One stock that has recently cropped up on my radar is pawnbroker H&T Group (LSE: HAT). Ethical considerations aside, over the past five years, this company has proven to be a fantastic investment. Earnings per share have more than doubled as net profit has increased from £5.4m to £10.8m for 2018.

And as profits have increased, management has hiked the company’s dividend payout. The per share distribution has risen from 4.8p in 2014, to 11p for 2018. It looks as if there is still plenty of room for the dividend to grow from here.

Dividend cover — the ratio of earnings per share compared to dividend per share — was 2.7 times in 2018 and is expected to hit 2.9 for 2019. Overall, analysts have pencilled in earnings per share growth of 13% for this year. 

Growth on track

It looks as if the firm is well on the way to meeting this target. H&T’s half-year results reported a 7.9% increase in profit before tax for the first half of the year with operating profit before non-recurring expenses rising 16%. 

With profits up by a high single-digit percentage for the first half of the year, management has decided to increase the interim dividend payout by nearly 7% to 4.7p. Analysts were only expecting growth of 4.6% for the full year. So, it looks as if H&T’s dividend might grow faster than expected in 2019.

This is precisely what I’m looking for in a dividend investment. With a dividend yield of 3.4% at the time of writing, H&T ticks all the boxes on my dividend stocks checklist. That’s why I’m considering it for my Stocks and Shares ISAs today.

Time to buy?

I’m also going to be taking a closer look at the accident management assistance group Redde (LSE: REDD). Shares in this company have been a pretty poor investment in 2019. The stock is down around 56% year-to-date after management revealed that the business was not successful in securing the renewal of a hire and repair contract with a large insurer. This contract had been worth nearly £112m a year to the business.

The loss of the contract will effectively wipe out 10% of Redde’s bottom line. Nevertheless, management is confident that the company can replace this business relatively quickly, considering the scale of the group’s pipeline. Indeed, since 2014, Redde’s sales have increased by more than 160%. 

Considering the company’s track record of growth, I think the recent decline could be an excellent opportunity to snap up shares in this well-run business at an attractive price. 

The stock is currently dealing at a forward P/E of just 8.1 and, more importantly, supports a dividend yield of 10.6%. While there may not be much in the way of dividend growth to look forward to in the next few years as Redde tries to replace the lost business, I think there is a good chance dividend growth will return when the company’s sales start to pick up again. 

With this being the case, I’m looking to add the stock to my portfolio shortly.

The post Why I’m considering these dividend growth stocks for my ISA appeared first on The Twelfth Magpie.

More reading

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

Rupert Hargreaves owns 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.

Their original purchases would have been at just over 700p per share, so the recent share price of 705p shows that their invested capital has remained broadly flat and has lost some of its purchasing power due to the ravages of inflation.

A tortuous journey

However, the chart reveals that the journey of the share price over that eight-year period has been full of ‘excitement’ for shareholders, with the price dipping below 500p in December 2011, going as low as 430p in May 2016 and never breaching the 800p barrier at any time.

During the period, operating profits dipped and recovered, and the dividend payment held steady but struggled to make any real progress. Right now, the stock market is assigning HSBC a modest valuation. The forward price-to-earnings (P/E) rating for 2019 sits just below 13 and the forward dividend yield is 5.4%. But the firm deserves its low rating. City analysts following it expect earnings to rise just 5% in 2019, which follows a plunge in earnings during 2016 and a partial recovery during 2018.

To me, the business looks unstable and buffeted by the effects of cyclicality in its markets. The whole banking industry is chock full of highly cyclical companies and we never know when the next cyclical plunge will arrive for profits, dividends and the share price. As a long-term buy-and-hold investment, I see HSBC Holdings as risky right now and the big dividend on offer does nothing to soothe my concerns because I know it can disappear in a puff of smoke at any time.

A survivor set to thrive?

