Revenue increased 10% compared to last year, and adjusted earnings per share rose 10% after removing the effect of share-based payments. However, with those payments put back in, the basic earnings-per-share figure actually fell by 5%. Nevertheless, the directors pushed up the ordinary total dividend for the year by almost 14%, although there was no repeat of last year’s special dividend.

Aiming for expansion in America

Revenue from overseas accounted for 51% of the total, up from 47% last year, and I reckon one of the drivers of what’s been a high-looking valuation has been speculation about the firm’s prospects in North America. Chief executive Paul Swinney said in the report: “Our plans to enter the United States market remain on track and continue to progress well.”

However, he also told us that although the driver of revenue growth was the firm’s overseas activity, overall, “sales growth was at the lower end of our target range.” He also told us the uncertainties about the Brexit process have prompted the company to build up its inventory of all component parts and finished products. Tristel also advised its customers in Europe to increase their stock holdings over the coming months “in preparation for possible disruption to the supply chain.”

Despite the warnings, the directors believe Tristel will be able to sell its disinfectants in Europe, whatever the outcome of the Brexit negotiation. But Swinney is certain that turbulence in the year ahead will disrupt the normal predictable pattern of trade. Meanwhile, the company is pursuing the relevant regulatory approvals to trade in the US, and the longer-term outlook is “very positive.”

There was enough in the report to knock the froth off the valuation, though, and the share price is down almost 25% since its early October peak – and plummeting. Prior to the fall, we were looking at a racy forward price-to-earnings (P/E) ratio in the mid-thirties. Today, in this volatile market, I’d avoid shares in Tristel, and reassess the opportunity when the stock settles down at its new level.

Powering ahead

However, I don’t have such qualms about fast-growing e-banking and international payments firm FairFX Group (LSE: FFX). In September’s half-year results report, the firm revealed a 97% increase in revenue, to £12m, compared to the equivalent period last year. Adjusted profit, before tax, rose to £2.6m, from £0.2m the year before.

Chief executive Ian Strafford-Taylor said in the report he expects operationally-geared revenue to “increasingly flow through to profit” in the second half of the year. Despite weak sterling, Brexit, and fewer people taking holidays, he’s confident that full-year results will be “in line with expectations.” 

Meanwhile, City analysts have pencilled in earnings of more than 9p per share for 2019, which puts the firm on a forward P/E ratio of around 14 at today’s share price close to 130p. I think the outlook for growth is strong and see any weakness in the share price now as an opportunity for me to buy.

The post One stock I’d snap up and one I’d avoid in this market turmoil appeared first on The Twelfth Magpie.

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Kevin Godbold owns shares in FairFX Group but not in Tristel. 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 I’ll explain, I think Hargreaves Lansdown may still have a lot to offer investors. But if you’re looking for a genuine disrupter with the ability to deliver multi-bagging gains, I think you need to look elsewhere.

Shaking up the market

Foreign exchange specialist FairFX Group (LSE: FFX) aims to shake up the international payments market. Competitive exchange rates and flexible online services have enabled the group to build a business that’s on track to double its turnover to £2bn this year.

This turnover figure includes the value of exchange transactions. But this rapid growth is also flowing through to the group’s revenue, which rose by 97% to £12m during the six months to 30 June.

Increasing economies of scale also enabled the group to deliver a substantial pre-tax profit of £2.6m, up from just £0.2m during the same period of 2017.

Why I’d keep buying

Customer numbers rose by 182,171 to 911,156 during the half-year period. Although this includes acquisitions, it’s clear to me that demand for the firm’s services is growing. According to today’s figures, turnover during July and August was £472m, 152% higher than during the same period last year.

Alongside foreign exchange services, the company is also expanding into areas such as online banking and pre-paid cards.

Broker forecasts suggest a full-year profit of £7.7m — or 4.9p per share — in 2018. This puts the stock on a forecast P/E of 28, which doesn’t seem excessive to me.

