Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as other company news due to their complex nature. Nonetheless, here I’m breaking down this week’s biggest director dealings from three FTSE firms.

Vodafone

Vodafone (LSE:VOD) is a British multinational telecommunications company. It predominantly operates services in Asia, Africa, Europe, and Oceania. The company runs at least some form of operations in over 150 countries.

Following lacklustre numbers from its Q1 trading update, the share price dropped by 5%. It has stayed there since. Despite that though, it’s a sign of confidence when a high-ranking director purchases shares. And this week, Vodafone’s Chairman decided to reinvest his dividends into buying more Vodafone shares.

• Name: Jean-François van Boxmeer
• Position of director: Chairman
• Nature of transaction: Dividend shares
• Date of transaction: 10 August 2022
• Amount bought: 9,975 @ £1.21
• Total value: £12,069.75

Deliveroo

Deliveroo (LSE: ROO) is a British online food delivery company. It operates in over 200 locations across the UK, and is the second-biggest food delivery platform in the country. It also operates internationally with operations in France, Singapore, Australia, and many more.

In this week’s transaction, a director exercised his option to redeem stock compensation. Following this, he opted to sell approximately half of the shares received to cover tax liabilities. That being said, it’s worth noting that this is a monthly occurrence from the company’s CFO. As such, these actions shouldn’t impact investor sentiment surrounding the stock. It’s worth pointing out, however, that the sale of these shares dilute shareholders’ value. This is because there are now more Deliveroo shares floating on the market.

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Award shares
• Date of transaction: 15 August 2022
• Amount vested: 83,400 @ £0.96
• Total value: £80,247.48

• Name: Adam Miller
• Position of director: Chief Financial Officer
• Nature of transaction: Sales of shares to cover tax liabilities
• Date of transaction: 15 August 2022
• Amount sold: 40,402 @ £0.95
• Total value: £38,381.90

FirstGroup

FirstGroup (LSE: FGP) is a British multi-national transport group. The FTSE 250 firm is the leading transport operator in the UK and North America. It is widely known for being a provider of public transport, especially buses in the UK.

Rather surprisingly, its shares have managed to outperform the wider UK market index this year. But after the share price took an 11% hit last week, a couple of large director dealings were carried out. The first involves a non-executive director purchasing a substantial number of shares. But what really caught my eye were the conditional share awards that could be awarded to FirstGroup’s CEO and CFO. This should shore up investors’ confidence in the stock, as the group’s management will have to perform and meet investors’ expectations in order for these award shares to vest.

• Name: Sally Cabrini
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares
• Date of transaction: 17 August 2022
• Amount vested: 10,000 @ £1.15
• Total value: £11,482

• Name: Graham Sutherland
• Position of director: Chief Executive Officer
• Nature of transaction: Award shares
• Date of transaction: 18 August 2022
• Amount vested: 972,590 @ Nil
• Total value: N/A

• Name: Ryan Mangold
• Position of director: Chief Financial Officer
• Nature of transaction: Award shares
• Date of transaction: 18 August 2022
• Amount vested: 1,003,226 @ Nil
• Total value: N/A

Types of Shares

To provide context, there are a few types of shares that can be purchased by directors. Some directors opt to purchase shares via the open market. Having said that, directors also have the option to purchase and receive shares via a share incentive plan (SIP).

A SIP is an employee plan for companies within the UK to flexibly award shares to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this week’s set of director dealings, a few types of SIPs were exercised. For starters, Vodafone’s Chairman opted to purchase more Vodafone shares from the dividends he received from his current shares.

On the other hand, Deliveroo’s CFO decided to exercise the option of redeeming his restricted stock units. These are a form of award shares which allow for directors to redeem shares at a later date, as either as part of their salary or based on meeting performance obligations.