Instead of HSBC Holdings, I think non-standard financial products provider H&T Group (LSE: HAT) looks far more attractive. The firm delivered decent-looking full-year results today with gross profit almost 12% higher than a year ago and diluted earnings per share up just over 48%. The directors displayed their confidence in the outlook by pushing up the total dividend for the year by just over 14%.

The quality, value and momentum indicators look attractive for this firm. The recent share price of 356p throws up a forward P/E rating just below 10 for 2019 and the forward dividend yield runs close to 3.7%. City analysts following the firm expect earnings to grow 4% during 2018 and 11% in 2019, which is an encouraging outlook on growth.

During 2017, H&T grew its revenues from the core business of pawnbroking, retail sales and personal loans. Chief executive John Nichols said: “Personal loans and our est1897.co.uk online jewellery sales are particular highlights, and there is significant scope to continue to grow these aspects of the business.”

According to Mr Nichols, the marketplace underwent “significant” changes over the past four years. Competition from other players peaked, the price of gold plummeted, and new regulation caused “a number of our competitors to restructure their businesses or exit the market.”  Yet H&T looks like one of the survivors in the sector and I think the firm looks well placed to thrive from here.

The post Why I’d avoid 5.3% yielder HSBC Holdings plc and buy this income and growth stock instead appeared first on The Twelfth Magpie.

More reading

• Up 250%! Here’s why I bought HSBC shares over SpaceX stock
• How much might £19,999 in a Stocks & Shares ISA be worth by 2036?
• Could a Stocks and Shares ISA eventually replace the State Pension?
• 2 bank shares I like better than Lloyds today
• How much do I need to invest in HSBC shares to target £5,986 a year in second income?

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. 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.

I believe the price represents excellent value for money. And there’s a similar-sized company in a different industry that’s also trading far too cheaply, in my view.

World-class mine

Gem Diamonds owns 70% of the Letšeng mine in Lesotho, an enclaved country, completely surrounded by South Africa. The Lesotho government owns the other 30%. Letšeng produces large, top colour, exceptional white diamonds and is the highest dollar per carat kimberlite diamond mine in the world.

The company also owns 100% of a mine in Botswana. This mine, which produces commercial-quality diamonds of lower value and size, has been on care and maintenance for the past year, largely due to depressed prices in the market for diamonds of this class.

Sparkling growth prospects

Gem Diamonds reported a strong final quarter to 2017. It sold 31,476 carats during the period, up 21% from Q3, and achieved an average price 19% higher at $2,217 per carat. It ended the year with net cash of $1.4m compared with net debt of $11.8m at the end of Q3.

The momentum has continued into this year, with the company already having recovered five diamonds of greater than 100 carats, compared with eight in the whole of 2017. Chief executive Clifford Elphick said: “This is largely attributable to the ongoing technical improvements made at the Letšeng mine.”

Gem Diamonds is well run with a strong balance sheet and trades at less than 10 times forecast 2018 earnings of $0.14 a share (9.86p at current exchange rates). And with analysts having pencilled in growth of up to 50% for 2019, I rate the stock a ‘buy’.

Thriving business

Pawnbroking is one of the oldest businesses in the world. Its long history is testament to both its profitability and an enduring demand for its services. It’s the main business of H&T Group (LSE: HAT), which was founded in 1897 and floated on AIM in 2006. Now the UK’s leading pawnbroker, H&T has a market capitalisation of £131m at a share price of 350p.

This is another company that enjoyed a strong final quarter to 2017. So much so that chief executive John Nichols told us in an update last month: “We expect the full-year profit before tax to be above current market expectations.” The stock is trading at 12.3 times analysts’ upgraded earnings forecasts of 28.5p a share, while an expected dividend of 10.5p for the year gives a solid 3% yield.

H&T is thriving and with a retail operation and personal loans business growing alongside pawnbroking, the group is forecast to deliver annual double-digit earnings growth for the foreseeable future. My Foolish friend Roland Head bought the stock recently and it looks very buyable to my eye too.

The post 2 ‘secret’ growth stocks I’d buy in February appeared first on The Twelfth Magpie.

More reading

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

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.

