Metro Bank

That seems unlikely to change, judging by the problems affecting Metro Bank (LSE: MTRO). Challenger banks like this one were supposed to shake up the financial services sector, offer serious competition to the big high street banks, and give customers a better deal. But investors who put their money in Metro now wish they’d deposited it elsewhere.

The Metro share price has halved over the last 12 months after it admitted commercial buy-to-let loans and loans worth up to £1.5bn had been wrongly classified in risk terms, forcing it to ask shareholders for £375m to strengthen the balance sheet. Tougher trading conditions, particularly in the mortgage market where margins are now wafer thin, also hit profits.

The bad news rattled customers who withdrew £2bn of net deposits in the first half of 2019, although deposits have since returned to growth. The group’s underlying pre-tax profit slumped to £13.6m, down from £24.1m in 2018.

Many investors would continue to dump Metro, and that’s understandable, given the massive self-inflicted reputational damage. Last month, it was forced to cancel a £250m bond sale, despite offering a juicy 7.5% yield. Investors just don’t want to know. This also suggests Metro could struggle to raise extra funding if it ran into further trouble.

Despite the bank’s troubles, the share price has bounced 21% in the last week. No doubt some have been lured in by its rock-bottom valuation of around five times earnings and news departing founder and chairman Vernon Hill is seeking backers to take the bank private.

But I would urge caution, especially as the Financial Conduct Authority’s investigation has now been widened, and there’s been talk of criminal charges. Now’s not the time to take unnecessary risks in the financial services sector.

Equiniti Group

Sometimes it’s the quiet ones you have to watch out for. Like FTSE 250 financial services technology grafter Equiniti Group (LSE: EQN), which offers regulatory support, pension scheme administration and benefits scheme management for companies around the world.

It’s all dry back-office stuff, but if you like excitement, the group delivered 222% growth in pre-tax profit to £11.6m for the first six months of the year, with revenues up 8.3% to £275m. Equiniti also posted strong client retention, with new wins across all divisions, as 7.2% growth in Intelligent Solutions and 5% in Investment Solutions in its US division helping to offset the 8.6% decline in Pension Solutions.

Management reckons the strength of its franchise can withstand Brexit uncertainty, while it’s also accelerating growth in the US, where its presence is growing following a recent acquisition.

Although the Equiniti share price has disappointed, with the stock down 30% over two years, that leaves it trading at around 10.9 times earnings, which could make a tempting entry point.

The group recently hiked its interim dividend by 7% to 1.95p per share, and yields a forecast 2.9% with cover of 3.3 leaving scope for growth. Forecast earnings per share growth of 4% this year and 7% next also show promise. It looks a lot more solid than Metro, anyway.

The post I’d avoid the rebounding Metro share price in favour of this FTSE 250 growth stock appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of Equiniti. 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.

Equiniti Group (LSE: EQN) is actually a lot more than that, as my Foolish colleague Rupert Hargreaves recently explained, and the company has been the subject of merger speculation which adds potential volatility to the share price.

But Wednesday’s news is very much pension-based as the company has just landed “pension administration contracts for the UK Atomic Energy Authority and for the Combined Nuclear Pension Plan.” The deal covers almost everyone working in the UK nuclear industry, reaching around 60,000 current members. I feel that this boosts confidence in Equiniti’s abilities.

Gyrating shares

A look at the price chart reinforces the erratic nature of Equiniti shares of late. Though they’re up 45% over the past five years to 215p, we’re still seeing significantly lower prices than the peaks of above 300p reached in 2017 and earlier this year.

That’s possibly related to the 1% fall in EPS forecast for the current year, but I see Equiniti as undervalued and the price fall as a buying opportunity. The forward P/E comes in at only around 12.5 for the current year, and predicted 12% earnings growth in 2019 would drop that to 11.

This month’s price weakness suggests the market might be drawing back from the takeover speculation, but I’d never buy a share on such rumours anyway — they often don’t happen, and you can easily lose a chunk of cash.