FirstGroup’s CEO and CFO were awarded shares as well, but these will only be vested once performance targets are met. In this case, more than 1.5m shares are up for grabs between the two directors under the operator’s long-term incentive plan (LTIP). The LTIP award will normally vest on the third anniversary of the date of award, subject to satisfaction of performance conditions and continued employment. The award is also subject to an additional holding period of two years from the date on which the award vests.

The post Director dealings: Vodafone, Deliveroo, FirstGroup appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings Plc and Vodafone. 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.

Ashtead

Ashtead (LSE: AHT) is a British industrial equipment rental company. It has networks in the UK, US, and Canada. It also trades under the name of Sunbelt Rentals. The industrial firm is expected to report earnings for its financial year 2022 on Tuesday, 14 June 2022. The earnings preview indicates a positive trend in both its top and bottom lines as it recovers from its pandemic woes.

• Market cap: £17.5bn
• Price-to-earnings (P/E) ratio: 18
• Dividend yield: 1.1%

• Earnings per share estimate (FY 2022): £2.47
• Earnings per share (FY 2021): £1.56
• Total revenue estimate (FY 2022): £6.47bn
• Total revenue (FY 2021): £5.0bn

Halma

Halma (LSE: HLMA) is a British global group consisting of safety equipment companies. These firms make products for hazard detection and life protection. The FTSE 100 group is expected to report earnings for its financial year 2022 on Thursday, 16 June 2022. The earnings preview indicates slight growth from the previous year.

• Market cap: £8.0bn
• P/E ratio: 30
• Dividend yield: 0.9%

• Earnings per share estimate (FY 2022): 63.1p
• Earnings per share (FY 2021): 58.7p
• Total revenue estimate (FY 2022): £1.5bn
• Total revenue (FY 2021): £1.3bn

FirstGroup

FirstGroup (LSE: SSE) is a British multi-national transport group. The company operates transport services in the UK. The transport company is expected to report earnings for its financial year 2022 on Tuesday, 14 June 2022. Earnings preview indicates a drop in revenue and a return to unprofitability.

• Market cap: £1.0bn
• P/E ratio: 2
• Dividend yield: –

• Earnings per share estimate (FY 2022): -0.4p
• Earnings per share (FY 2021): 2.4p
• Total revenue estimate (FY 2022): £4.52bn
• Total revenue (FY 2021): £6.8bn

The post Earnings preview: Ashtead, Halma, FirstGroup appeared first on The Twelfth Magpie.

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The FirstGroup (LSE: FGP) share price is down more than 13% this morning after it reported a statutory operating loss of £152.7m in the year to 31 March. That starkly reverses last year’s £9.8m profit. Revenues rose 8.8% to £7.75bn. But pre-tax losses nonetheless climbed sharply, from £97.9m last year to a hefty £299.6m.

The FTSE 250-listed bus and rail operator, which operates in the UK and US, blamed losses on a North American self-insurance provision, Greyhound impairment charges, restructuring and reorganisation costs and, of course, Covid-19.

Bargain FTSE stocks I’d avoid

Although the pandemic only affected the end of the year, it still cut average passenger volumes by around 90% by the end of March, with international lockdowns in place and the North American schools it serves closed.

Chief executive Matthew Gregory said guidance for this financial year is simply “not possible” as travel volumes have “reduced very substantially.” As the US struggles with the first wave of coronavirus infections, that looks set to continue.

Gregory says FirstGroup’s long-term fundamentals remain “sound.” It has fiscal and contractual support for running essential services during the pandemic, but admits to “material uncertainty as to the continuation of these measures.” It also has committed undrawn liquidity of around £850m at the end of June.

The FirstGroup share price looks like a FTSE bargain, trading almost 70% below its pre-pandemic peak. But the road to recovery looks too long, bumpy and fraught with potholes for me. Plans to sell its North American operations could stall, given current uncertainties. Investors are selling. I’m not buying.