A sweet choice?

Patisserie Valerie has become a popular presence on many high streets and in shopping centres. Investors in the company behind this successful rollout, Patisserie Holdings (LSE: CAKE), have seen the value of their shares double since July 2014.

The group’s new stores had an average payback period of just 23 months last year. This rapid payback means that the group has been able to fund its 200-store rollout without borrowing cash. Indeed, net cash rose to £21.5m last year, providing support for a 20% dividend increase.

Is it too late to get on board?

Last year’s financial performance was extremely strong. Pre-tax profit rose by 17% to £20.2m, while the group’s operating margin of 17.6% and return on capital employed (ROCE) of 21.5% highlighted the appeal of this business for investors.

The group plans to open a further 20 stores this year and I’m confident that it’s likely to remain successful, profitable and popular. But I do have some reservations about investing at current levels.

The firm’s earnings per share have risen by an average of 28% each year since 2012. But this key profit figure is only expected to rise by 13% to 18.4p per share during the current year, and by 8% next year.

One reason for this slower growth may be that as the group’s store estate expands, opening new stores has a smaller percentage impact on profits. I’m pleased that management isn’t trying to compensate for this by speeding up store openings, but I’m not sure that the current valuation justifies a forecast P/E of 21.

I’d be interested in these shares at around 300p. But at more than 400p, the price is too high for me today.

One stock I’ve bought

Pawnbroking and personal loan firm H&T Group (LSE: HAT) is the UK’s largest such firm. It’s essentially a kind of banking business, lending against portable assets and providing loans to the sub-prime market.

Shares in the firm rose by 4% today after management said that profits for the full year should be “ahead of current market expectations”. The Sutton-based firm enjoyed a strong fourth quarter, thanks to a good retail performance in the run-up to Christmas.

The pawnbroking business also benefitted from the rising price of gold and a focus on quality watches. These factors helped lift the overall value of the pledge book by 11% to £46.1m last year.

Value and growth

I added this stock to my portfolio shortly after I wrote about it last November. While my timing wasn’t perfect, I’m fairly confident I’ll see a positive return on this investment. Today’s update suggests to me that the group’s three-pronged strategy of pawnbroking, retail and loans is working very well.

Even after today’s gains, these shares continue to trade on a forecast P/E of about 12. With a well-covered yield of 3.2%, I believe this valuation could be an attractive entry point.

Although the firm is exposed to the price of gold and to future regulatory changes, I believe strong management and the group’s large market share should help to mitigate these concerns. The shares remain a ‘buy’, in my view.

The post Why I’ve bought this small-cap growth stock for 2018 appeared first on The Twelfth Magpie.

More reading

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

Roland Head owns shares of H&T Group. The Motley Fool UK has recommended Patisserie Holdings. 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.

Both companies can deliver impressive gains. But they offer a different mixture of potential risk and reward. In this piece I’m going to look at one company of each type and explain which I’d buy.

Beating market forecasts

Pawnbroking firm H&T Group (LSE: HAT) gained 8% on Friday morning after the company said that pre-tax profit for the full year would be “above current market expectations”.

Chief executive John Nichols said that the company had delivered a “strong trading performance” across its pawnbroking, retail and personal loan businesses. A stable gold price also helped to maintain profits at the group’s gold buying business.

H&T’s personal loan offer is a relatively new venture, and is growing fast. During the first half of the year, the loan book increased by 87% to £11.8m. I’d imagine the troubles experienced by doorstep lender Provident Financial in recent months may have provided a further boost in demand for this service, over and above its existing growth rate.

Solid finances

Although the group’s shares have risen by 38% so far this year, the stock remains reasonably priced. It’s also backed by a very strong balance sheet.

Net debt at the half-year stage was just £11m, which is very modest compared to trailing profits of £9.5m. The group’s net asset value at the end of June was 273p per share, so even at today’s price of 360p, the stock only trades at 1.3 times its book value. That’s very affordable for an asset-backed business of this kind, in my view.

