The two companies I’m looking at today are both facing changes. But so far they’re both coping well, and are rewarding shareholders with strong dividend growth.

Turnaround completed

After a difficult few years, public relations group Huntsworth (LSE: HNT) appears to be back on the growth trail. The company’s restructuring has increased its focus on the healthcare sector, where it is a specialist.

Huntsworth shares rose by 5% when markets opened this morning after the firm reported a strong set of 2017 results. Sales rose by 9% to £197m last year, while headline pre-tax profit rocketed 54% higher to £24.4m. Headline earnings per share rose by 45% to 5.8p per share, beating consensus forecasts of 5.35p per share.

These increased profits were backed by improved cash generation. Free cash flow rose from £2.9m to £20.7m, providing support for a 15% hike in the total dividend, which rose to 2p per share.

Time to buy?

Huntsworth shares have doubled in value over the last year, but I think the shares could still offer value for new buyers.

Earnings are expected to rise by around 10% this year, putting the stock on a forecast P/E of around 13. Dividend growth is also expected to remain strong and analysts have pencilled in a payout of 2.1p per share, giving a forecast yield of 2.6%.

I’d rate the PR firm’s shares as a buy at current levels.

Will this firm be crushed online?

Traditional advertising businesses are facing huge disruption due to the internet. Big advertisers are shifting billions of dollars of spending from television- and billboard-type advertising to Facebook and Google.

Internet advertising can be targeted and its results tracked in a way that’s impossible with mass media advertising. So are traditional ad agencies doomed?

Bosses at M&C Saatchi (LSE: SAA) don’t think so. In the firm’s half-year report in September, chief executive David Kershaw told investors: “We have been busy starting new businesses and opening new offices. This is the fuel for growth in years to come.”

The firm’s financial performance appears to back up these ambitious claims. Revenue, adjusted for exchange rates, rose by 12% to £121m during the first half. Adjusted pre-tax profit was 17% higher at £13.3m.

However, as my Foolish colleague Zach Coffell explains, these headline figures were flattered by the exclusion of certain items. The group’s statutory profits for the period actually fell, as costs rose more quickly than sales.

What’s happening?

Promoting a brand online and running successful, big-budget internet advertising campaigns requires skilled staff and a lot of data analysis. Most advertising agencies now offer this kind of service, so can acts as middlemen for advertisers wanting exposure online.

Saatchi appears to be investing for the future. This could pay off — indeed, I suspect the group will adapt and thrive over the coming years. However, with the stock trading on 16 times adjusted forecast earnings, I think much of the good news is already in the price.

At the very least, I’d want to wait for the firm’s full-year results later this month before making an investment decision.

The post 2 small-cap dividend plus growth stocks I’d buy today appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), and Facebook. The Motley Fool UK has the following options: short March 2018 $200 calls on Facebook and long March 2018 $170 puts on Facebook. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As the business has transitioned, earnings have multiplied. For 2017, City analysts are projecting normalised earnings per share of 6.4p, compared to 3.2p for 2012… 100% growth in five years. 

However, despite this rapid growth, the market continues to place a low multiple on the shares. At the time of writing, shares in Communisis are trading at a forward P/E of 11. They also support a dividend yield of 4%. 

On-track for growth 

According to a trading update issued by the firm today, management believes that Communisis is on track to hit City forecasts for the year. The year-end update notes the company “performed well in 2017, with growth in sales and profitability, good free cash flow and a further marked reduction in net debt“. As a result, “the board anticipates that audited results for the year will be in line with expectations.” 

During the period, net debt declined to £24.3m from £30.4m, while the accounting deficit related to the group’s defined benefit pension scheme fell to £38m from £55.5m. And it looks as if Communisis’ buoyant trading is set to continue for the next few years, revealing today that it has expanded “facilities in the North East of England to meet increased demand for fast-turnaround campaign fulfilment“, as well as signing a new five-year contract with a major UK bank client. 

All in all, Communisis is growing, has a bright outlook for growth, and is generating plenty of cash. To add to the investment case, the shares are also trading at an attractive earnings multiple and offer a market-beating dividend yield. This is why I’d buy the stock in 2018. 

Steady recovery 

Communisis’ peer Huntsworth (LSE: HNT) is also on my radar for 2018. Huntsworth is a marketing firm that specialises in healthcare, but management has made some missteps over the past five years. These issues saw the group plunge into a loss of £56m on writedowns for 2014.

Nevertheless, since 2014, Huntsworth has made steady progress streamlining its operations and analysts expect the group to report a net profit (for the first time since 2014) of £18m this year. Net debt at 30 November 2017 was approximately £44m, equating to less than 1.5x net debt to pro forma EBITDA, and below the £75m borrowing limit agreed by creditors.

Like Communisis, Huntsworth also trades at an attractive valuation considering its growth potential. With adjusted earnings per share growth of just under 15% expected for 2017, the shares look cheap, trading at a forward P/E of 13.2 and support a dividend yield of 2.5%.