I wouldn’t buy this share either

Now here’s a bargain FTSE 100 stock I’d love to buy, but won’t. Coincidentally, insurer Prudential (LSE: PRU) is also looking to reduce its US exposure, to concentrate its firepower on Asia instead. It’s selling a stake of it US arm Jackson to Athene Holding for $500m. Athene will also reinsure a $27.6bn portfolio of annuity liabilities.

Prudential has already backed away of the UK, selling UK fund management arm M&G and £12bn of its UK annuity portfolio. Trading at less than nine times earnings, this stock looks like a classic FTSE 100 bargain. But here’s why I wouldn’t buy it.

The Prudential share price remains vulnerable to political uncertainty in Asia, as China cracks down on Hong Kong democracy. That’s a problem, given that revenues from the territory make up a third of sales. Locals have been buying less insurance while China-based customers have stayed away, due to fear of hostility towards mainlanders.

On Monday, I warned against investing in Asia-focused banks HSBC Holdings and Standard Chartered. This morning, shares in HSBC plunged on reports that the White House may undermine the peg between the Hong Kong and US dollars.

This added layer of uncertainty means I wouldn’t buy Prudential either. Shame. Otherwise it looks like a top FTSE 100 bargain.

The post Beware these bargain FTSE stocks! Here’s why I’m avoiding these 2 dirt-cheap shares today 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 has recommended Prudential. 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 back of those results, the shares have crashed 20% to 103p, as I’m writing. In this article, I’ll look at the latest news and tell you what I’d do now.

I’ll also look at security firm G4S (LSE: GFS) — a fellow FTSE 250 stock I’ve bigged up on the same grounds as First — but whose trading update last week was greeted more warmly by the market, the shares moving up 3% on the day.

Delivering value

When companies separate their businesses — for example, by a demerger — they very often deliver value for shareholders. Re-energised and more focused, the performances of the separated businesses often become stronger (and their market valuations higher) than when they were yoked together.

G4S and FirstGroup are both pursuing demerger strategies. G4S is planning to demerge its Cash Solutions business, leaving it focused on its Secure Solutions division.

FirstGroup’s plans are more complex. A demerger looks on the cards for its UK First Bus division, and possibly a separation of First Rail. Meanwhile, in the US, a formal sale process is under way for its iconic Greyhound business. This would leave the group focused on North American contract-based operations, First Student and First Transit.

All going to plan

G4S’s two businesses are performing well, and its plans for demerging Cash Solutions are well advanced. It said in last week’s Q3 trading update: “The group sustained the positive organic growth momentum we saw in the first half, with organic revenue growth of 4.3%.”

Management said it expects continued momentum in Q4, and sees “good opportunities to generate further revenue growth next year and beyond.”

The company also confirmed good progress on preparations for the demerger of Cash Solutions in the first half of next year, as well as evaluating “unsolicited third-party proposals which may provide an alternative to the demerger.”

At a share price of 205p, G4S trades at 11.2 times this year’s forecast earnings. I remain confident the demerger (or potential sale at a premium price) of Cash Solutions will provide a good valuation uplift in due course. As such, I continue to rate the stock a ‘buy’.

Overdone

FirstGroup today reported a first-half statutory pre-tax loss of £187m. However, it included a non-cash impairment charge of £124m on the carrying value of Greyhound, and a £59m insurance reserve charge, due to a deterioration in the US motor claims environment leading to increased insurance costs.

More positively, group revenue increased 6.9% (4.1% at constant currency), and “all divisions delivered growth after excluding disposals and withdrawals from loss-making routes.” Management added: “We are confident in delivering our trading expectations for the full year.”

The company also said it’s progressing through the detailed work to prepare for the separation and rationalisation of its businesses, and that the formal sale process for Greyhound “is now well advanced”.

I think today’s share-price crash is way overdone, and with the stock trading at little more than seven times this year’s forecast earnings, I reckon this represents a great opportunity to buy.

The post This FTSE 250 stock just crashed 20%. Here’s what I’d do now appeared first on The Twelfth Magpie.

