The first things to strike me when looking at the share is that the valuation looks low. The price-to-earnings ratio for 2019 sits close to 7.5 and the forward-looking dividend yield is just over 6.8%. Why might that be?

The firm has had its problems

Well, I reckon the company operates in a highly cyclical sector and many cyclicals have low valuations after a long period of high profits because the stock market fears the next downturn in business. The firm also has a low market capitalisation around £105m and, generally speaking, small-cap companies attract a lower valuation than many larger names. I think that could be because investors perceive smaller companies to be riskier than large ones.

But those factors don’t tell the whole story with regard to Epwin’s valuation. Delving into today’s figures suggests the firm has endured some particular challenges that could have driven the valuation down. Indeed, revenue during 2018 came in 4% below that achieved the year before, underlying operating profit plunged 23%, the underlying operating margin slid by 19% to just 6.7%, and earnings per share rolled back by 7%. At first glance, there’s something to worry about here.

However, the report trumpets the headline, “A year of robust performance and strategic delivery,” so what’s going on? You don’t have to read far to find the root cause of the company’s problems. Epwin lost its two largest customers during 2017, which has knocked more than £27m from the revenue figure reported today. There was also a hit to revenue of just over £7m because the firm closed down its plant in Cardiff. Those things took the operating profit down too, but profits were also affected by “some unrecovered material cost inflation.”

Turning itself around

The loss of major customers is a clear blow, but Epwin reckons it made “significant” progress getting out of lower margin and unprofitable activities during the period. The report also asserted that the firm enjoyed “strong” underlying growth in revenue and gains in market share in all the company’s “key” product areas. I think this rather upbeat message has encouraged the market today with shareholders looking for a turnaround in Epwin’s fortunes.

And the firm has been busy rationalising its operations and adjusting the set-up for the future. Chief executive Jon Bednall said in the report that the strategy of site consolidations and closures to “deliver a more focused and valuable business” is going well.  2019 is off to a good start, he said, and selling prices have been going up to counter the effects of rising input material prices.

Epwin’s cheap and is in full recovery mode, but it remains a cyclical outfit and a small-cap company. There’s both high upside potential and big downside risk with the share today, in my view. Over to you…

The post Is this recovering company still too cheap to ignore? appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share 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.

A long history of trading

Epwin manufactures and supplies PVC windows, doors, fascias, cladding, guttering, decking and prefabricated GRP building components and has been around since 1976. It started out as “one of the first” PVC-U window fabrication firms in Britain and has grown organically and by acquisition to become the beast that it is today operating from “a number” of locations in the UK.

The directors claim that the brands the firm has developed and acquired are market-leading and help to “maximise the sales opportunities” in the “diverse and fragmented” repair, maintenance and improvement (RMI) and new-build markets. But brands such as Profile22, Spectus, Swish, PatioMaster, Permadoor, ecodek and Tempest are probably not household names, even though they might be well known in the industry.

There will be a lot of cyclicality in the business because of the markets the company serves, and I reckon that shows up in the record of cash flow over the past few years, which wiggles up and down. Today’s report revealed that revenue slipped 5% compared to the equivalent period last year, but underlying operating profit slumped 36%, and adjusted earnings per share plummeted 42%. I think the firm’s difficulties show up most in the figure for the underlying operating margin, which fell by 32%. When faced with such a poor financial performance it’s no surprise that the directors cut the interim dividend by almost 24%.

The medium-term outlook is positive

Prior to the period, Epwin lost two large customers, but revenue held up better than the directors expected. But inflation around materials and labour ate into profits and the firm is introducing price increases to address the problem. On top of that, the company is engaged in a lot of nipping and tucking of operations aimed at reducing its cost base and improving operational efficiency – all actions you would expect when profits decline.  

Looking forward, the company sees weak consumer confidence in the short term leading to ongoing “lacklustre” market conditions. But the medium-term demand for the company’s products will likely be driven by today’s under-investment in existing UK housing stock and an ongoing buoyant market for new homes. On top of that, the directors expect “greater weighting of profit towards the seasonally busier second half of the year than in more recent years.” I read chief executive Jon Bednall’s comments as being optimistic. He said he is confident in the long-term prospects for the RMI market and Epwin will continue its strategy of improving operations, developing and expanding its range of products, and seeking acquisitions. I reckon today’s low valuation and high dividend yield look attractive.

The post Why I think this company is too cheap to ignore appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Kevin Godbold 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 company, which manufactures low maintenance building products, was last dealing 20% lower from Tuesday’s close. It is now trading at record lows below 80p per share.

Epwin said sales and operating profits during January-June matched the board’s expectations, “despite market conditions, particularly in the key RMI market, remaining challenging.” However, it announced that profits for the full year are likely to be “marginally below market expectations.”

The Solihull business noted that “materials price inflation has… had an increasingly significant impact upon costs in the period and this continues to be the case.” And in response to these problems, Epwin has now started a programme designed to adjust its capacity and cost base.

