This values ISG at £70.8m and with Cathexis already owning just under 30% of the business, it hopes the offer will provide ISG’s shareholders with a degree of certainty following a difficult period for the business. This included a pre-tax loss of £12.9m last year. And with the nature of ISG’s business being relatively uncertain and prone to extraordinary losses from time to time, selling out could be viewed as a positive move by risk-averse investors.

Bargain price?

But looking ahead to the current year, ISG is expected to move back into profitability with a pre-tax profit of £15.7m being forecast. This puts it on a forward price-to-earnings (P/E) ratio of just 6 using the offer price, which indicates that it may be valuing the company rather modestly. Further evidence of this can be seen in the company’s forward yield of 6.2%, which not only indicates impressive income prospects, but also a relatively appealing valuation.

Certainly, there are risks to the business and its share price performance has been hugely disappointing in recent months. In fact, it has fallen by 34% in the last month alone – even when today’s gain is taken into account. However, even factoring in the risks, the current margin of safety appears to be rather wide. As such, if the deal goes through then Cathexis may be picking itself up something of a bargain for the long term.

Hard to predict

Meanwhile, shares in investment company Concha (LSE: CHA) have been volatile this week, with them being down 43% since Monday but trading as much as 14% up at one point. The share price movement has been sufficiently volatile to prompt the company to release a statement in which it said it’s unaware of any press speculation that may have contributed to the recent volatility.

Concha also said it’s constantly reviewing multiple potential acquisition opportunities and that, as highlighted in its September update, discussions are still ongoing regarding a specific global opportunity within its investment scope.

Yes, Concha may have long term potential. But the fact that its shares have been so volatile of late and the company being a lossmaking entity, it seems that there may be better opportunities elsewhere within the small-cap space.  That’s especially the case since there can be no guarantee that its aforementioned discussions will lead to an acquisition, thereby making the company’s future appear rather difficult to accurately forecast at the present time.

The post What Is Going On At ISG PLC And Concha PLC? appeared first on The Twelfth Magpie.

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Peter Stephens 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.

McColl’s Retail Group

Even though McColl’s (LSE: MCLS) reported breakneck profits growth in 2014 earlier today, the market has responded by dumping the stock in droves and the business was last 9.6% lower in Tuesday trade.

The convenience store specialists — which floated on the London Stock Exchange last February — saw total sales ratchet 6.1% higher during the nine months to November, to £922.4m, driving pre-tax profit to £12.6m from £4.4m a year earlier. And McColl’s said that it has the financial clout to keep its aggressive expansion scheme rolling — the firm opened its 800th store back in December and is looking to unveil its 1,000th by the close of next year.

The City expects last year’s terrific performance to continue well into the future, and have chalked in further earnings rises of 16% and 8% in fiscal 2015 and 2016 correspondingly. These figures leave the business dealing on P/E multiples of just 9.9 times and 9.1 times prospective earnings, below the watermark of 10 times which represents unmissable value for money.

In addition, McColl’s is also anticipated to raise the dividend this year and next, with figures of 10.9p per share for 2015 and 11.8p for 2016 resulting in monster yields of 6.1% and 6.8% respectively. I believe the company is a steal for both income and dividend investors at current prices.

Dunelm Group

Furniture retailer Dunelm (LSE: DNLM) was recently trading 6% down in Tuesday business, calling an abrupt halt to the stock’s strong performance in recent weeks. The firm announced last month that like-for-like sales leapt 6.2% in the six months to December, to £406.4m, a result which drove pre-tax profit 10.7% higher to £68.2m.

City brokers expect the company to maintain this terrific momentum, and earnings expansion to the tune of 8% and 9% for the years concluding June 2015 and 2016 correspondingly are anticipated, resulting in earnings multiples of 19.4 times and 17.7 times for these years.

It could be argued that Dunelm’s terrific record of year-on-year earnings growth merits this premium above the benchmark of 15 times which represents attractive value for money. But for those seeking lip-smacking value the retailer could be considered a ‘vanilla’ stock choice, particularly as dividend yields also lag the market.

Even though Dunelm is expected to raise the total payout from 20p per share last year to 21.6p this year and 23.7p in 2016, these figures only produce yields of 2.4% and 2.6% respectively. Still, I believe that the company is a sensible choice for those seeking access to a quality retail stock which is clearly “on the up.”

ISG

Shares in construction specialists ISG (LSE: ISG) are currently leading the FTSE indices lower, the result of a poor half-year update and share placement driving the stock 29% lower on the day.

The business announced that it had swung to a loss of £20.8m in the six months to December from the £1.7m profit clocked in the corresponding 2013 period, primarily as a multitude of contract issues smashed project performance across its UK Construction arm. ISG has announced restructuring of this division, but in the meantime has been forced into a £13m rights issue.

City brokers currently expect ISG to record a 34% earnings slide in the year concluding June 2015, leaving the business trading on a reasonable P/E rating of 15.8 times. Although a 135% bounceback is predicted in fiscal 2016, I believe the threat of further overhang related to old contracts could stymie expectations of any such recovery.

On top of this, analyst expectations of dividend hikes both this year and next — from 9.45p per share last year to 9.6p in 2015 and 10.4p in 2016 — are due to come a cropper, with ISG obviously electing not to fork out an interim dividend today and advising of a 4.91p final dividend. Given the problems the firm faces I believe dividend chasers could end up sorely disappointed.

The post Why I’d Buy McColl’s Retail Group PLC And Dunelm Group plc & Sell ISG PLC appeared first on The Twelfth Magpie.

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Royston Wild 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.

Management announced today that three contracts entered into more than 18 months ago had continued to impact on its performance, and added it is in protracted negotiations over a large construction contract entered in 2012 and has decided to make a provision against the contract. 

As a result of these provisions, management now expects ISG’s full-year results to be c.£7m below previous expectations. What’s more, ISG also announced today that it is discontinuing its London Exclusive Residential activities and closing its Tonbridge office at a total cost of £17m. In other words, ISG issued a severe profit warning this morning. 

That being said, management did note that, excluding the construction contract difficulties, ISG’s its half-year performance came in ahead of its expectations.

Still, these loss provisions and restructuring costs, which total £24m, are set to throw the group into a loss this year.

In particular, the City was expecting ISG to report a full-year pre-tax profit of £14.9m for the year ended 30 June 2015. With write-offs and charges totalling £17m, ISG is set to report a loss of £2.1m for this year. 

Nevertheless, despite this profit warning ISG remains well capitalised and has a strong order book. Net cash as at 31 December 2014 was £38m, up 15% year on year, while the group’s order book is valued at £1bn.

Slim pickings 

ISG’s business is low margin by nature, which only serves to amplify the group’s troubles when they occur. For example, the group’s average pre-tax profit margin for the past five years has been in the region of 1%, not leaving much room for error at all. Even before the loss provisions announced today, ISG’s pre-tax margin for 2015 was expected to be in the region of 0.8%. 

Further, before today’s profit warning ISG was trading at a surprisingly high valuation of 15 times historic earnings. That’s a premium valuation more suited to a high-growth tech company, rather than a low-margin, cyclical construction business. 

And this valuation explains the market’s negative reaction to ISG’s profit warning. The group has quite clearly failed to live up to expectations. 

Moreover, it remains to be seen if ISG can return to growth. City analysts have not yet updated their forecasts for the company based on today’s news. Additionally, it remains to be seen if today’s loss provisions are the end of the story. Indeed, with industry leaders like Balfour Beatty struggling to turn a profit in the UK construction market, it seems as if the odds are stacked against ISG.

The post Why Shares In ISG PLC Plunged Over 20% 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 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.