I believe the market has overreacted in the case of this trio of companies and that now could be a great opportunity to buy a slice of what I view as very attractive businesses for long-term investors.

Discount prices

The shares of HICL, INPP and JLIF are 20%, 12% and 19% below their 52-week highs and down 11%, 7% and 9% from the day before Carillion went into liquidation on 15 January. The table below shows net asset value (NAV) and dividend data for the three firms.

As you can see, HICL and JLIF are now trading at discounts to NAV and INPP at a small premium. All three companies offer generous dividend yields, based on their trailing 12-month payouts. All three have also issued updates since Carillion’s collapse. How do these bear on their valuations?

The Carillion factor

HICL: Carillion provided facilities management (FM) to 10 (14% by value) of the 116 projects HICL is invested in. It was not the contractor on any of HICL’s current construction projects, but there are five projects where Carillion was the original construction contractor and, at the time of the liquidation, held responsibility for latent defect risk. Based on current information, HICL estimates the adverse impact of the Carillion factor to be 2.8p of NAV per share (1.8%).

INPP: Carillion provided FM to 3% by value of the 127 projects INPP is invested in. It currently anticipates the adverse impact to be a negligible 0.01p of NAV per share.

JLIF: Carillion provided facilities management to nine (8.5% by value) of the 63 projects HICL is invested in. It was not the contractor on any of JLIF’s current construction projects but there is one project where Carillion was the original construction contractor and held responsibility for latent defect risk. Based on current information, JLIF estimates an adverse impact on NAV of £3m, which I calculate as 0.3p a share per share (1.8%).

Storm in a teacup?

All three companies had been aware of the issues affecting the construction and FM  giant for some time and had made contingency plans in the event of liquidation, which they’re now implementing. Principally, this concerns the appointment of replacement facilities managers.

HICL faces the biggest impact on its NAV (albeit not very big at all) and I’m encouraged by two factors to think we’re looking at something of a storm in a teacup. HICL has said: “The Board is confident that this analysis does not change the dividend guidance that the Company has published for the current financial year and the two subsequent financial years.” The other encouraging thing is that last Friday two directors and two senior managers bought shares totalling about £250,000.

With all three companies’ shares trading well down from their 52-week highs and sporting generous dividend yields, I believe now could be a good time to buy.

The post The fall of Carillion has created a buying opportunity in these 3 stocks 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.

Thankfully, Legal & General (LSE: LGEN) is here to help with its shares trading at just 10 times forward earnings, below their five year average, and a very handsome 5.7% dividend yield to keep income investors happy. And although this bargain basement valuation suggests low growth ahead, the company so far shows no signs of slowing the tremendous progress it’s made in growing earnings over recent years.

The key has been a diversified approach to benefitting from an ageing population in the developed world that is leading retirees and companies to engage Legal & General for pension solutions, insurance, investments and general savings. In H1 this year, double-digit profit growth from its two main divisions, retirement and investments, saw group operating profits leap 27% year-on-year (y/y) to £988m.

A large chunk of this growth was due to the release of £126m in reserves due to reductions in life expectancies for customers, but even excluding this possible one-off event, growth was very healthy. Looking ahead, there are still plenty of growth opportunities open to the company. Overseas operations are still small. But the US insurance business is profitable and growing quickly while international sales of its investment products are increasing by double-digits.

On top of this the company’s willingness to buy the bulk annuities business from rivals fleeing the sector could prove a solid use of capital for the long-term oriented insurer. With profits growing quickly, very healthy capital reserves, a bumper dividend and attractive valuation, I reckon income and value investors alike should take a look at Legal & General.

As safe as you can get

But if insurers aren’t your cup of tea, another high-yielding option trading at an attractive price is infrastructure investment fund International Public Partnerships (LSE: INPP). As its name suggests, the company invests in the debt of large infrastructure projects with a focus on schools, energy transmission networks and transport links.

These projects generally have some degree of government backing and provide reliable cash streams over many, many years that INPP either re-invests or returns to shareholders via a dividend that currently yields 4%. At today’s share price the fund trades at a 14% premium to its net asset value, but in a world of rock bottom interest rates this isn’t entirely unreasonable given the rather desultory options out there for investors seeking safe income options.  

The company’s latest large investment was £274m to purchase a 61% stake in National Grid’s UK gas transmission network alongside other investors, which helped push up the average life span of its investments to 36 years. This means management can use long-lived, highly predictable revenue to target an average 2.5% increase in dividend payments every year. INPP’s shares won’t rocket overnight, but since 2006 the fund has produced a compound annual total shareholder return of 9.5%, which isn’t too shabby at all given its low-risk nature.  

The post Legal & General Group plc isn’t the only mega-yielder trading at a bargain price appeared first on The Twelfth Magpie.

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Ian Pierce 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.

The company is extremely good at what it does. Over the past four years, pre-tax profits have risen from £68.4m to £143.7m today. Over the previous five years, shares in it increased 31%.

Today the company reported its results for full-year 2016, which are rather upbeat. Net asset value for the group rose 24% from £1.3bn to £1.6bn at the end of 2016. Net asset value per share increased by 9.2 % from 130.2p to 142.2p. And pre-tax profit before finance costs increased from £84.5m in 2015 to £179.1m. During 2016, management invested £489m in 18 projects and it believes there are plenty of other opportunities for capital investment on the horizon. Specifically, in today’s results release, management noted there is a “clear pipeline of new opportunities offering attractive returns for 2017 and beyond.”

Slow and steady growth

IPP isn’t the next Boohoo.Com or Fevertree, nonetheless, the company looks to be one of London’s most attractive growth investments.

Although growth is relatively slow compared to the likes of Boohoo, it is based on steady balance sheet expansion, which is likely to be more sustainable in the long term. What’s more, IPP’s management is committed to steady dividend increases for the firm. At the time of writing the shares currently support a dividend yield of 4.2%, and management has announced its commitment to raise the payout to at least 6.82p per share for 2017, from 6.65p for 2016 before lifting it once again in 2018 to 7p.

And if IPP can continue to grow its net asset value per share at a similar rate to that seen over the past five years, the shares have the potential to produce a total return for investors of around 9.2% to 13.4% per annum. This is assuming per share net asset value growth of 5% to 9.2% per annum and a dividend yield of 4.2%. As the shares are currently trading at 156p, a slight premium to net asset value, further share price appreciation might be limited in the near term. But assuming net asset growth continues, it shouldn’t be long before the premium is reduced.

The bottom line

So overall, IPP may not be the market’s most attractive growth investment, but it is a growth stock you can depend on. Steady net asset growth, coupled with the firm’s dividend policy should ensure high single-digit or double-digit total returns for investors. And as economic growth picks up around the world, management should be able to capitalise on more opportunities to invest and generate returns for shareholders. That’s why I’m tempted to buy IPP today. 

The post One ‘hidden’ growth stock I’m tempted to buy 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?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended boohoo.com. 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.