Last Friday, FTSE 250 member and Peppa Pig owner Entertainment One announced it had agreed to a £3.3bn takeover from US toymaker Hasbro. The former’s investors will receive 560p per share, representing a 26% premium on Entertainment One’s closing price of 443.4p on Thursday afternoon. 

Earlier in the week, pub-operator Greene King also revealed that it had struck a £4.4bn deal with Hong Kong-based real-estate conglomerate CK Asset Holdings, valuing each of its shares at 820p a pop — 51% higher than where they previously trading at.   

Considering the lack of any real progress with regard to Brexit and the corresponding fall in the value of sterling, it’s likely that more UK stocks could be subject to bids from opportunistic overseas suitors before long. Here are what I believe to be two prime candidates. 

Gearing up to be sold?

Considering its battered valuation, broadcaster ITV (LSE: ITV) must surely be in the frame. The Love Island producer’s stock has recently retreated to prices not seen since 2013 as a result of concerns over dwindling advertising revenue and competition for viewer’s eyeballs from the likes of Netflix.

Although online advertising revenue is improving, the £4.6bn-cap is hoping its soon-to-be-launched streaming service Britbox — a joint venture with the BBC — will be the thing to turn its fortunes around. 

But will it succeed? Despite being a holder of the stock, I’m sitting on the fence for now. While both ITV and the BBC both have a great back catalogue and continue to produce quality content, streaming is becoming an increasingly crowded market with both Disney and Apple due to launch their own services in the near future.

If Britbox flops, or at least doesn’t do as well as expected, I’m not sure quite what CEO Carolyn McCall has up her sleeve to prevent likely bidders from making a move. A likely suitor would be US-based Liberty Global (owner of Virgin Media). It already has a near 10% stake in the FTSE 100 company. 

As difficult as ITV’s position might be, I still believe a lot of this is already priced in. The shares trade on less than 9 times forecast FY2019 earnings and come with a fairly-secure-looking 6.9% dividend yield. 

Prime target?

Another potential FTSE 100 takeover target is supermarket Morrisons (LSE: MRW). The most logical buyer would seem to be Amazon, since it already has an agreement with Morrisons to provide food deliveries to the online giant’s UK customers as part of its Prime and Pantry services. This would, after all, give Amazon a route into the UK grocery market that it’s apparently been looking for ever since it acquired Whole Foods back in 2017. 

With Morrison’s share price now down to levels not seen since 2016 and with the company valued at just 13 times forecast FY20 earnings, you begin to wonder whether the time might now be right for a low-ball bid. Should one be made, the implications for the remaining ‘Big 3’ (Tesco, Sainsbury and Asda) would be significant. 

In the meantime, Morrison’s stock yields 5.3% which may interest contrarian investors with a focus on generating income from their portfolios. Half-year numbers from the £4.4bn-cap are due on September 12.

The post UK plc is on sale. I think these 2 FTSE 100 stocks could be next to receive bids appeared first on The Twelfth Magpie.

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

Alongside another growth stock which trades on a low valuation and that reported an encouraging update on Thursday, Tullow Oil could be worth buying right now.

Growth potential

The company in question is media distribution specialist Entertainment One (LSE: ETO). Its trading update for the 2019 financial year showed that its financial performance has been in line with expectations, with underlying EBITDA (earnings before interest, tax, depreciation and amortisation) rising by 25% in its Family & Brands division.

It also recorded another year of growth in its Music segment, while its Television sector saw strong momentum during the year. it was boosted by both new and recommissioned series, with it having a robust pipeline of over 60 projects set up for development.

Entertainment One is upbeat about its future prospects. The company is expected to post a rise in net profit of 16% in the current year, with its price-to-earnings growth (PEG) ratio of 1 suggesting that it offers a wide margin of safety. As such, now could be a good time to buy it, as it offers share price growth potential over the long run.

