What caused this impressive growth? And should I be adding the company to my portfolio? Let’s take a look.

Beating market expectations

The company recently released a trading update that showed some promising results and is likely the primary catalyst for Yu’s surging share price. While no exact figures were published, the independent utility company expects full-year revenue to be north of £100m, beating market expectations. Similarly, underlying profits are also on track to be significantly ahead of expectations.

What’s more, the firm has already secured an additional £93m of revenue for 2021 at an improved gross margin through existing customers. And despite the disruptions from Covid-19, it was able to increase its cash position by £9.3m without borrowing any additional capital through loans. 

In my opinion, the company appears to be doing brilliantly, so seeing the Yu share price surge on this report is not too surprising.

Risks to consider

Yu group is a gas, electricity, and water provider for small and medium-sized businesses. And while the UK business-to-business utility market is growing rapidly, it is a highly competitive and regulated space. Combining that with fluctuating commodity prices means that the firm has virtually no pricing power over its services.

Therefore to grow the business, Yu is focusing on acquiring new high-margin customers while simultaneously closing contracts with low-margin legacy customers. Unfortunately, this has also led to customer retention suffering considerably. The firm has reinstated its strategy to maintain a minimum 70% customer retention rate from now on. And with £93m of revenue already secured for 2021, it appears that this goal can easily be achieved. But this may not actually be the case. Let me explain.

Yu’s average customer contract length with its customers is approximately 22 months. This means that the acquired clients from 2020 have yet to decide whether they will renew their contracts with Yu. Therefore it is quite difficult to judge what the current level of customer retention is today, and it could be well below the 70% target. Suppose the business cannot convince its new customers to stick around after their contracts expire at the end of this year. In that case, revenue for 2022 could suffer considerably.

The Yu share price: time to buy?

Over the last three years, Yu’s top-line revenue has increased by an average of 56% annually. Needless to say, the company is growing at an exceptionally rapid pace. And with a price-to-sales ratio of 0.46, the Yu share price does look cheap in my eyes.

However, the recent change in its customer strategy is quite drastic and has yet to prove itself. While dropping legacy clients might lead to higher margins, it also means the loss of a revenue source. Therefore I’m waiting for more insight into operational performance throughout 2021, and more importantly, 2022.

So for now, I’ll be keeping Yu on my watch list rather than in my portfolio.

The post The Yu share price is up 400% in 1 year! Should I buy now? appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Yu 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.

National Grid has just revealed its results for the year to March 2016, and once again the company’s predictable business meant that shareholders knew pretty much exactly what to expect — they saw a 6% rise in adjusted operating profit and a 19% rise in adjusted earnings per share to 63.5p.

That led to a 1.1% rise in the full-year dividend to 43.34p, which might not sound a lot but it’s ahead of inflation. It was actually slightly down on predictions and is possibly the reason behind the 2.7% fall in National Grid shares on the day so far, to 972p, but it would still yield 4.5% on the current share price.

Set for growth

Chief executive John Pettigrew reckons that National Grid is “well positioned to deliver asset growth in 2016/17 and beyond“, and I don’t think many would disagree given the company’s track record.

Dividend growth has been going on for years, and the only reason the yield has dropped a little in recent years is the steady rise in National Grid shares. Over the past five years, the price is up 58% to 977p, and when we add total dividend cash of 166p over that period, we’re sitting pretty on a total return of nearly 85% — and if the dividend cash had been reinvested in more National Grid shares, it would be even higher!

The whole business of supplying energy is a very profitable one, and at Centrica (LSE: CNA) we’re seeing another good example of a solid dividend-paying company — though in this case, a fall in the share price could be providing us with a very nice recovery prospect, too.

Centrica’s dividend yield for the year to December 2015 came in at 5.5%, and there’s a nice hike to 6% currently forecast for 2016, even though there’s a 12% fall in EPS expected — but there’s a 3% recovery on the cards for 2017.