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G A Chester 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.

Fundamentally attractive

ConvaTec is a stock I originally tipped far too soon after it debuted on the stock market in 2016. I’m generally cautious on new arrivals until they’ve built up a record as a publicly-listed company, but I was swayed by CTEC’s market-leading products and technologies for the management of chronic conditions.

The company soon reported a number of operational issues, and the share price suffered as a result. However, I continue to see the business as fundamentally attractive, with ageing populations being a structural driver for growth. The shares have climbed around 50% since I kept faith with the company earlier this year. Events since, including a Q3 trading update today, have persuaded me there’s more to come.

On track

With a new chairman and chief executive, ConvaTec reported a Q3 performance in line with management expectations, and said its transformation initiative is on track. Advanced wound care produced organic revenue growth of 3.6% for the period, and with ostomy care (+3%), continence and critical care (+8%), and infusion devices (+4.3%), there was growth across all franchises.

Management left its guidance for the full-year unchanged. Namely, group organic revenue growth of 1% to 2.5%, and an adjusted EBIT margin of 18% to 20%, including spend associated with the transformation initiative and costs to implement new medical device regulations.

Plans and progress

Highly-rated chief executive Karim Bitar, who joined the company just a month ago, said: “I look forward to giving an update on our plans and progress next year.” I’d expect this to be alongside full-year results in February.

At a share price of around 200p, CTEC trades at 20 times current-year forecast earnings. I’m hopeful Bitar’s plans for growth, an ongoing reduction of debt, and an improving business performance could see the share price continue to head north through 2020.

Portfolio rationalisation

FirstGroup announced its annual results back in May, along with a strategy update for its portfolio of five market-leading public transportation businesses in the UK and North America. It intends to make the latter its core market, centred on its contract-based operations First Student and First Transit. It said a formal sale process is underway for its iconic Greyhound intercity coaches business.

In the UK, it’s pursuing structural alternatives to separate its First Bus operations from the group. The long-term future of its First Rail business isn’t entirely clear yet, as management awaits the outcome of the UK government’s review into the structure of the whole rail industry.

Unlocking value

There’s been no further news on the portfolio rationalisation since the plans were announced in May. Meanwhile, at a share price of 129p, the group, as is, trades at 8.9 times forecast current-year earnings.

I’m convinced management is pursuing a strategy that will ultimately unlock value for investors, and I expect to see the shares rate higher through 2020. We should have an update on the rationalisation of the portfolio as early as the company’s half-year results on 14 November.

The post 2 FTSE 250 stocks I’d buy for 2020 appeared first on The Twelfth Magpie.

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G A Chester 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.

There are currently several FTSE 100 companies that are pursuing a demerger or have the potential to do so. But today, I’m looking at two FTSE 250 firms I think are similarly attractive investment propositions. The first is multinational security services firm G4S (LSE: GFS), and the second is UK and North America transport operator FirstGroup (LSE: FGP).

Unyoking

In its half-year results released earlier this month, G4S reported group revenue growth of 4.7%. It said this growth, together with new contract wins, supports its medium-term revenue goal of 4-6% per annum. Its Secure Solutions division posted growth of 4.9% and its Cash Solutions business grew 3.9%.

Alongside this decent first-half performance, and a positive outlook, the company announced the board has approved the separation of Cash Solutions from the group. It said: “As a result, we have set in train plans for the demerger of Cash Solutions in H1 2020.”

When two businesses are separated like this, we often find that each delivers improved performance, due to a number of benefits, including strategic, commercial and operational focus. In turn, this leads to a higher rating by the market than when the two businesses were yoked together.

G4S is currently valued at nine times this year’s forecast earnings. I think this gives plenty of scope for investors to enjoy a strong uplift in value, as the company pursues its demerger strategy. And with there also being potential for a high-price bid to come in for the Cash Solutions division before the demerger goes ahead, I rate the stock a ‘buy’.