The share price also looks reasonable relative to earnings, with a 2017 forecast P/E of about 14 and a prospective yield of 3.1%. I believe these shares could continue to perform well for some time to come.

Ready to deliver?

Another company that’s likely to continue performing well is Just Eat (LSE: JE). This company represents the other type of growth stock — the shares look pricey, but rapid earnings growth means that the price could be justified.

After all, analysts expected earnings per share to rise by about 40% this year and again in 2018. On that basis, a forecast P/E rating of 46 may not be too high.

However, for new investors I think it’s important to remember that forecasts about future earnings growth are already priced into the stock. Further gains will require a stronger bull market — which I find hard to imagine — or else earnings growth beyond current forecasts.

I’m fairly confident that this is an excellent business, with the potential to achieve a similar level of domination as Rightmove. But it’s worth remembering that Rightmove’s share price hasn’t really risen since the end of 2015. The business is gradually de-rating onto a more mature valuation.

I don’t think Just Eat has reached this point yet. But if the group’s profits ever come slightly below expectations, the shares could fall sharply. There’s also no dividend. In my view, the risks may soon outweigh the potential rewards for new investors.

The post One stunning growth stock I’d buy ahead of Just Eat plc appeared first on The Twelfth Magpie.

More reading

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

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

The FTSE 100 may have pulled back slightly since Theresa May’s snap general election announcement on Tuesday but valuations across London’s main index are still looking stretched to me. That’s why I’ve been digging into the mid and small-cap indices to find great shares that still trade at reasonable valuations. And I think I’ve found one in fast growing alcohol distributor and retailer Conviviality (LSE: CVR).

A highly reliable industry

Despite rising over 40% in the past year, the company’s shares still trade at a relatively reasonable 14.5 times forward earnings and offer a solid 3.8% dividend yield, all while analysts forecast double-digit earnings growth for this year and next.

These forecasts seem eminently achievable for Conviviality given the company’s high levels of organic growth and big recent acquisitions that have consolidated its position in the alcohol distribution market across the UK. In the half year to October, the company’s revenue rose 4.4% on a like-for-like basis while acquisitions boosted the top line 211% year-on-year and led EBITDA to improve by 252%. Even more impressively, the acquisitions didn’t stretch the balance sheet and in fact lowered net debt to £138m, or 2.19 times EBITDA.

As these acquisitions are integrated the company expects significant synergies due to lower costs and improved pricing power that comes from serving over 25,000 restaurants, bars and hotels. This means margins, cash flow and earnings should all rise in the coming quarters.

On top of the fast growing distribution business the company also has 716 franchised stores operating under the Bargain Booze and Wine Rack brands. In H1, sales from these outlets rose 2.5% year-on-year reflecting consumers shift towards shopping at small local stores and looking for value.

With good growth in both major business lines, significant cost-cutting potential, well covered dividends and an attractive valuation I believe Conviviality is one growth share investors should keep an eye on.

A riskier option

Another retailer this is growing nicely, offers a solid dividend and trades at a reasonable valuation is pawnbroker H&T (LSE: HAT). The company has recently been shrinking its estate by closing unprofitable stores, which has helped increase earnings by double-digits in each of the past two years.

And although analysts are forecasting earnings increases of 8% and 20% in the next two years respectively, the company’s shares still trade at only 13.5 times forward earnings and bring a 3% yielding dividend.

Even though shrinking the number of stores may seem an odd way to grow, it is working well for H&T as it has allowed management to concentrate on adding additional services such as foreign exchange, online personal loans and electronics buybacks that have proved popular with consumers and profitable. Rising gold prices have also helped boost margins, but while very nice, this is a volatile and unpredictable source of profits in the long term.

The company is also benefitting from increased regulatory scrutiny of the sector by the FCA. This is increasing compliance costs for smaller competitors, which they will have to pass on to competitors. However, large players such as H&T will be able to absorb these costs and expand market share.