As the firm continues to reinvest earnings back into its operations (management agreed at least one major acquisition last year), growth should continue. What’s more, now that the company has put its problems behind it, the market might reward the shares with a higher multiple. 

The post 2 top value and income stocks I’d buy in 2018 appeared first on The Twelfth Magpie.

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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.

Gresham House (LSE: GHE) might have gone under many a stock-picker’s radar — partly, I expect, because the specialist alternative asset manager is not profitable right now.

But it is heading towards it, with a big reduction in the pre-tax loss on the cards for the year to December 2017, followed by positive figures for next year — analysts are predicting 5.2p in earnings per share for 2018.

The company announced on Tuesday that it has acquired Hazel Capital, a “leading UK manager of new energy infrastructure” which also manages a number of energy storage systems. The total cost is £2.6m in a combination of cash and newly issued shares.

Financially solid

Hazel’s asset management business brought in an operating profit of £0.9m in its last financial year, and that should make a nice contribution towards turning Gresham’s first-half operating loss of £0.8m in the direction of profit.

That loss was down from £1.2m a year previously, and at the halfway stage the company told us it was “on track to surpass management’s trading profitability expectations.“

Further progress was evident from a 50% rise in assets under management to £532m, and a doubling in asset management revenue to £2.4m. The firm also reported a strong balance sheet with £4.4m of its borrowing facility repaid, after legacy property asset Southern Gateway was sold for £7.25m. Tangible and realisable assets stood at £27.4m. 

Though the shares are around their 52-week high at 381p, I see them as good value.

Flying high

Huntsworth (LSE: HNT) is another whose shares have soared to a 52-week high this week, standing at 81.4p as I write.

The price has now doubled over the past 12 months, but that does need to be put into a longer-term perspective, as there has been a more modest gain of 73% over five years and actually a small fall over 10 years. 

Huntsworth is a global marketing agency with a focus on the healthcare sector, and the loss of some key clients in 2014 led to several years of reported re-tax losses and necessitated a major restructuring. 

But it does look like the company’s efforts are starting to pay off, and we’re now looking at a forecast pre-tax profit of £17.7m this year and earnings per share (EPS) of around 5.4p, rising to £20.3m and 6.2p respectively a year later.

Strong six months

First-half results revealed revenue up 9% to £94.2m and headline pre-tax profit up 58% to £10m — with EPS up 41%.

The 10% rise in the interim dividend marked a key milestone, based on “the strength of the group’s H1 performance and the outlook for the remainder of the year.“

Dividends had remained flat at 1.75p during the rough patch after having been slashed by 50% from 2013’s 3.5p, but forecasts are now suggesting 1.9p for the current year, rising to 2.1p next. Yields would still be only around 2.5%, but it looks like the start of a progressive comeback.

Despite the share price climb, forward P/E multiples for this year and next only stand at a 15.2 and 13.2, and that gives us PEG ratios of 0.3 and 0.9.

I reckon we could be looking at a very healthy growth phase for Huntsworth now, with dividends thrown in.

The post 2 hot growth stocks at 52-week highs that could still be worth buying 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. 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.

However, it now looks as if management’s turnaround efforts are finally starting to pay off.

Today, Huntsworth announced that profit before tax for the six months to 30 June had exploded 58% as restructuring charges fell away and overall revenue increased 9%. Off the back of this growth, earnings per share rose 41% to 2.4p on a headline basis. This robust growth has given management the confidence to hike the company’s dividend payout for the period by 10% to 0.55p. 

As well as being able to generate a 58% increase in headline profit, the group also paid down £10m of debt taking net debt to £26.8m from £37.1m.

Rising healthcare spend

Huntsworth’s best performing division is its health marketing arm, which has proved to be a reliable and predictable business over the past few years as the rest of the group has undergone restructuring. Management expects this trend to continue. To help bolster its offering, the company recently acquired The Creative Engagement Group for a total consideration of £24.7m. The acquired group consists of three agencies that provide experiential marketing, primarily to healthcare clients.

Huntsworth Health is the growth engine of the business, and as the demand for health care and health services continue to increase, the group’s existing position in the market should ensure further success. During the first half of the year, the health arm grew revenue and profits by 33% and 20%, respectively, on a like-for-like basis. Two individual agencies within the healthcare division saw revenues grow by 26.4% and 15.3%, respectively.

Rapid growth ahead 

Huntsworth’s presence in the healthcare industry gives it an almost defensive nature. Marketing health care products and services requires specialist knowledge, so those businesses with the largest established presence will always be in demand. City analysts expect this demand to help Huntsworth grow earnings per share by a full 36% for 2017 to 4.6p, the highest level in more than three years. Double-digit earnings per share growth is expected for 2018 as well, with earnings of 5.3p per share projected. 

