud environments.

Therefore, in the long run there could be a buying opportunity for less risk-averse investors. However, in the short run it would be unsurprising for D4T4’s share price to come under further pressure as investor sentiment has changed significantly. As such, it may be worth waiting for confirmation of improved performance before buying it.

The post Is IQE plc a millionaire-maker stock? appeared first on The Twelfth Magpie.

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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.