H&T is growing nicely, improving margins, maintains a very healthy balance sheet and has plenty of room to increase already substantial dividends. With it shares trading at an attractive valuation, risk-hungry investors may want to take a second look.

The post 2 top growth stocks trading at bargain valuations appeared first on The Twelfth Magpie.

More reading

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

Ian Pierce 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.

Beating expectations

Shares of laser-levelled concrete floor specialist Somero Enterprises (LSE: SOM) rose by 8% this morning after the group advised investors that full-year earnings before interest, tax, depreciation and amortisation (EBITDA) should be “comfortably ahead of current market expectations”.

Cash generation has also been strong. Somero’s year-end net cash balance is expected to be “significantly ahead of market expectations”. As a result, Somero has increased its dividend payout ratio from 30% to 40% of earnings, and is considering whether to pay a special dividend in 2017.

Somero’s speciality is making the equipment required to produce perfectly flat concrete floors for large warehouses. Modern high racking systems require a level floor, and this is a growth business. The group said trading was “solid” in core markets, with Europe, North America and Australia all contributing to growth. Trading in China — a huge potential market — remained “healthy”.

The company’s share price has now risen by an astonishing 2,500% over the last five years. Somero went into the last recession with too much debt, and narrowly avoided disaster. The risk of another cyclical downturn is real, but the group’s management have been much more conservative with financing this time round. Somero has almost no debt, and management plans to maintain a $10m net cash buffer to protect against the costs of a future slowdown.

After today’s gains, I estimate that Somero shares trade on a forecast P/E of about 11, with a prospective yield of about 3.1%. If I was lucky enough to hold the shares, I certainly wouldn’t sell.

Lending fuels growth

High street pawnbroker H&T Group (LSE: HAT) says that it made “significant progress” in 2016, and expects full-year pre-tax profit to be “marginally ahead of current expectations”. The firm’s shares rose by more than 5% following this news, as the market priced-in another year of strong growth for this group.

According to today’s update, H&T’s pledge book increased by 5.9% to £41.3m last year. The group’s personal loan book rose by 123% to £9.4m. H&T says that the higher price of gold since the EU referendum has also helped to lift profits — as gold is priced in dollars, the weaker pound has boosted the UK retail price of it.

Is H&T still a buy?

H&T shares are now worth 40% more than they were a year ago. They’ve doubled from the low of 140p that followed the gold slump in 2013. However, despite these gains the stock still trades on a price/tangible book ratio of just 1.3. This should provide valuable downside protection for investors.

Based on today’s update, I’d guess that 2016 earnings of 20p-21p per share are now likely. This puts the stock on a 2016 forecast P/E of about 14, with a prospective yield of 3.3%. The outlook for 2017 may also be upgraded, but current forecasts suggest earnings growth of about 4%, giving a forecast P/E of 13 and a potential yield of 3.6%.

H&T has already done well, but the group’s stock doesn’t look expensive to me and may still be worth buying.

The post Why small caps Somero Enterprises, Inc. and H&T Group plc could soar in 2017 appeared first on The Twelfth Magpie.

More reading

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

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

Barclays is a FTSE 100 giant, valued at over £27bn, while H&T is listed on AIM and has a market cap of £110m. The retail division of Barclays serves a largely different customer to those who use H&T’s pawnbroking and associated services. And, thanks to its corporate and investment banking and cards and payments businesses, Barclays generates almost half its income from outside the UK, while H&T operates solely in the domestic market.

Share performance of the two companies this year — particularly since the Brexit vote — has also been markedly different. Barclays is trading 12% below its pre-referendum price, and has fallen 25% since the start of the year. H&T has gained 50% year-to-date, with over 30% coming post-referendum.

The Brexit effect

In today’s interim results for the six months to 30 June, H&T reported a 42% rise in pre-tax profit “through a combination of strong operational performance and a rising gold price”. The gold price averaged £852 per troy ounce for the half year compared with £791 in the same period last year. Furthermore, the average for July was £1,017, which bodes well for a strong second half.