Low valuation

As mentioned, the risk/reward ratio for Tullow Oil may be favourable at the present time. Clearly, the prospects for the oil price continue to be uncertain, and falls in the price of black gold could harm the company’s financial outlook. With the US continuing to offer mixed economic data and China doing likewise, the prospects for the global economy appear to be uncertain in the near term. This could mean that the rise in the oil price over the first quarter of the year may not be sustained at the same level in the second or third quarters.

Despite this risk, the Tullow Oil share price appears to offer investment appeal. The company is in the process of delivering its refreshed strategy. This focuses on increasing production, reducing debt levels and investing for future growth. As such, it could offer a relatively strong performance outlook versus the wider sector.

Since the stock trades on a price-to-earnings (P/E) ratio of 11.3, it seems to offer a wide margin of safety. This could indicate that the risks it faces are priced in, with it seeming to have a bright future should the price of oil continue to move higher. As such, from a risk/reward perspective it could be an appealing stock which offers significant growth potential, and that helps its investors to improve their financial prospects over time.

The post Forget the National Lottery – I think the Tullow Oil share price could help you to get rich 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.

As such, shares like National Grid (LSE: NG) could offer stronger prospects from an investment perspective. The company appears to have a sound business model, as well as income potential. Alongside a growth stock that released a promising update on Tuesday, it could be worth a closer look in my opinion.

Improving prospects

The company in question is media distribution company Entertainment One (LSE: ETO). It released results for the six months to 30 September, with underlying EBITDA (earnings before interest, tax, depreciation and amortisation) increasing by 10% to £60m. This was driven by revenue growth in Family & Brands, although the Film & Television segment’s slow growth offset this to some extent.

The company believes that it has a strong content development pipeline, with a number of new releases ahead. It appears to be well-placed to capitalise on changing trends in the wider industry, with its potential for growth in China and other parts of the world being relatively impressive.

Entertainment One is expected to report a rise in earnings of 16% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 1, which suggests that it could offer a margin of safety at the present time. As such, it could deliver improving share price performance, with it seeming to offer growth at a reasonable price.

Income prospects

As mentioned, National Grid’s income potential continues to be relatively appealing. Although there are shares in the FTSE 100 which have a higher yield than the company’s current income return of 5.7%, its dividend reliability could make it relatively attractive at a time when the prospects for the UK and world economies remain uncertain. Investors may become more concerned about the return of capital, as opposed to the return on capital, and this could make defensive shares more appealing.

Alongside this, National Grid’s dividend is expected to grow at a pace which at least matches inflation over the medium term. This could help to maintain its status as one of the higher-yielding shares in the FTSE 100, while also protecting against what may prove to be a higher rate of price growth following Brexit.

Therefore, while buy-to-lets could hold some appeal in terms of their capital growth potential, in the long run, shares such as National Grid may offer higher yields, a favourable tax situation and defensive potential should the UK economy experience further challenges. As such, the stock seems to be a sound buy for the long term at a time when sentiment across the UK remains at a low ebb.

The post Here’s why I’d rather invest in the National Grid share price than bothersome buy-to-let appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of NATIONAL GRID PLC ORD 12 204/473P. 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.

In fact, the Peppa Pig producer’s latest statement provided plenty to get excited about, and has reinforced my view that it is a great last-minute growth stock for you to stash in your ISA.

Cartoon colossus

In a trading update spanning the 12 months to March 2018, Entertainment One declared: “The strong performance over the first six months of the financial year has continued into the second half,” meaning that revenues at its Family division are predicted to have risen 50% year-on-year in the full fiscal period.

Once again the FTSE 250 firm’s pig franchise grabbed the plaudits, a title which “continues to perform well in mature markets such as the UK and Australia, with significant demand for licensed products in China driving further growth in the period.” But foreign expansion here is not the only cause for optimism as its other major Family title, PJ Masks, is also growing in popularity across the globe.

Elsewhere, Entertainment One commented that its Television arm “had another good year.” It also noted that its Film division, which is in the midst of a significant transformation, enjoyed a better performance during the second half of the year.

Pig out

Even though Peppa Pig may be the golden goose for Entertainment One, to stretch the animal metaphors, it is by no means the only cause for celebration.

