Laing time man

John Laing Group (LSE: JLG) is one of the cheapest companies on the FTSE 250, trading at just 5.5 times earnings. I checked its performance charts expecting to see a car crash, but in fact the share price has been rolling along quite nicely, accelerating from 213p to 289p over the last 12 months, a rise of 36%.

The £1.06bn business, launched by James Laing back in 1848, offloaded its building, construction and property businesses 15 years ago to focus on renewable energy and public sector infrastructure projects across the UK, Europe, Asia Pacific and North America. It has performed strongly since relisting on the London Stock Exchange in February 2015. So why that shabby valuation?

Fiscal blitz

It is nothing new. Last August it traded at just 6.7 times earnings, blamed on post-Brexit property and infrastructure uncertainty. Yet Brexit hasn’t been all bad news, driving up the value of the company’s overseas earnings, and boosting the value of its overseas investment portfolio. Management is anticipating a governmental shift from austerity to fiscal stimulus, a process already under way in Australia and Canada, with the UK and US potentially following suit.

Net asset value grew by 14.3% to £1bn last year, up from £889.6bn and the dividend is progressive, rising 7% to a total of 8.15p a share. Yet this year could prove sticky, with last year’s 88% surge in earnings per share (EPS) forecast to reverse with a 20% drop. In 2018, EPS should recover 8%. Its valuation is expected to stay low, with a forecast 6.4 times earnings by the end of 2018, so do not expect a sudden re-basing. By then the yield should have risen from 1.9% to 3.4%, so there are income consolations. Despite its challenges, John Laing looks a promising long-term buy to me.

Kenmare nightmare

Irish incorporated mining company Kenmare Resources (LSE: KMR) has had a stirring year, rising 61% over the past 12 months. This FTSE 250 listed company has a market cap of £306m and its principal activity is the Moma Titanium Minerals Mine in Mozambique. A globally diversified mining giant it is not.

The last year has been an exciting ride as it cashed in on the commodity boom, but this followed years of misery. In the pre-financial crisis summer of 2007 its share price flew to 13,400p. Today it trades at 290p. Its price-to-earnings ratio is a dismal -12.7 and it isn’t hard to see why. However, there is light at the end of the tunnel.

Beyond our Ken

After four straight years of losses, Kenmare is forecast to make a profit of £22.68m in 2017, which could more than double to £48.29m next year. Heavy mineral ilmonite, Zircon and excavated ore production rose sharply in the first quarter, while total shipments of finished products leapt 93% to 256,100 tonnes. EPS are expected to rise a stunning 120% in 2018, lifting its valuation to 8.5 times earnings. 

Zircon has seen improvement in conditions, industry inventories are reducing and prices have increased modestly, my only concern is that China is slowing as stimulus wears off. Kenmare is clearly a risky play, but with plenty of potential upside.

The post 2 FTSE 250 growth stocks trading at bargain valuations appeared first on The Twelfth Magpie.

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Harvey Jones 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.

In today’s article, I’m going to look at two stocks I believe could be attractive takeover targets.

I’d buy this income stock

John Laing Group (LSE: JLG) invests in infrastructure and renewable energy projects in the UK and abroad. This may seem dull, but it’s vital for global economic growth and can be very profitable for investors.

John Laing’s net asset value rose by 14.3% to £1,016.8m last year, while the group’s pre-tax profit rose by 80% to £192.1m on a pro forma basis. The group’s total dividend rose by 7% to 8.15p last year, giving a trailing yield of 3.1%.

Although this isn’t a particularly high yield, the payout is structured to reflect the group’s proceeds from asset sales each year. This should mean that it’s always affordable, even if annual growth is uneven.

One potential concern I have is that John Laing may use too much debt in order to boost short-term returns. Luckily, the group’s 2016 results show no sign of this. Borrowings are low at just £161.4m, or around 16% of net asset value.

The shares now trade in line with their net asset value of 277p and offer a forecast yield of 3.4%. Management reports a healthy pipeline of new investment opportunities. In my view, this business would make an attractive long-term income investment and could easily attract a cash-rich buyer looking for income-generating assets. I’d buy at current levels.

Is another deal on the horizon?

Active fund management is an increasingly tough business. Cheap passive funds have performed well in recent years. Investors are growing reluctant to pay inflated management fees.