The performance of Barclays, of course, like all banks, is linked to the economic cycle. Downgraded economic forecasts and a Bank of England interest rate cut since the Brexit vote aren’t ideal for Barclays, although quantitative easing (of which we have a new round) has previously helped investment banks outperform those focused solely on retail and commercial banking.

Meanwhile, H&T is in many ways a counter-cyclical business. However, it does have to carefully manage the business in phases of falling gold prices, as well as enjoying (as it is at present) the turbo-boost of gold heading north.

We can see, then, why shareholders of Barclays and H&T have experienced such markedly contrasting fortunes this year. But what of current valuations and longer-term prospects?

Two to buy?

Today’s results show H&T’s strong balance sheet. Current assets of £98m dwarf not only current liabilities of £7m, but also total liabilities of £29m. Tangible net asset value (TNAV) of £79m gives a price-to-TNAV of 1.4 at a current share price of 296p, which looks a reasonable valuation to me for a strong and expanding business.

Banks’ balance sheets, of course, are notoriously opaque, and Barclays’ own valuation is further clouded by the rundown of its non-core assets. However, a price-to-TNAV of just 0.6 at a share price of 163p strikes me as providing a substantial margin of safety.

As to earnings, Barclays trades on a current-year forecast price-to-earnings (P/E) ratio of 13.7. That may not scream ‘value’, but analysts expect earnings to advance strongly next year (despite Brexit headwinds) as non-core runs down, bringing the P/E down to just 9.1.

H&T has a current-year forecast P/E of 16, falling to 15.7 next year. I see this as a reasonable rating on the basis of the strength of the business and the potential for the price of gold to remain elevated for some time, leading to earnings upgrades.

In summary, although very different businesses, whose shares have also performed very differently this year, Barclays’ long-term recovery prospects and low valuation and H&T’s thriving business and reasonable valuation lead me to rate both stocks as buys at current levels.

The post Head to head: Barclays plc and H&T Group plc appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Up 50% in a year! That’s not the only reason I’d consider buying Barclays over Nvidia stock today
• Barclays shares could soon soar another 21%, according to the latest price target
• After a 160% rally, major brokers still see more gains for Barclays shares. Here’s why
• How many Barclays shares do I need to buy to get a £1,000 passive income?

G A Chester has no position in any shares mentioned. 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.

Silver surfer

Shares of FTSE 100 silver miner Fresnillo (LSE: FRES) have gained a whopping 165% so far this year, and edged higher in early trading following a Q2 production update this morning.

The company said silver production was up 14.5% on the same period last year, with gold production up 19.6%. Management has maintained its full-year silver guidance of 49m-51m ounces, but raised gold to 850,000-870,000 ounces from 775,000-790,000.

Analysts expect earnings this year to rocket from 2015’s depressed 4.7p a share to 30.5p, putting Fresnillo on a P/E of 62 at a share price of 1,890p. There’s a prospective 0.7% dividend yield.

The P/E is high even by the typically elevated standards of precious metals miners, but that may not stop the shares making further gains. Silver is currently trading at under $20 an ounce, but was as high as $50 back in 2011. With other flight-to-safety assets, such as cash and gilts, offering negligible or even negative returns in some cases, demand for precious metals could increase.

Golden goose

Randgold Resources (LSE: RRS) is another of this year’s big risers with a 115% gain to date. Of course, this FTSE 100 gold giant has enjoyed the same favourable backdrop as Fresnillo. And with gold at $1,325 an ounce, still well below its $1,900 peak, there’s considerable scope for jittery investors to push the metal price — and Randgold’s shares — higher.

Furthermore, Randgold’s P/E of 37.5, at a current share price of 8,950p, is considerably more attractive than Fresnillo’s. In addition, Randgold was rather more resilient through the metals depression of 2011-15. Its dividend record for these years reads $0.40, $0.50, $0.50, $0.60, $0.66, although the yield is low (a prospective 0.6%) and cash on the balance sheet fell from $488m to $213m over the period. Still, Randgold strikes me as a better-value proposition than Fresnillo at their current share price levels.