Falling shares

So why have Centrica shares fallen by 37% over the past few years, to 201p? Well, Centrica did have to turn to an equity issue earlier this month to raise a bit of cash as its debts have risen to £4.4bn. Some of the cash raised, however, was to fund the firm’s continued acquisition plans, and only this week we heard of the purchase of ENER-G Cogen International Limited for £145m.

The equity issue was fully placed with institutional investors, and they clearly don’t seem worried about it. And with the shares on a forward P/E of around 13 and those big dividends looking good, I don’t think we should be either.

Although the total return from Centrica shares over the past five years, including dividends, has only come to 37%, I still see the owner of the British Gas and Scottish Gas brands as a good long-term investment.

The post National Grid plc and Centrica plc are still great investments! appeared first on The Twelfth Magpie.

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

Earnings per share have been a little erratic in recent years, but after a 9% increase in the year to March 2015, the company was able to pay a 5% dividend yield. With National Grid’s policy of lifting its ordinary dividend each year at least in line with the rate of RPI inflation, there’s a rise of around 2% predicted for the year just ended, with the interim payment already raised by that level. With National Grid shares having put on 11% in the past 12 months, to 988p, it would yield 4.4%.

National Grid shares are good for those who wish to reinvest dividends too, as the company runs a scrip dividend scheme so you can take new shares instead of cash — and to offset the dilution effect, it regularly buys back some of its own shares.

A forward P/E of around 15.5 is fractionally ahead of the FTSE average, but for such dependable income, I reckon that’s good value.

Retail recovery

After years in the wilderness, Marks & Spencer (LSE: MKS) could be back on track. The high street stalwart is, admittedly, still struggling to get its clothing onto the backs of younger shoppers — in its fourth quarter update it revealed a 1.9% fall in Clothing and Home sales. But M&S.com is doing well with an 8.2% rise in sales, and the shift to online selling is vital if M&S is to compete successfully with the likes of Next, ASOS, and the rest.

How those sales will translate into profit is something we’ll hear on 25 May, when the company is due to release full-year results — and there’s a modest EPS rise expected. M&S shares could certainly do with a boost, after shedding 25% over a year to 412p, and gaining just 4% over the past five years.

With EPS forecast to rise gently over the next two years, and with the dividend expected to yield 4.4% this year and predicted to rise to 5% by March 2018, we’re looking at a current P/E of around 12 and set to drop to under 11 in two years. That makes M&S shares look like decent value to me.

Reliable utility

A day later, on 26 May, we should have full-year results from United Utilites (LSE: UU), and that’s another bedrock of many a long-term portfolio. After three years of double-digit rises in earnings per share, there’s a fall back of 10% expected for the year to March 2016, but the company’s progressive dividend policy should still see the annual payment rise at least in line with inflation — as confirmed at interim results time back in November.

United Utilities shares have had a pretty flat 12 months, and the current price of 942p suggests a likely dividend yield of 4.1%, which is pretty respectable. On a P/E of around 20, United Utilities shares are the priciest of these three, but that’s the premium the market is happy to pay for super reliability.

The post 3 hot shares for May: National Grid plc, Marks and Spencer Group plc & United Utilities Group plc? appeared first on The Twelfth Magpie.

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

The companies that provide our gas, water and electricity enjoy a very predictable business. Demand doesn’t vary too greatly, and by taking on long-term energy contracts they can avoid surprises on the cost front, too. And that makes steady predicable dividends that much easier.

Look at National Grid (LSE: NG). It’s been lifting its annual dividend year after year, and offered shareholders a yield of 5% last year. Earnings are expected to only grow slowly over the next few years, but we still have steady dividend increases on the cards that would yield 4.6% for the year to March 2016, with forecasts lifting that to 4.8% by 2018 — the yield has dropped a little because the share price has risen 12% over the past 12 months, to 963p.

Those yields would be covered around 1.4 times by earnings, which is pretty strong for the utilities sector, and National Grid says it should be able to boost its annual cash payment at least in line with RPI inflation for the foreseeable future.