All change

A similar story is unfolding at FirstGroup which, likewise, is currently rated at nine times this year’s forecast earnings. Alongside its annual numbers in May, headed by revenue growth of 5.7%, the company announced a strategy update for its five transport businesses.

It sees a future in which its core market will be North America, centred on First Student and First Transit, its market-leading contract-based businesses. Its iconic Greyhound brand has limited synergies with these businesses, and a formal sale process is now underway.

Change is also in the offing in the UK, where First Bus is one of the largest operators. Here, management is “pursuing structural alternatives to separate our First Bus operations from the group.” Also in the UK, the company has a portfolio of separately-managed rail franchise businesses. It intends to operate them “in accordance with their contractual terms,” but added: “Any future commitments to UK rail will need to have an appropriate balance of potential risks and rewards for our shareholders.”

It may take some time, but I think FirstGroup’s strategy could realise considerable value for investors. As such, I also rate this stock a ‘buy’.

The post 2 FTSE 250 stocks I’d buy in September appeared first on The Twelfth Magpie.

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G A Chester 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.

Grey day

Greyhound has faced challenging market conditions. Although last year’s turnaround plan is showing results, management said shareholder value can best be delivered by seeking new owners for the loss-making enterprise. A formal sale process is now underway.

FirstGroup will continue its work bringing Greyhound back up to speed, but chief executive Matthew Gregory can find few synergies with its core contract-based North American businesses, First Student and First Transit. Or between its US and UK businesses as a whole.

First things First

Markets welcomed today’s news with the FirstGroup share price leaping 13% in early trading, although it quickly retreated to around 5%.

Today’s results for the year to 31 March showed a 5.7% rise in underlying group revenue to £7.12bn, and a 10.5% rise in adjusted operating profit to £333m, ahead of expectations. This was driven by growth and margin expansion in First Student and First Bus. 

FirstGroup posted net cash inflow of £197.3m, which was better than expected due to the phasing of certain First Rail cash inflows.

Margin call

Gregory said trading performance also beat expectations with First Student returning to growth with increased margins, First Bus delivering growth and higher margins, and First Rail adjusted profit ahead of expectations.

Since becoming CEO last November, Gregory has been working on plans to rationalise the business, and is looking to focus on First Student and First Transit, to generate long-term sustainable value strategy that will be executed “at pace”.

Off the rails

This looks wise given continued Greyhound underperformance and the vagaries of investing in UK rail. FirstGroup is now awaiting the results of the UK government’s Williams review of the sector. Gregory warned that any future commitments “will need to have an appropriate balance of potential risks and rewards for our shareholders.”

On a statutory basis, the company still incurred in £97.9m of losses before tax, although that was down from £326.9m last year. This reflected a string of one-off charges, including £94.8m of self insurance reserves in the US and a £102.1m onerous contract provision for the South Western Railway contract.

Picking up speed

Peter Stephens has previously flagged up the £1.38bn group which he reckons could deliver long-term outperformance, and today’s plans should push it further along that road.

FirstGroup stock is up 23% in the last three months but still trades 20% lower than five years ago. It faces a long journey to respectability. But trading at a dirt cheap forward valuation of 6.5 times earnings it’s tempting to hop on board today.

The forward yield may be just 2% but it is covered six times by earnings. Operating margins are wafer thin at 3.1% but hopefully Gregory will fix that, as will as giving the group sharper focus.

He’ll need to keep an eye on US activist investor Coast Capital Management, which has a near 10% stake and wants to clear out half the board, divide the business in two and dump its rail operations.

If that sounds messy then these 2 FTSE 250 dividend growth stocks have been growing a lot faster.

The post I reckon this FTSE 250 recovery stock is worth buying at today’s low price 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 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.

My view on this stock is no secret — I bought BT shares earlier this year. In this piece, I want to take a look at the group’s latest figures. Would I still be happy to buy BT today?