I believe this company has the potential to become many times larger than it is at the moment. The shares look like a buy to me.

Going all the way

One of the rewards for disruption can be abnormally high profit margins. Hargreaves Lansdown has become one of the most profitable companies on the London market. During the year ended 30 June, the firm reported an operating margin of 65% and a return on capital employed of 72%.

There have been suggestions that growing competition could drive down Hargreaves’ profit margins. So far this hasn’t happened. Nor have regulatory changes affected the group’s profitability.

One reason for this is the firm’s size. Last year the group attracted net new business of £7.6bn. This took total assets under administration to £91.6bn.

Looking after these investments for the firm’s 1.1m clients generated revenue of £447.5m. This represents less than 0.5% of the value of assets under administration.

This suggests to me that the firm’s charges are not unreasonably high. Customers seem to agree. Hargreaves’ share of the direct platform market — which allows investors to buy funds — rose by 1.3% to 39.1% last year. The group’s share of the execution-only stockbroking market rose by 1.7% to 31.3%.

Keep calm and carry on

Analysts expect the group to deliver earnings growth of 17% this year, and about 15% next year. Although the stock looks expensive on 39 times 2019 forecast earnings, this valuation reflects its exceptional profitability.

A forward dividend yield of 2.1% also looks worthwhile to me. This payout rose by 11% last year and was also boosted by a special dividend. I’d sit tight and buy more on the dips.

The post Why this super growth stock could be heading for the FTSE 100 appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

FairFX sees itself as a “leading challenger brand in banking and payments” aiming to “disintermediate” established old-guard banks in its trading area with its “superior user experience and low-cost operating model.”

We’ve seen the power of those seeking to disrupt established industries in sectors such as supermarkets, retailing and others, so I’m taking the firm’s ambitions seriously.

Business is going well

The company operates as an international payment services provider in the retail and corporate segments of the UK, which it estimates to be a market worth £60bn a year. FairFX’s cloud-based peer-to-peer payments platform enables personal and business customers to make low-cost multicurrency payments in many currencies and using several Foreign Exchange (or Forex/FX) products via one system.

The company’s platform allows payments direct to bank accounts or via 30m merchants and Automatic Transaction Machines (ATMs) in many countries. Customers can use mobile apps, the internet, SMS, wire transfer and Mastercard or Visa debit cards.

Business is going well. In 2017, the firm acquired Q Money and that firm’s e-money license, which FairFX aims to use so that it can diversify and provide digital banking products mainly to Small and Medium Enterprises (SMEs). The selling point is that FairFX can offer “affordable” current account services. At the moment, the firm offers currency cards, international payments for personal and business customers, travel cash, and a corporate card expense platform.

Very good outlook

Today’s half-year trading statement trumpets “continued strong growth with turnover exceeding £1bn.” During the six-month period to 30 June, turnover was up more than 146% year-on-year, in line with the directors’ expectations. Excluding the contribution from recent acquisitions Cardone Banking and City Forex, like-for-like turnover moved almost 23% higher compared to the equivalent period the year before, to almost £533m. The company defines turnover as the gross value of currency transactions sold plus the gross value of deposits into bank accounts.

FairFX has achieved some of its progress in the first half by launching new products. Crucially, chief executive Ian Strafford-Taylor said in the report that profit margins had been maintained during the “substantial” growth in turnover. He said the directors have “great confidence for the prospects for 2018 and beyond.”

Meanwhile, City analysts following the firm expect earnings to shoot up more than 1,200% this year and by 86% in 2019. With the share price at 129p as I write, the forward price-to-earnings ratio sits at just over 14 for 2019. If strong earnings growth continues, I think there’s potential for a valuation re-rating upwards and ongoing share-price progress to track further growth in the years to come. I think the stock looks attractive right now. 

The post Should I pile into FairFX Group, up 20% today? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

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

These can provide an opportunity for faster capital gains and allow you to learn what investing style suits you best.

However, to protect your portfolio from big losses, I think it’s essential to focus on profitable firms with proven business models. Today I’m looking at two potential buys.