Based on these estimates, shares in Huntsworth are trading at a 2018 P/E of 11.9, which seems too cheap considering the company’s explosive growth.

Room to run higher

Now that management has shown that the business has returned to growth, I believe it’s only a matter of time before the market re-rates the shares higher. And based on the earnings growth rate of 15%, it’s not unreasonable to suggest that the shares could trade up to a multiple of 15 times forward earnings, or 79.5p per share based on current estimates. 

With this being the case, City projections seem to suggest that shares in Huntsworth are undervalued by more than 26%. As the company’s dividend payout is covered by more than two-and-a-half times by earnings per share, there’s also plenty of room for dividend payout growth in the years ahead.

The post Huntsworth plc is a dividend-growth stock for shrewd investors 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 does not own any 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.

Improving performance

Reporting on Wednesday was healthcare company Medica Group (LSE: MGP). It provides teleradiology services and reported that it has continued to perform well in the first half of the year. Fortunately, the cyber-attacks in May did not impact upon its own systems and IT infrastructure. Furthermore, the company was able to quickly work with affected clients to minimise the impact on patients.

Medica has said that its recruitment of radiologists has continued to be strong, and it expects its results for the full year to be in line with expectations. For the year, it is forecast to record a rise in earnings of 113%. This is expected to be followed with further growth of 22% next year, both of which could lead to improving investor sentiment over the medium term.

Despite its relatively impressive outlook, the company trades on a price-to-earnings growth (PEG) ratio of only 1.2. This suggests that upside potential is significant. Although the company is relatively small and operates in a niche area, it seems to have a sound strategy through which to deliver improving share price performance. Therefore, within a diversified portfolio it could be an enticing buy.

Balanced potential

Also offering a bright future for its investors is public relations and integrated healthcare communications specialist Huntsworth (LSE: HNT). As with Medica Group, it has impressive future growth potential. It is forecast to grow its bottom line by 28% in the current year, followed by additional growth of 10% next year. This comes after a period of disappointment for the business which saw its earnings fall by 58% over a three-year period. However, having returned to positive growth last year, it seems to be on track to deliver more growth in future years.

With Huntsworth trading on a PEG ratio of 1.2, it seems to offer growth at a reasonable price. Alongside its value and growth appeal, it is also becoming a realistic proposition for income investors.

For example, even after halving its dividend in 2014, the company continues to yield an inflation-beating 3%. This is despite the company paying out only 41% of profit as a dividend. This suggests that rapid dividend growth could lie ahead, and even that a rise in shareholder payouts could exceed the company’s earnings growth rate without hurting its reinvestment potential.

As with Medica Group, Huntsworth is a relatively small entity and may therefore come with higher risk than many stocks. However, with a mix of income, growth and value appeal, it could post high share price gains in the long run.

The post 2 undervalued growth stocks you’ve never heard of 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?

Peter Stephens 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.

Although both firms have clearly disappointed investors today, the similarities end there: I believe one of these firms is a potential buy, while the other is a definite sell.

Huntsworth

Huntsworth issued its annual results this morning, revealing a 0.9% decline in revenue and a 23% decline in operating profit, which fell from £23.6m to £18.2m in 2014.

Even worse was a £71.5m goodwill impairment on the company’s Citigate and Grayling businesses, as a result of poor trading conditions, which are now expected to persist for longer than expected.

Earnings per share fell by 25% to 3.7p, and management disappointed shareholders with a surprising but sensible decision to cut the dividend by 50%, from 3.5p to 1.75p.

Is Huntsworth a buy?

Despite the firm’s decision to cut the dividend, today’s adjusted earnings per share of 3.7p were in line with the latest consensus forecasts of 3.6p per share, putting Huntsworth on a trailing P/E of 10.8, with a yield of 4.4%.

The company has had a boardroom clear-out in recent months, and a new chief executive, Paul Taaffe, started work on Tuesday.

Huntsworth doesn’t look expensive, and has low debt levels and strong cash flow — this firm could well be a good turnaround buy, in my view.

Tethys Petroleum

Even before today’s collapse, Tethys’ share price had fallen by 78% over the last year, as the firm’s apparent inability to generate any spare cash combined with the oil price crash to prevent Tethys delivering on its original promise.

Today’s update confirms that things are now likely to get much worse: the firm’s $75m investment deal with Chinese firm SinoHan, which was agreed in November 2013, has still not been approved by the Kazakh Ministry of Energy.

Approval is needed by 1 May or the deal will collapse, forcing Tethys to seek new funding and to repay a $3.9m advance it received from SinoHan — money which Tethys says it does not have.

There’s a real prospect that Tethys could soon go into administration, or be refinanced in such a way as to destroy the value of existing shares.

I think that the only prudent approach here is to sell — staying in or buying after today’s news is a pure gamble, in my view.

The post Why Huntsworth plc & Tethys Petroleum Ltd Are Sliding Today 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 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.