But in its own right I think Equiniti is a well-priced long-term buy right now, and if there’s a takeover boost, then that could simply be a bonus.

Health properties

My second pick for today is Target Healthcare (LSE: THRL). You might not be too keen on a real estate investment trust with the jittery sentiment surrounding the property market right now, but Target is in the business of operating specialist, purpose-built UK care homes.

Turning to fellow Fool Rupert again, he has already highlighted the long-term nature of Target’s lease deals, and I think that lends strong support to the reliability of its dividend prospects.

The share price itself has only just about matched the FTSE 100 over the past five years, but dividend yields between 5% and 6% make the overall performance of the stock look impressive to me. There’s a yield of 5.7% indicated for the current year.

A net asset value of 106p at 30 September puts the 112p shares on a slight premium, and that also suggests confidence in the dividend to me.

New capital

Investment trusts take on new investment cash through new rights issues, and on Wednesday Target announced a £40m placing at 109p per share.

Chairman Malcolm Naish said the firm has “identified a strong short-term pipeline of assets that meet our strict investment criteria and which are either imminent or in advanced negotiations for acquisition,” additionally pointing out that an enlarged share capital should reduce costs per share.

I like investment trusts as long-term retirement investments anyway, and I see Target as being in a defensive market with demand for its properties likely to rise.

The post 2 stocks I’d pick to boost my State Pension today appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of Equiniti. 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.

Overall, Equniti said revenue last year increased 3.7%, to £382m, in line with analysts’ expectations, driven by strong growth in investment services and software sales. EBITDA prior to exceptional items, a measure of underlying profitability, grew 7.2% to £92.4m, while earnings per share cam in at 10.2p, up from a loss of 92.8p in 2015.

Non-discretionary

Many in the outsourcing sector have seen businesses put off making big investment decisions following the Brexit vote of last June. However, since Equiniti provides services that are largely of a non-discretionary nature — ranging from running payroll to managing pension and share-save schemes — it has seen no let up in demand in recent months. Equiniti provides the critical infrastructure that underpins big businesses and government bodies — as a result, its business model is intrinsically more defensive than some of its peers.

Looking forward, Equiniti sees strong growth opportunities from increased cross-selling of services and favourable regulatory drivers, such as tighter anti-money laundering rules and stricter financial regulation. It is also planning to boost its bottom line by reducing costs and enhancing its scale — Equiniti expects to lift its margins by around 25 basis points a year, after an improvement of 80 basis points in 2016.

The company has an attractive progressive dividend policy, with management planning to increase its full-year dividend by 16.5%, on a pro forma basis, to 4.75p per share. This would still give its shares a relatively low yield of 2.5%, but given its dividend payout ratio is just 30% of underlying earnings there’s plenty of scope for further dividend increases down the line.

City analysts are bullish on Equiniti — out of the four recommendations, three are strong buys and one is a buy.

End of growth

Another company that reported its full-year results today is car dealership company Lookers (LSE: LOOK). The Manchester-based company said full-year profits increased for the eighth consecutive year thanks to steady growth in new car sales.

Revenue increased 18% in 2016 to £4.3 billion, while earnings per share was 4% higher, at 15.87p. However, the increase in revenue and profits failed to enthuse the markets. Shares in the company fell by more than 2% today, as management warned that industry forecasts point to a 5% reduction in new car sales this year.

New car sales have risen every year since 2009, but this trend appears to be coming to an end, as demand is set to cool amid a rise in import prices owing to the impact of the weak pound. A cooling market may not just be detrimental to the top line for car dealers, it could also hurt their already thin margins — Lookers’ underlying operating margin fell by 20 basis points to 2.2% last year.

The outlook for the sector has no doubt hurt sentiment towards Lookers’ shares. Lookers is currently trading at a forward P/E of 8.3, with shares yielding 2.8%. Although valuations seem cheap, I’m wary of buying in at the very top of the market.

The post 2 stocks worth a look after FY results appeared first on The Twelfth Magpie.