A good start

Half-year figures published earlier this month suggested that outgoing chief executive Gavin Patterson is making good progress with his turnaround plan. Revenue fell by just 1% to £11,624m and the group’s adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 3% to £3,675m.

Adjusted after-tax earnings rose by 4% to 13.3p per share, in line with forecasts for a full-year figure of 25.9p per share. These gains were driven by a strong performance from the group’s consumer business, where revenue rose by 3% to £5,272m and adjusted EBITDA climbed 8% to £1,221m. This improvement helped to offset continued falls elsewhere.

There were only a couple of small disappointments, in my view. The first was that normalised free cash flow — a useful measure of cash generation — fell by 22% to £974m. The second disappointment was a 5% cut to the interim dividend, which fell from 4.85p per share to 4.62p per share.

Wait for the new guy

Mr Patterson’s turnaround strategy looks promising. But he won’t be in charge for much longer. His replacement, ex-Worldpay boss Philip Jansen, takes charge on 1 February.

As I’ve explained before, I think Mr Jansen’s arrival carries some risk of a dividend cut. But despite this risk I remain confident that he’ll be able to make the changes needed to return BT to sustainable growth and bring the group’s £12bn net debt down to a more comfortable level.

In my view, BT shares remain a decent buy at current levels.

Another turnaround with a new boss

BT isn’t the only big-cap income stock that’s been struggling to perform. FTSE 250 bus and train operator FirstGroup (LSE: FGP) has lost 20% of its value so far in 2018. Falling profits last year and a failed takeover bid in May left the group looking for a new boss.

Today’s half-year results suggest good progress is being made in several key areas. Adjusted revenue rose by 19.2% to £3,303.3m during the six-months to 30 September, while operating profit was 3.4% higher, at £92.4m.

Free cash flow for the half-year period rose from £160m to £210m. This helped to fund an 11.2% reduction in net debt, which fell to £1,047.7m.

Reducing this figure further will be a key focus for the firm’s new chief executive, who was revealed today as Matthew Gregory. Mr Gregory’s previous role was as chief financial officer, so he knows the company well. In a statement today, he confirmed that the outlook for the full year is unchanged.

Based on the latest broker forecasts, this puts the group on a forecast price/earnings ratio of just 6.3 for the year to 31 March.

I’m encouraged by the firm’s strong cash generation and falling debt. In my view, FirstGroup could be a turnaround buy at current levels.

The post Thinking of buying the BT share price? Read this first appeared first on The Twelfth Magpie.

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Roland Head owns shares of BT GROUP PLC ORD 5P. 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.

Today I’m looking at two companies that have lagged the mid-cap index over the last five years. Both firms have recently released news suggesting that they could now be profitable turnaround buys. But risks remain. So is now the right time to buy?

Dialling up growth

Phone and broadband group TalkTalk Telecom Group (LSE: TALK) has lost 54% of its value over the last five years. But the company’s fortunes are looking up. The TalkTalk share price rose by up to 8% on Tuesday morning after the company reported a 4% increase in core revenue during its first quarter.

The group added 80,000 new customers during the period and said that 2.1m of its 4.2m customers were now signed up to fixed low-price plans. This is helping to keep customer churn low, with just 1.28% of customers leaving during the period.

Debt worries

The group’s turnaround appears to be going well. My only remaining concern is the level of debt. Net borrowing totalled £755m at the end of March. This gave a net debt/EBITDA ratio of 3 times — well above my preferred maximum of 2 times.

Plans to reduce debt levels by selling the firm’s business division to Daisy Group have fallen through. But the company needs to keep spending in order to upgrade its network. My feeling is that further debt reduction could be slow, unless the company resorts to another equity placing.

The right time to buy?

Although I’m concerned about TalkTalk’s debt levels, the company confirmed today that adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) are expected to rise by 15% this year, in line with previous guidance. If net debt remains flat, this earnings growth should reduce the group’s net debt/EBITDA ratio to a more acceptable 2.6 times.