Disrupting an old business

The business of foreign exchange isn’t new. But the recent years have seen a number of new technology companies get involved, with a focus on providing better value for customers.

One example is FairFX Group (LSE: FFX), which operates a peer-to-peer platform that allows customers to make transactions in different currencies. The group also offers pre-paid cards and is building an online bank.

This £155m AIM-listed firm has taken a few years to reach a profitable scale. But 2017 saw the group generate its first annual profit. According to figures released today, revenue rose by 52% to £15.5m last year, generating an adjusted pre-tax profit of £0.9m.

The value of transactions handled by the company rose by 41% to £1.1bn last year. Customer numbers rose by 11% to 728,985. In my view these figures highlight the size of the opportunity for the firm — it’s still a relatively small player in a very big market.

The way forward

FairFX is expanding through a mixture of acquisitions and organic growth. Last year’s deals included digital banking group CardOne and Q Money. The company also recently gained full membership of MasterCard, so can now issue its own cards.

Although foreign exchange transactions still generate most of the group’s revenue, I think the banking operation could have big potential.

Today’s trading update confirmed that growth stayed strong the first quarter. Like-for-like revenue rose by 18.7% and total revenue, including acquisitions, rose by 85.3% to £4.8m.

The shares currently trade on a 2018 forecast P/E of 20. This doesn’t seem excessive to me given the current rate of growth. I’d be willing to buy a starter position in FairFX after today’s news.

Compare this

Foreign exchange isn’t the only part of the financial sector that’s faced disruption from tech firms. Price comparison businesses have forced financial firms to be more competitive and transparent in their pricing.

One of the top players in this sector is Gocompare.com Group (LSE: GOCO). This £470m business generated an operating profit of £33m on £149.2m of revenue last year. That’s equivalent to an impressive operating margin of 22%.

Although Gocompare.com isn’t the biggest company in this sector, it’s still fairly large. Last year’s results show us that the firm handled 32.2m customer “interactions” in 2017. Average revenue per interaction was £4.67.

Still growing fast

Price comparison isn’t new anymore. But the firm is making targeted acquisitions and upgrading its services to provide an increasingly personalised service.

City analysts expect adjusted earnings to rise by 24% to 8.1p per share this year. The group’s dividend is expected to rise by 45% to 2.03p per share.

These figures put the stock on a 2018 forecast price/earnings ratio of 14 with a prospective yield of 1.8%. In my view, this could be a good stock to tuck away for long-term income and growth.

The post 2 inflation-beating growth stocks for a starter portfolio appeared first on The Twelfth Magpie.

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• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Mastercard. 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.

Unfortunately, over the past three months, shares in the company have struggled as investors have become concerned about the group’s lofty valuation. At the time of writing the shares are trading at a forward P/E of 32.8.

Betting on growth 

For a high-growth company like IQE, this multiple is easy to justify. The City is currently expecting it to report earnings per share growth of 28.5% for 2017 implying a PEG ratio of 1.2. A PEG ratio of one or less signifies that the shares offer growth at a reasonable price based on growth and valuation estimates. For 2018, analysts are projecting year-on-year earnings growth of 31.6%. If the firm hits this target, the shares are trading at a 2018 P/E of 29.1 and PEG ratio of 0.7. 

So if IQE hit its growth targets for the next two years, then the shares look appropriately priced. However, a lot could go wrong over the next two or three years and if IQE fails to live up to expectations, then I believe investors could end up nursing heavy losses as the company’s valuation falls back to earth. 

With this being the case, I believe that small-cap Fairfx (LSE: FFX) might be a better buy for growth hunters. 

Inflection point 

Over the past five years, Fairfx has been struggling to build its business to scale. Even though revenue has grown at a rate of approximately 36% per annum since 2011, the firm has struggled to break even. 

City analysts expect this to change in the next two years and are expecting the financial services company to report a net profit of £8.1m for 2018 and earnings per share of 5.4p on revenues of £2.5bn. 