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

Equiniti Group

With a market cap of just £600m, Equiniti Group (LSE: EQN) appears to be a relatively small company, yet a closer look reveals that it’s actually one of the UK’s largest outsourcing firms, with 3,500 employees across 28 locations and revenue of £369m last year.

Equiniti provides technology to a broad range of financial services companies and is the UK’s leading provider of share registration and associated investor services. The company also has market leading positions in administration of employee share plans, pensions administration and software, and employee benefit schemes.

It’s been a volatile year for Equiniti shares, with the company listing on the London Stock Exchange just under a year ago, and suffering an 8.5% fall on its first day of trading as well as heavy falls in February and June. Yet the volatility hasn’t put Neil Woodford off, with the fund manager recently participating in a placing of the company’s shares that allowed him to almost double his position in it. Woodford obviously sees something he likes in Equiniti.

City analysts forecast revenue of £391m for FY2016, an increase of 6% on last year, and adjusted earnings per share (EPS) of 15p. That puts Equiniti on an undemanding forward looking P/E ratio of 13.3 times earnings, which combined with a forecast dividend yield of 2.5%, looks quite attractive in my opinion.  

With only 40% of existing customers taking a full complement of products, there’s opportunity for the firm to grow through more deeply penetrating existing clients. Management believes the group can deliver mid-single-digit organic revenue growth within the 3%-7% range per annum with higher EPS growth driven by margin improvement and use of cash.

With good earnings visibility from contracted and recurring revenue streams and high levels of free cash flow, Equiniti certainly looks to have a lot of potential.

Stobart Group

The next Woodford small-cap is Stobart Group (LSE: STOB), which owns and manages a range of key infrastructure sites and operates business divisions delivering critical support services to the energy, aviation and rail sectors.

Woodford is clearly a fan of Stobart Group, buying a 4% stake in the company almost immediately after he left Invesco Perpetual in 2014, and recently taking his holding to over 15% of the issued share capital.

The £580m market cap stock has enjoyed strong share price momentum this year, rising almost 60%, and with revenue forecast to grow from £127m in FY2016 to £185m in FY2018, there’s a chance this momentum could continue. Chief  executive Andrew Tinkler recently said he planned to return £300m to shareholders from the sale of 12 assets, and the prospect of increased dividends has clearly boosted investor confidence.  

With city analysts pencilling-in earnings of 5p for FY2017, Stobart doesn’t look that cheap on a forward looking P/E ratio of 33.2, yet if management can deliver on the dividend, shareholders should be rewarded with a healthy dividend payout.

The post Should you buy these 2 small caps backed by Neil Woodford? appeared first on The Twelfth Magpie.

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Edward Sheldon has no position in any shares mentioned. 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.

Equiniti Group

Specialist technology outsourcer Equiniti Group (LSE: EQN) has had a good month, its share price rising nearly 15% in that time, and today’s half-year report has handed it a further lift. Revenue growth was a decent 5.9%, with organic revenue growth of 4.3%. It also reported 12% revenue growth from cross-selling and up-selling to its top 32 key accounts. Net debt has dropped from £471m to £261m, a fall of 44%, reducing company leveraging from 5.5 to 2.9. Acquisitions have been integrated well.

Equiniti’s profits have benefitted as it has signed longstanding contracts with many of the biggest firms in the country, giving it a broad base of revenue streams. As a share registrar it may benefit from the weaker pound, as this may attract further overseas buyers in the wake of the ARM Holdings deal. The company can perform well in troubled economic times, when many companies raise emergency cash through rights issues. Today, chief executive Guy Wakeley hailed a “strong top line and profit progression whilst reducing leverage.” Forecast earnings per share growth of 12% this year and 9% next, and a valuation of 12.48 times earnings, make the stock worth a look. Especially with the yield forecast to rise from 0.4% today to a more impressive 2.8%.

Paragon of virtue

Property firm Paragon Group of Companies (LSE: PAG) posted a 12.1% rise in underlying profits to £109.9m for the nine months to 30 June. That’ solid growth given that normal trading had been disrupted by the stamp duty surcharge on buy-to-let property purchases and by Brexit uncertainty. The referendum result could still swing a nasty surprise, although management said it’s too early to know for sure.