The media giant has a wide selection of titles that are helping to drive the top line across the business, and while its Film division still requires no little work I am confident that the future remains extremely bright.

City analysts share my positive take and they are forecasting that Entertainment One will follow predicted earnings growth of 5% in the year ended March 2018 with much healthier readings of 14% and 15% in fiscal 2019 and 2020 respectively.

Its bright profits prospects aren’t reflected, however, by a mega cheap forward P/E ratio of 11.5 times. And I reckon this makes it a great selection for value hunters right now.

Another growth great

Another FTSE 250 share in great shape to deliver sustained earnings expansion is Sanne Group (LSE: SNN).

The business, which provides fund and corporate administration services, declared last month that group sales boomed 77% last year to £113.2m, a result that vindicated its aggressive approach towards acquisition activity. And thanks to the increasingly-complex and ever-evolving regulatory backdrop, Sanne’s services are likely to remain in high demand.

Illustrating this strong outlook City brokers are unsurprisingly expecting Sanne’s decent earnings record to keep rolling. The bottom line will rise 6% in 2018, current estimates suggest, and the rate of improvement will improve in double-digits (15%) next year as well.

A prospective P/E multiple of 26.9 times may make Sanne expensive on paper. But I believe the rate at which the business is growing revenues makes it worthy of a premium rating.

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Royston Wild 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.

The television and film giant has swelled 35% in value since then, even hitting its highest for almost two-and-a-half years earlier in January at around 330p per share. Despite this rapid ascent however, it can still be picked up for next to nothing.

Thanks to a forecast 5% earnings rise in the 12 months to March 2018, it trades on a prospective P/E multiple of 14.9 times.

On paper this clearly represents solid value. But considering that City analysts are expecting profits expansion to really light up soon — bottom-line growth of 15% and 12% is estimated for fiscal 2019 and 2020 respectively — this makes the FTSE 250 firm an absolute steal in my opinion.

It’s a family affair

It isn’t difficult to see why the Square Mile is expecting profits to detonate at Entertainment One.

Firstly, the momentum of the London company’s Family division is something to behold — sales here jumped 64% between April and September, to £62.1m.

Its Peppa Pig series has long been the gift that keeps on giving, and there is plenty more left in the tank as the franchise moves into China. The firm aims to treble the number of franchises up and running in the country by the end of the March, to 60.

But the popular porker is no longer the only crowd pleaser to shout about, the company’s PJ Masks series also gaining traction in major territories. Sales here exploded 600% during the first fiscal half to £22.3m thanks to leaping licensing and merchandising revenues. Turnover looks likely to continue booming too as Entertainment One seeks to expand the brand across Europe, Asia and Australasia.

The company’s Television unit is also making tracks. Revenues here rose 17% in the half to £168.5m, thanks to new productions at the now totally-owned Mark Gordon Company, as well as larger international distribution sales for third party productions and content. So there is plenty to get excited over, in my opinion.

A gold-plated bargain

A strong outlook for previous metals prices also leads me to believe that Petropavlovsk (LSE: POG) could prove a terrific pick for growth hunters.

Signals last week from the White House that President Trump favours a weak dollar to boost US trade indicates that currency movements should continue to boost demand for greenback-denominated assets like gold. But aside from these foreign exchange tailwinds, there remain plenty of political and economic levers across the globe that could bolster bullion values in 2018 and beyond.

Meanwhile, Petropavlovsk continues to steadily hike production to latch onto this favourable environment, and in 2017 it produced 439,600 ounces of the yellow metal, up from 400,200 ounces a year earlier. In the current period some 420,000-460,000 ounces is expected, including first production from the company’s flagship POX Hub from September.

So City analysts expect the Russian digger to follow a predicted 26% earnings rise last year with an extra 56% advance in 2018. A subsequent forward P/E ratio of 6 times is too cheap to pass on, in my opinion.

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Royston Wild 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.

Mincon Group (LSE: MCON), for instance, was last moving back towards recent record highs of around 100p per share following a positive reception to its latest market update. The stock was last 1% higher on the day after third quarter performance exceeded the company’s prior expectations.