The firm is already well on the way to this target. Today it reported that revenues for 2017 are on track to exceed £1.1bn, up 39% year-on-year and both revenues and profits are expected to be “ahead of market expectations for FY17.“

2018 is set to be an even better year for the firm. At the end of December, it was given full membership status with Mastercard, allowing it to “issue Mastercard branded cards, initially across Europe but with other regions to follow.” This will allow the company to create third-party card programmes in-house producing cost savings as well as streamlining its services. 

Cheap growth 

With Mastercard on-side, management will also be able to accelerate the growth of CardOneBanking, which was acquired last year. CardOne offers a simple banking service for customers with no credit checks and no branches. So far, over 80,000 customers have signed up for the service. 

As Fairfx continues to build on its existing business of international currency payments and complements this growth with other financial services, the group should be able to keep expanding, and margins should improve, leading to further profit growth. 

Unlike IQE, you don’t have to pay a premium for this growth. The shares are currently trading at a forward P/E of 14.2, which I believe undervalues Fairfx and its growth potential. 

The post One future growth star I’d buy over IQE plc appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Rupert Hargreaves owns no 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.

It’s been a rough year for shareholders of Rhythmone (LSE: RTHM). Year-to-date shares in this online advertising company have fallen nearly 20% thanks to concerns about the state of the digital advertising market.

City analysts are concerned that Google and Facebook are hoovering up all of the online advertising markets, pushing out other businesses such as Rhythmone and its more substantial peer System1. Even WPP and ITV haven’t escaped. Shares in WPP have registered the most substantial decline this year, down by around a quarter year-to-date. 

However, despite these concerns, figures from Rhythmone published today show that the company continues to make progress. 

For the half year to the end of September, management is expecting to report revenues of $112m to $114m, up from last year’s first-half number of $67m. The gross margin from operations is on track to come in at 38%, up from last year’s 35.4% and for the period the company is projecting adjusted EBITDA of between $1.5m and $2m, after last year’s first-half loss of $2.6m. 

Growth through acquisitions 

Rhythmone is already growing organically and to help drive further growth, the company announced the acquisition of YuMe Inc for $185m at the beginning of September. 

YuMe will help the firm’s expansion plan as the company offers “data-driven audience insights that allow brand advertisers to engage and influence their most promising audiences and increase engagement and sales,” which is similar to Rhythmone’s existing business model. The two businesses are roughly the same size, and this merger of equals should allow the combined entity to compete more efficiently with larger peers. For 2016, YuMe reported sales of $160m and adjusted EBITDA of $10.9m. 

This acquisition is expected to turbocharge Rhythmone’s growth. For the financial year ending 31 March 2019, City analysts have pencilled in earnings per share of 42p, up 442% year-on-year. Based on this projection, the company is trading at a forward (2019) P/E of 7.3, far below the IT services sector median of 19. I believe that if the shares can gain an average sector valuation, they could be worth as much as 798p, 157% above current levels. 

Enormous potential 

As well as Rhythmone, I think FairFX (LSE: FFX) could generate impressive returns for investors. It is another growth stock that looks undervalued based on its potential. At the time of writing, shares in the provider of foreign exchange payment services don’t seem particularly cheap as they trade at a forward P/E of 365. However, analysts believe that the company is on track to report a 26-fold increase in pre-tax profit for 2018, which should translate into earnings per share of 5.4p.

At the end of September, a trading update from the firm confirmed that it is on track to hit this target. Revenue for the first half expanded 33%, and the company completed the acquisition of CardOne post-period-end. This deal should accelerate the group’s stated strategy of disrupting the SME banking space. Management believes that there should also be opportunities to improve margins and cross-sell products through the combination of the two businesses. 

The post These 2 growth stocks could still make you rich appeared first on The Twelfth Magpie.

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• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Rupert Hargreaves owns shares in ITV. The Motley Fool UK owns shares of and has recommended Alphabet (A shares) and Facebook. 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.