However, stock pickers elected to take flight after the business advised of problems at two of its customers, each of which account for around 5% of its total revenues. One has significant funding issues and is undertaking a strategic review, while the other has sold its plastic distribution business, which is principally supplied by Epwin, to a competitor of the group, it said.

Rather worryingly, it advised that the implications of these troubles “remain unclear at this stage.”

A risky selection

Despite these developments, the chief executive remains positive over Epwin’s prospects and said that while the current market conditions continue to be challenging, “we remain confident of the long-term growth drivers in the RMI market and continue to progress with our strategy, focused on operational improvement, selective acquisitions to broaden our product portfolio, cross‐selling across our brands and product development.”

I am not so convinced however, with the current troubles at Epwin’s key clients adding an extra layer of risk to the company’s revenues outlook in the near term and beyond.

The City had been expecting earnings to edge just 1% and 3% higher in 2017 and 2018 respectively. But today’s profit warning is likely to see these forecasts scythed, making a low P/E ratio of 5.4 times somewhat irrelevant. Meanwhile, bad news from its pressured clients could see more downgrades down the line.

Even though Epwin appears to be a decent dividend pick — the firm sports yields of 8.8% for 2017 and 9.2% for 2018 — I reckon dip buyers should give it a wide berth right now.

Dividend diamond

I am far more optimistic on the earnings prospects over at Avon Rubber (LSE: AVON), and reckon the defence star is a particularly handsome pick at current prices.

Although the business is expected to endure a 12% earnings slip in the 12 months ending September, the company is expected to roar back with a 7% advance next year. And forecasts for the upcoming period means Avon Rubber deals on a P/E ratio of just 14.3 times.

This is excellent value, in my opinion, as recovering defence budgets propel demand for the company’s high-tech mask units higher, while improving conditions in the dairy industry should also create strong sales growth for its milking products.

On top of this, the City is also expecting dividends to keep marching higher — last year’s 9.48p per share reward is anticipated to rise to 12.3p and 15.3p this year and next, resulting in handy yields of 1.2% and 1.5% respectively. I reckon Avon Rubber is a brilliant buy today.

The post Is this value dividend stock a falling knife to catch after dropping 20% today? appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

He’s been buying into big firms such as Lloyds Banking Group and British Land because he thinks the outlook for the UK economy is good and UK-facing cyclicals have seen their valuations pushed down too far.

Cheap, but rising costs

If you like his idea and you are looking for a smaller cyclical firm to invest in, I reckon Epwin Group (LSE: EPWN) takes a lot of beating. The firm manufactures windows, doors and plastic cladding products such as drainage pipes, composite decking, and stuff for finishing off around the roofline of buildings.

The valuation is low. At today’s 108p share price the forward price-to-earnings (P/E) rating runs at just over 7.4 for 2018 and the forward dividend yield sits around 6.5%. City analysts following the firm expect forward earnings to cover the payout just over twice.

As you might expect, there’s a reason for the firm’s lowly rating. Since the vote to leave the EU and sterling’s plunge, Epwin has been juggling increased input costs. Nevertheless, in May the firm told us that trading is in line with expectations, which according to City analysts following the firm means an increase in earnings per share of 2% this year and 3% during 2018.

Stalled growth in profits

Meanwhile, Pets at Home Group (LSE: PETS) is a specialist retailer of pet food, accessories, veterinary and grooming services. Its earnings have been lacklustre, with EPS coming in flat over the last couple of years and set to decline by 10% or so for the current year to March 2018, before flattening again the year after that.

The firm has been looking at its pricing and hopes that reductions in selling prices will rejuvenate profitable sales growth in the years ahead. Within the operational setup, the vet business is growing fast. In May, the firm reported in the full-year results that total income from joint venture vet practices grew almost 25% last year to £47.1m, which is around 10% of the level of overall gross profit. There’s also brisk progress on building up online sales.

At today’s 162p, share price the firm trades on a forward P/E rating around 12 for the year to March 2019 and pays a forward dividend yield of just under 4.6%. Forward earnings should cover the payout around 1.8 times.

The rollout rolls on

I think the reason for this low-looking valuation could be that Pets at Home is something of a rollout proposition with stalling profit growth. The net store count was up at 442 at the end of last year compared to 427 stores the year before.

During 2017, the firm is targeting the opening of 15 superstores, 50 vet practices and 50 grooming salons, although it’s unclear how many of those vet and grooming outlets will be standalone and how many within existing or new stores. Also unknown is how many, if any, stores will be closed during the year. Nevertheless, the rollout rolls on, and if Pets at Home can restore earnings growth the stock could make a decent investment at these levels.

The post 2 hot value stocks that could help you retire early appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any 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.