Mincon — which is involved in the designing, manufacturing, selling and servicing of rock drilling tools –advised that revenues boomed 29% during the nine months ending September, with demand for its Mincon engineering products rising 32% and sales of its third party goods rising 20%.

It advised: “We are seeing growth across all the business units and territories, save for South America where the loss of a key customer delivered a setback at the end of last year.” Indeed, in Africa, North America and Europe the business described trading as “strong.”

Not without risk

And addressing the broad market the engineer noted: “The sector continues to make a broad based recovery, as can be seen by the results of the market leaders.”

The City expects the Irish business to report an 8% earnings improvement in 2017, and to follow this up with a 10% advance next year. As a consequence Mincon deals on a forward P/E ratio of 23.3 times.

The Irish firm’s performance is clearly very impressive, and this is reflected by its market value ballooning 47% since the bells rang in New Year’s Day. And the reorganisation at Mincon Australia earlier this year could provide further ammunition for sales to keep on growing.

Having said that, the uncertain outlook for commodity markets — and particularly in the oil and gas segment — thanks to the spectre of oversupply casts a pall over the long-term profitability of capex budgets for the world’s energy and mining firms. It could therefore put pressure on Mincon’s sales further down the line.

While market share grabs and the huge organic investment it has made in recent times could indeed pave the way for brilliant shareholder returns, investors should be aware that the engineering ace still carries some degree of risk, and particularly given its elevated earnings multiple.

Screen idol

I am less uncertain about the investment outlook over at Entertainment One (LSE: ETO), however, and reckon the business could deliver resplendent riches in the years ahead.

City analysts believe earnings at Entertainment One will trot 7% higher in the year ending March 2018, and an extra 14% advance is chalked in for fiscal 2019.

And despite the FTSE 250 star also enjoying a stellar share price run of late (the firm has risen 14% over the past three months alone), it still deals on a terrific forward P/E ratio of 12.9 times.

This is particularly brilliant value given the “significant momentum” it reported last month following the recent integration of its film and television studios. The popularity of its Family brands Peppa Pig and PJ Masks in international markets continues to bubble higher, while hits like Designated Survivor are pushing series renewals at its Mark Gordon Company division.

I am convinced the future is very bright at the broadcasting behemoth.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Pendragon. 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 business, which is engaged in the acquisition, licensing and delivery of pharmaceuticals and healthcare products, advised that sales rose 8% between January and June, to £50.3m, coming in line with expectations.

Alliance Pharma made a point of highlighting its strong performance in the first half. Sales of its scar-reduction treatment Kelo-Cote jumped 52% year-on-year to £6.2m. Meanwhile, sales of MacuShield, used for age-related macular degeneration, surged 67% to £3.4m.

The medicines play also benefitted from sterling’s weakness in the period — currency movements boosted the top line by £2.6m.

The right treatment

I believe that Alliance Pharma is a great bet for those seeking reliable earnings growth year after year. Medication remains one of life’s essential purchases regardless of broader economic pressures, after all. And Britain’s ageing population should underpin demand growth in the years ahead.

In addition to this, earnings at the Chippenham-based business could receive a further boost should the company’s Diclectin treatment, used to address morning sickness, receive regulatory approval in the UK later in the year.

The City certainly expects Alliance Pharma to keep earnings trekking higher for some time yet, and has forecast advances of 5% and 11% in 2017 and 2018 respectively.

These figures make the stock very decent value for money, in my opinion, its forward P/E ratio of 13.3 times falling within the widely-accepted value benchmark of 15 times and below.

In addition, those seeking handsome dividend growth shares also need to give the drugs dynamo a close look. Helped by stunning cash generation (underlying free cash flow leapt to £11.1m in the first half from £2.1m a year earlier), Alliance Pharma is anticipated to lift the dividend from 1.21p per share in 2016 to 1.28p this year, and again to 1.43p in the following period.