Biggest dividend

Over at electricity supplier SSE (LSE: SSE), we’re looking at even better dividends, with a yield of 5.9% paid in 2015 and with 6.3% forecast for this year on shares priced at 1,457p. That would be a little less well covered at 1.25 times, but it’s still reasonable for a utility firm. The share price hasn’t done much over the past five years, putting on just 17%, but that’s still ahead of the FTSE and those 6% dividends are around twice the long-term FTSE average.

SSE has the same dividend policy as National Grid, too, and at interim time told us it expects to increase its 2015/16 full-year dividend at least in line with RPI inflation — and it is targeting the same thereafter.

Water firm United Utilities (LSE: UU) actually has a couple of years of falling earnings forecast — 11% this year and 2% next. But analysts are expecting an 8% uptick for the year to March 2018, and in the long term the firm’s earnings should be solid. Perhaps unsurprisingly, United Utilities also has the same target of at least matching RPI inflation with its dividends, and in its first-half update said it expects to manage it at least until 2020.

With the shares at 894p, that would mean yields of 4.2% this year, rising to 4.4% by 2018, with cover of around 1.2 times. It’s looking like the weakest dividend of the three, but by way of compensation the share price has put on 57% over the past five years, easily beating the FTSE’s meagre 6%.

Long-term wealth generation

You’re not going to get the white knuckle ride that turns a lot of potential investors away from shares (and, on the other hand, excites a good few too), but safe investments like these three should help your ISA perform very well over the decades — and putting the cash into shares will almost certainly beat the pants off any cash ISA.

The post National Grid plc, SSE PLC And United Utilities Group PLC Could Be Good For Your ISA appeared first on The Twelfth Magpie.

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Alan Oscroft 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.

On that score, today I’m looking at two big yielders that present an intriguing contrast.

Safer

The first is Centrica (LSE: CNA), the owner of the British Gas and Scottish Gas brands. Along with the other power utilities, Centrica is known for paying out a substantial portion of its annual earnings as dividends — usually around two thirds.

Earnings dipped in 2014 by 28%, and there’s a further smaller drop on the cards for the 2015 year just ended, and that’s led to a fall in the dividend from 17p per share in 2013 to a predicted 12p for 2015 — results are due on 18 February. But on today’s 191p share price, that would still bring you a yield of 6.3%, with the forecast 2016 yield up to 6.5%.

That big yield is due to the share price having fallen, but even if you’d bought your shares at their April 2014 peak of 345p, you’d still be looking at likely yields of 3.5% and 3.6% for 2015 and 2016 respectively — and if that’s as low as your yield gets during hard times, it’s really not too bad.

And the best way to invest in shares like Centrica, in my opinion, is regularly over a long period — that way you’ll benefit from pound-cost averaging, and once dividends start rising again you’ll enjoy higher effective yields based on the price you pay in the dips.

More exciting

My second for today is Aberdeen Asset Management (LSE: ADN), which is a very different company indeed. As an investment manager specializing in emerging markets, the Chinese slowdown has contributed to 11 quarters in a row of net cash outflows, and that’s triggered a share price collapse — at 225p today, Aberdeen’s shares are down 55% from their peak in April 2015.

But one thing that has done is pushed up the prospective dividend yield for this year to a massive 8.8%. As it stands, that would only be covered 1.2 times by forecast earnings, so it’s clearly at risk. But January’s first quarter update provided reasonable confidence for the firm’s long-term future. Although the three months saw a net outflow of £9.1bn, total assets under management had actually risen to £290.6bn between September and December.

Aberdeen has a progressive dividend policy, and has been raising its annual payment far in excess of inflation in recent years. A cut in the cash may well be inevitable over the next couple of years, but there’s plenty of room for that while still keeping a yield that’s way ahead of the market average.

Volatility? Pah!

And if emerging markets are going through a downturn, well, a bit of volatility is only to be expected. And Aberdeen has plenty of experience of dealing with it while maintaining a very prudent approach to financial management. On a forward P/E of only 9.7 for 2016, Aberdeen Asset Management shares look like a long-term ‘buy’ to me.

The post Will Dividends At Centrica PLC And Aberdeen Asset Management plc Really Hold Out? appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Aberdeen Asset Management and Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.