However, not all AIM stocks are bad. Some companies have achieved highly impressive returns for investors, and tarring them with the same brush as AIM’s other rotten eggs, is unfair. Here are three such opportunities. 

Growth through acquisitions 

Building products group Epwin Group (LSE: EPWN) may not be the most glamorous business, but it is a cash cow. For 2015 the firm generated £22m in cash from operations and for 2016, based on first-half figures which show cash generation up more than 100% year-on-year, it looks as if the firm is set to beat that number for full-year 2016. With a market capitalisation of £150m, cash generation from operations is highly attractive. 

Management is reinvesting Epwin’s cash for growth, as well as paying out around 50% of earnings to investors. Over the past four full financial years, Epwin’s shareholder equity has nearly tripled as bolt-on acquisitions have helped grow the business. 

At the time of writing, the shares support a dividend yield of 5.8% and the payout is covered twice by earnings per share. For 2016, City analysts expect the company to report earnings growth of 23% followed by 6% for 2017. Despite these impressive growth and income numbers, shares in Epwin only trade at a forward P/E of 8.2. 

Defensive business 

Advanced Medical Solutions (LSE: AMS) is one of my favourite AIM companies. 

Since the beginning of 2013, shares in AMS have nearly tripled as the company has gone from strength to strength. Pre-tax profit has doubled in the past five years, and there’s little chance the company will go out of business anytime soon as its medical products are in high demand. Even though growth has now slowed, investors are still willing to pay a premium to get their hands on shares in AMS. The shares currently trade at a forward P/E of 27.2 and City analysts have pencilled-in an earnings per share rise of 3% for 2017. 

At the end of 2016, AMS reported a cash balance of £51m, up 49% year-on-year. For a company with a market capitalisation of £513m, this cash pile is extremely attractive. 

Housing demand 

Despite the shortage of affordable housing in the UK, shares in Telford Homes (LSE: TEF) remain undervalued. Unfortunately, for the year ending 31 March, City analysts are expecting the company to report a decline of 3% in earnings per share, but for the next fiscal year, earnings growth of 29% is pencilled-in. If the company hits this target, it will have raised earnings tenfold in five years. However, the market hasn’t recognised Telford’s rise, and the company’s shares look cheap compared to both historic and forward growth. Shares in Telford are currently trading at a forward P/E of 9.7 and support a dividend yield of 4.4%. 

The post 3 ‘hidden’ FTSE AIM All-Share Index growth stocks appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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

Dividends are an essential part of investing. They give you a steady income no matter what the market environment and can be reinvested to accelerate your investment returns over time. 

However, finding the best dividend stocks is an art. The best dividend payers aren’t all that distinct and they usually hide out of plain sight, but when the market discovers their potential, they can rapidly surge in price. 

So what makes the perfect hidden dividend stock? Well, they clearly tend to offer a higher than average dividend yield that’s well covered by earnings per share. What’s more, these companies have healthy balance sheets with little debt and robust cash flows that easily cover dividend payouts as well as capital spending. 

Lancashire Holdings (LSE: LRE) is an excellent example of one of the market’s best-hidden dividend stocks. 

Difficult to understand

Lancashire is an insurance business. It has no demanding capital spending requirements and due to the nature of insurance (payments upfront and possible payouts later), the business is well-funded. 

Further, its management is one of the best in the industry at claims estimation, meaning that the business constantly over reserves for potential losses and as a result, often finds itself with too much extra capital. The company returns all of this additional capital to investors. For the past three years, the group has returned more than 100% of income to shareholders via special dividends, which has meant a yield of 10% or more for investors every year. 

Lancashire’s status as a hidden dividend champion is likely to persist as insurance is a lumpy business that few understand. Moreover, the company tends to pay one large special dividend every year, rather than smaller regular payouts, which may put some dividend hunters off the company. 

City analysts are expecting the company to pay a dividend of 50p per share this year for a yield of 7.3%. The shares trade at foreward P/E of 13.6. 

Cash cow

Shares in Epwin (LSE: EPW) currently support a dividend yield of 6.6%, nearly double the market average. And this payout looks safer than that of many so-called dividend champions as Epwin is a cash cow. 

Last year the company’s operations generated £22m of cash, capital spending came to £9m and the dividend only cost £6.7m. With the money left over, plus borrowing, the group acquired two businesses to help drive growth. 

During the first half of 2016, Epwin generated £8.2m in cash from operations, spent £8.3m on capital expansion and acquired yet another business. Including the dividend, cash outflows totalled £23m with the difference funded with debt. At the end of the period, Epwin reported net debt of £29.9m. 

City analysts are expecting the company to report a net profit of £20m for 2016. Considering Epwin usually converts around 80% of net profit to cash, it’s reasonable to assume the group will report a cash inflow of £16m for the full year, which gives management plenty of headroom to pay down debt and support the dividend. 

The shares trade at a forward P/E of 7.2.

The post 2 ‘hidden’ high-yielders for income investors appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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