As a result, a yield of 2.4% for the present period leaps to 2.7% for 2018. And I expect dividends to keep marching northwards along with earnings.

Screen idol

Entertainment One (LSE: ETO) is another stock expected to report chunky earnings expansion this year and next.

Following on from last year’s stunning 85% revenues rise, analysts expect sales at its TV division to keep roaring higher as production ramps up at eOne TV as well as at its Mark Gordon Company hit-making machine. And the City has also identified the firm’s PJ Masks franchise as a massive earnings driver for its Family arm as viewership ignites across the globe.

The Peppa Pig play is predicted to report a 9% bottom-line advance in the year to March 2018, and to follow this up with an 11% rise in the following year.

And these numbers make Entertainment One a brilliant value stock, I reckon. Not only does the FTSE 250 share sport a prospective P/E ratio of 10.5 times, but its forward PEG multiple of 1.1 sits just above the broadly-considered bargain benchmark of 1.

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Royston Wild 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.

Piggy bank

That now looks like a mistake. The firm’s share price is up 43% over the past 12 months. Today it announced that the show’s award-winning animation studio, Astley Baker Davies, is set to make 117 brand new episodes, securing a pipeline of piggy content for another four years, starting from spring 2019. You can imagine how excited I am about that. Although to be honest, it was never in doubt. Entertainment One was hardly likely to stop feeding at this lucrative trough.

Peppa Pig has conquered the world, hogging the TV schedules in the UK, Australia, US, Spain, Italy, France, Latin America and South East Asia. In China, it has generated more than 24.5bn views since launch two years ago. I have even watched it in Norwegian, although it loses something in translation.

Wallowing in money

Entertainment One has signed Peppa Pig contracts with licensing partners all over the world, recently adding a new line of toys in Brazil, and 40 partners in Russia covering toys, games and confectionery. The company’s market capitalisation is more than £1bn. City forecasters are predicting highly impressive earnings per share (EPS) growth of 18% in the year to 31 March 2018, and another 10% the year after. Yet you can still buy the stock at a bargain 12.15 times earnings. This swine is a real pearl.

Satellite broadcasting giant Sky (LSE: SKY) is a much bigger beast, with a market cap of £17.22bn. It has also had a good 12 months, with the share price currently trading near its 52-week high of 1005p, thanks to the takeover bid by 21st Century Fox. When the news broke on 5 December Sky’s share price soared from 754p to 1,000p, and has hovered around that level ever since.

Skyfall

The politics behind the bid are ugly, given Rupert Murdoch’s controversial reputation, and fears over media plurality. Yet the European Commission has given it the green light, based on competition grounds. UK regulators examining the proposed takeover should have reported on Tuesday but have been given an extension until after the general election, with a new deadline of 20 June. 

Sky’s directors agreed to Fox buying the 61% of the UK broadcaster it does not already own in a deal worth £11.7bn. Murdoch has a habit of getting his way, especially when politicians are involved, and most analysts expect the deal to go through, including RBC Capital Markets, which reckons investors should buy on that basis. Be warned: there is a slim chance that the deal will collapse, which could knock 10%-15% of the share price. However, that would also offer a compelling buying opportunity.

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Harvey Jones 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.

This week the publishing and events powerhouse announced that revenues rose 11% during 2016, to £1.35bn, with sales rising 1.6% on an organic basis. As a result, adjusted operating profit advanced 13.8% year-on-year, to £416.1m.

Informa’s latest results pay testament to its three-year Growth Investment Plan which is due to complete this year, and result in the rollout of more than 30 products through to the end of next year.

And Informa’s long-running expansion into the US also offers plenty of further upside, of course, particularly after the potentially game-changing acquisition of North American rival Penton during the autumn. Meanwhile, the company’s successful portfolio improvement programme looks set to continue with the possible divestment of its troubled domestic conference businesses at its Knowledge & Networking arm.

Square Mile analysts expect Informa to follow a predicted 16% earnings rise in 2016 with further advances of 12% for this year and 7% for 2018. And these forward numbers produce P/E ratios of 13.6 times and 12.7 times respectively, far below the prospective average of 15 times for its FTSE 100 compatriots.