Attractive alternative

The shares of H&T Group (LSE: HAT) haven’t performed as spectacularly as those of the precious metals miners, having gained ‘only’ 44% since the start of the year. However, I believe this company is a highly attractive alternative, as its core business can make good money through thick and thin, with periods of increasing gold prices providing windfall profits.

H&T is in the ancient industry of pawnbroking (and associated services) and is valued at a bit over £100m at a current share price of 282p. Despite gold purchasing profits falling as the price of the metal went through its slump, H&T remained so cash-generative that between 2011 and 2015 it was able to reduce net debt from £29m to £2m and pay out £15m in dividends.

The stock trades on a forward P/E of 15 with a prospective 3.2% dividend yield. And with the potential for a perhaps extended period in which the price of gold bumps up profits, I reckon the current valuation makes H&T an attractive buy.

The post Is it too late to buy Fresnillo plc (+165%), Randgold Resources Limited (+115%) and H&T Group plc (+44%)? appeared first on The Twelfth Magpie.

More reading

• Precious metals are starting to rally again! This FTSE stock could soar
• Here’s how the UK stock market’s quietly profiting from the AI boom
• The market just sold this FTSE 100 stock. I think it’s focusing on the wrong risk
• Hot, hotter, hottest. Is it too late to consider these 3 FTSE 100 shares?
• Up over 100%, are these FTSE 100 names still among the top stocks to buy?

G A Chester 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.

Maybe, but I’m not expecting it. At best, I reckon Lloyds will tread water just as it has over the last two years. At worst, Lloyds could slide further from here.

Struggling to grow

City analysts following the firm expect earnings to ease by 8% next year. That doesn’t look like anyone is expecting the company’s cyclical resurge in earnings to continue. Arguably, Lloyds’ profit recovery is done, and all eyes are now looking ahead for the next down-leg of the macro-economic cycle.

Growth looks set to be hard for Lloyds to achieve. The firm is focusing its attentions more on the market in Britain, just at the time when the challenger banks are gaining a toehold. I’m expecting the old nag to tick along for a few years with a more or less flat trading outcome. Meanwhile, Lloyds’ valuation seems likely to compress, as the market tries in vain to iron out the firm’s cyclicality. I say ‘in vain’ because there is danger to the downside from here — Lloyds’ profits and share price could collapse if the economy takes a dive.

With so little upside potential and so much downside risk, I’m looking for other homes for my capital during 2016 and beyond.

Trading well

I’m much more interested in FTSE AIM company H&T Group (LSE: HAT). City analysts following the firm expect earnings to grow 25% this year and a further 22% during 2016. What’s more, there is a rare reading of a particular valuation indicator on display — a price/earnings to growth (PEG) ratio of less than one. Anything below one indicates the possibility of good value for a growth firm, according to well-known growth investors such as Jim Slater and Peter Lynch.

Maybe the firm’s business puts investors off piling into the shares. The company earns its crust as a provider of pawnbroking and associated services, such as gold dealing and personal loans. Indeed, a look back at the five-year trading history reveals a record of volatile trading, so the recent profit surge seems more like a recovery than out-and-out growth. In that respect, I think it is unwise to place too much weight on the PEG ratio.

That said, H&T’s shares are up around 24% this year and the firm is trading well. Perhaps the company can achieve further progress during 2016 and beyond. One possible catalyst is that H&T appears to be mopping up in the market as other players withdraw from trading altogether.

Good value?

At today’s 197p, H&T trades on a forward price-to-earnings ratio of just under 11 for 2016. Meanwhile, the dividend yield is almost 4.6% and forward earnings cover the payout twice. This is an undemanding valuation, which could serve investors well if earnings hold up going forward. I’d much rather take my chances with H&T Group’s robust earnings than with Lloyds Banking Group’s lacklustre expectations.

The post How H&T Group plc Could Beat Lloyds Banking Group plc In 2016 appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

Kevin Godbold 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.