Despite the surcharge, buy-to-let lending for the nine months to 30 June rose 21.2% to £989.6m, although we might expect to see that slow in the future, as landlord caution grows. Paragon’s pipeline has dipped to £339m from £350.6m at the start of the quarter. It has protected itself with a disciplined approach to pricing and credit, hiking minimum affordability tests in January 2016 to reflect looming cuts to landlord tax relief. The buy-to-let market could be bumpy for some time, which is reflected in Paragon’s current valuation of 7.51 times earnings.

Get the power

Energy storage and clean-fuel company ITM Power (LSE: ITM) posted a full-year pre-tax loss of £4.36m this morning, a mild improvement on the £5.72m it lost a year ago, helped by a £300,000 increase in revenue to £1.93m. The £35.79m market cap minnow currently has a total pipeline of £16.32m, with £15.81m of projects under contract and a further £0.51m of contracts in the final stages of negotiation.

Markets responded positively, with the share price up more than 3% in the morning, helping continue the share price recovery of recent months. However, at today’s 16p, it’s still well below its 52-week high of 30p. Clean fuel should be a global growth area and ITM has struck a hydrogen fuel contract with Toyota and a strategic forecourt siting partnership with Shell. In May, ITM hit the headlines by launching London’s first HyFive hydrogen refuelling station and its two working power-to-gas reference plants in Germany are attracting global attention. But early stage technology like this is a risky power play for investors.

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

Services star

Technology, payment and admin services provider Equiniti Group‘s (LSE: EQN) share price has exploded in recent months, the company’s ability to secure business from both new and existing clients continuing to excite the market.

Indeed, Equiniti commented in April that it expects organic sales to rise 5% this year alone as contract wins with blue chips like Barclays, Tesco and Lloyds pay off.

The City shares this cheery outlook, and predicted earnings rises of 13% and 10% for 2016 and 2017, respectively, produce exceptional P/E ratings of 12 times and 11.3 times. I reckon Equiniti is a steal at these prices.

Shopping giant

Home shopping and education supplies provider Findel (LSE: FDL) has fallen out of favour with stock pickers in recent times, the firm slipping to three-year lows as fears over the retail sector have gathered pace.

But I believe these concerns are overblown — indeed, Findel advised in March that sales at both its Express Gifts and Findel Education arms had improved more recently. And the recent sale of its Kitbag division should allow the firm to double-down on its key areas looking ahead.

The number crunchers expect Findel to enjoy an 11% earnings bump in the period to March 2017, resulting in a bargain-basement P/E ratio of 6.7 times — any reading below 10 times is considered ultra-cheap.

And predictions of a 21% bottom-line rise in 2018 drives the multiple to a mere 5.9 times.

Tech titan

Recent trading news from filtration and environmental technology play Porvair (LSE: PRV) helped propel the stock price to fresh record highs around 342p per share. And I expect this uptrend to continue.

Porvair said that it expects sales to shoot 10% higher at constant currencies during December-May, adding that profits “will be ahead of those reported in 2015.” On top of this, Porvair described its order book as “healthy.”

The tech play has a solid record of generating earnings expansion year after year. And extra advances of 3% and 5% chalked-in for the years to November 2017 and 2018, respectively.

I reckon subsequent P/E ratings of 20.9 times and 19.8 times can be defended given Porvair’s exceptional earnings record and improving sales outlook.

Construction corker

Land, property and construction play Henry Boot (LSE: BHY) also furnished the market with a bubbly trading update in recent weeks.

The firm advised that trading since the start of 2016 has been “encouraging.” And critically Henry Boot noted that “we are seeing improvements in both construction activity and the size of opportunities coming to the market” despite reports of significant cooling in the British construction sector.

The City expects Henry Boot to print an 8% earnings rise in 2016, resulting in a P/E multiple of 10.9 times. And the multiple slips to a terrific 10.5 times for next year thanks to an estimated 7% advance.

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