Animal magic

TV and film star Entertainment One (LSE: ETO) is also a brilliant growth bet for cash-savvy investors, in my opinion.

In a cheery update Entertainment One announced recently that “reported revenues in the full year have shown significant growth, having almost doubled against the previous year, with underlying EBITDA anticipated to be materially ahead of the previous year.”

Entertainment One noted that its Television division continues to perform strongly and sales are expected to have doubled during the year to March 2017.

And looking elsewhere, Peppa Pig continues to bring home the bacon for the Entertainment One’s Family division, with merchandise sales exploding in the US thanks to a broad retail rollout before Christmas (the firm puts retail revenues Stateside at $200m in the 2016 calendar year). And Entertainment One’s PJ Masks show has also exceeded sales predictions, and which are likely to pick up as licensing across the globe steps up during the next 12 months.

Entertainment One expects sales to have risen 25% last year at Family, and predicts that box office revenues at its Film division to have advanced by a similar percentage thanks to monster releases like La La Land and Arrival.

The firm is clearly picking up a head of steam, and the City consequently expects it to recover from an anticipated 1% earnings slide in fiscal 2017 with rises of 18% and 8% in 2018 and 2019 respectively. And these figures result in P/E ratios of just 10.6 times and 9.9 times.

I believe both Entertainment One and Informa are great buys at current prices considering their exceptional earnings potential.

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Royston Wild 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.

On the face of it, the numbers seem impressive. Reported revenues for last year have “almost doubled” while earnings before interest, tax, depreciation and amortisation (EBITDA) are expected to be “materially ahead” of the previous year.

I’m not totally convinced. The firm’s statement suggests to me that there’s been a sharp fall in Entertainment One’s profit margins.

If EBITDA had almost doubled, then Entertainment One would surely have said so. So I can only conclude that the increase in EBITDA is much smaller than the increase in earnings. Hence profit margins must have fallen.

Here’s what really worries me

Entertainment One is growing fast. The group’s operating profit has risen by an average of about 30% per year since 2011. However, this impressive growth hasn’t resulted in the kind of shareholder returns you might have expected.

Today’s share price of 238p is only 50% higher than it was five years ago, even though adjusted earnings per share for the year just ended are expected to be more than double 2012 earnings.

Investing in a FTSE 250 tracker would have provided a better return, as the mid-cap index has risen by 64% over the same period.

In my view, the main problem with Entertainment One is that it doesn’t generate any surplus cash. All of the group’s operating cash flow — which comes from selling its content to television networks — appears to be reinvested in acquisitions and buying new content.

This kind of growth might be attractive if the firm was only using its own cash to fund these investments. But net debt has risen from £165m to about £400m over the last three years. It looks to me as if the firm’s earnings can only be sustained with a constant supply of expensive new programming.

If this is the case, then there’s unlikely to ever be much spare cash for shareholders. That’s certainly the case at the moment. The group’s dividend of 1.2p per share equates to a yield of just 0.5%.

Although the stock may look cheap on 12 times forecast earnings, I feel that future performance may disappoint. I’d sell into the current strength.

I might buy this stock

Television group ITV (LSE: ITV) has some similarities with Entertainment One. ITV has invested heavily in acquiring content producers over the last few years, in order to reduce its dependency on uncertain advertising revenues.

This strategy has been successful for ITV, but I think that’s partly because it’s able to sell the same content twice — once to advertisers on its own channels, and then again when it sells programmes to other television networks.

ITV is certainly far more profitable and cash generative than Entertainment One and has much lower levels of debt. The group’s operating margin was 19.7% last year, compared to 9.4% at Entertainment One.

Shares of ITV have risen by 140% over the last five years, but they’ve pulled back a little over the last 12 months. With a forecast P/E of 13 and a prospective yield of 3.9%, ITV stock now looks quite attractive, in my opinion.

The post One dividend stock I’d buy — and one I’d sell today appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended ITV. 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.