Analysts expect adjusted earnings of 5.9p per share this year, rising by 30% to 7.7p per share in 2019/20. These figures put the stock on a forecast P/E of 20, falling to a P/E of 15 next year. Now could be a good time to take a fresh look at this turnaround story.

This could be a value trap

When management turns down a takeover proposal for a troubled business, it has to be confident it can deliver a superior result for shareholders. The jury is still out on whether bus and train operator FirstGroup (LSE: FGP) will be able to do this after recently rejecting a takeover proposal from private equity group Apollo Global Management.

The firm faces a number of headwinds. At £1,070m, net debt is still too high, despite falling last year. Improved cash flow should help this figure to reduce, but the Aberdeen firm also faces issues in its Greyhound and TransPennine Express operations.

A trading update today confirmed that performance so far this year is in line with expectations. FirstGroup has begun to withdraw from some of its Greyhound operations in Canada, which is expected to improve profit margins from road operations.

The shares look cheap on 6.7 times forecast earnings, with a forecast yield of 4%. But this company has disappointed investors for a number of years. Although it may now deliver a successful turnaround, I believe there are better buys elsewhere in the transport sector.

The post Are these FTSE 250 dividend growth stocks beautiful bargains or value traps? 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 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.

Competitive pressure

Investors clearly believe Centrica stands to lose out big time against the looming price cap on energy tariffs and ongoing competitive pressures in the retail supply business. That intense competition was partly behind the loss of another 110,000 domestic customer accounts in the first four months of the year, which came on top of a decline of roughly 1.3m customer accounts last year.

With a haemorrhaging of its customer base, there are growing worries about the impact on the company’s long-term earnings ability, not least because of the uncertain sustainability of its dividend. Let’s not forget that Centrica has already taken an axe to its dividend before — only back in 2015, the group cut its dividend by 30% after profits fell sharply in the wake of a slump in oil and gas prices.

Near-term tailwinds

But despite the tough operating environment, the company still generates good cash flow and has a high level of financial flexibility, which is underpinned by its relatively stable balance sheet position. Also reassuringly, the company said it expects to be able to maintain the current 12p per share dividend in the current financial year.

There are a number of near-term tailwinds to consider as well, including the improvement in commodity prices since the start of the year and a potential sale in its 20% stake in EDF Energy Nuclear Generation. Meanwhile earlier this week, City broker Jefferies upgraded Centrica to a ‘buy’ on expectations of a “more balanced approach” towards the impending introduction of the government’s energy price cap, following the release of Ofgem’s recent consultation paper which gave “detailed consideration of suppliers’ costs”.

Sure, there’s still a great deal of uncertainty with the Centrica’s long-term earnings outlook, but I reckon more of the risk is now on the upside. Shares in the group trade at just 12.5 times its expected earnings this year and offer prospective investors a very high dividend yield of 7.8%.

Contrarian opportunity?

Elsewhere, FirstGroup (LSE: FGP) is another stock that may interest contrarian investors. Shares in the transport group are once again trading close to a multi-year low after it swung to a statutory pre-tax loss of £327m last year. That was partly due to the impact of a writedown relating to its long-haul Greyhound business and an onerous contract provision on its TransPennine Express rail franchise.

The company, which recently rejected a potential all-cash offer from private equity group Apollo, could be on course for a major restructuring which could unlock value for shareholders. Following its dire annual results, Firstgroup said it was putting its Greyhound bus business in the US under review.

In the past, the group has repeatedly rejected calls for a break-up of the multinational transport company. But things may finally be about change given the mounting pressure to improve shareholder returns and changes at top-level management, which could bring a new approach to reviving the firm’s financial performance.

There’s certainly a lot to gain if a turnaround is properly implemented. But I’m holding out for a more detailed picture of its future strategic plans.

The post Is the Centrica share price too cheap to ignore? 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?

Jack Tang 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.