One area in which gains can be made is cost reduction. The Standard Life-Aberdeen deal will result in fewer, larger funds with lower costs. I believe other companies may follow this example and combine.

One company I believe could be an attractive takeover target is Henderson Group (LSE: HGG). This FTSE 250 asset manager reported net outflows of £4bn in 2016 and saw its underlying pre-tax profit fall from £220m to £212.7m. Underlying earnings per share dropped by 11% to 15.2p, leaving the shares on a P/E of 14.8.

The news wasn’t all bad. Henderson’s investment performance has been strong. Over the last three years, 77% of the group’s funds have outperformed their benchmarks.

Another attraction is that Henderson has already started down the road to consolidation. The company recently announced a planned merger with US firm Janus Capital. The combined group is expected to have assets under management (AuM) of more than $320bn and a strong presence in both the US and Europe.

However, Henderson-Janus will still only be a mid-sized player compared to companies such as Standard Life and Aberdeen Asset Management, which have combined AuM of about $825bn.

In my view, Henderson may yet be the subject of a bid or another merger deal. In the meantime, the firm’s 4.8% yield is well covered and looks appealing to me.

The post Why these 2 hidden income stocks could be takeover targets 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 Aberdeen Asset Management. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Brainy stuff

Allied Minds (LSE: ALM) has an unusual company name, but it does seem to fit its role in helping to bring innovative technological ideas from US academia and defence to market. After flotation in 2014, the shares soared impressively, but since a peak of 725p in April 2015, it’s been all downhill. Today the shares trade at 387p, and that’s after a 5.5% fall on interim results day today.

The year so far has really been one of seeking funding and spending money on looking for the next big hope, and with revenue of only $1.3m the company reported a first-half loss of $52.2m. The trouble with an investment like this is that its very nature is going to make business erratic — there have been some impressive successes so far, but there are bound to be wilderness years interspersed with those, and after three years of losses there are no profits currently on the horizon.

Allied Minds is one of top investment manager Neil Woodford’s growth picks, but you’d have to be sure it fits your investing strategy before you jump aboard. I’d say it’s possibly a good home for a small amount of high-risk cash that wouldn’t hurt you too much if you lost it — and if it comes good you could do very well. But the impossibility of quantifying any kind of valuation right now, and my move away from high-risk growth in my mature years, means it’s not one for me.

Infrastructure profits

Shares in infrastructure development firm John Laing Group (LSE: JLG) picked up a nice 6% to take them to 250p, on the back of a solid set of interim figures that showed a pre-tax profit of £108.3m, and a 12.5% rise since December in the firm’s assets under management, to £1,277.5m. The firm’s investment portfolio yielded cash of £18.3m, up from £11.4m a year previously, and there’s an interim dividend of 1.85p coming.

The shares are now valued at a forward P/E of just 6.7, dropping as low as 5.8 on 2017 forecasts, so why so cheap? The property and infrastructure outlooks in the UK are uncertain right now, and the market really doesn’t like uncertainty. But there’s a 36% rise in EPS forecast for this year and another 14% in 2017, giving us very attractive PEG valuations of 0.2 and 0.4. The dividend, which looks set to deliver yields of 3.2% and 3.6% for this year and next, would be more than four times covered by earnings. What’s not to like in that combination of growth and income?

The company also pointed to its “strong and diversified pipeline of both [public private partnerships] and renewable energy opportunities,” and suggested that its operations in a “market for infrastructure which is mainly driven by population growth, urbanisation and climate change” provide it with plenty of opportunities for which it enjoys keen advantages.

The analysts seem to think John Laing is a buy. Me too.

The post Should you buy these mid-cap shares after today’s news? 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?

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.

Tritax Big Box is targeting a fully covered dividend of 6.2p per share for the full year. This puts it on a yield of 4.9% following its 4% share price fall since the EU referendum. Clearly, Tritax Big Box is highly dependent on the state of the UK economy and it therefore comes with greater risk following the decision for the UK to leave the EU. It has an enticing price-to-earnings growth (PEG) ratio of 1.5, but with the potential for high volatility in its share price, as well as downgrades to profitability, it may be prudent to await further news regarding the performance of the UK economy before buying-in.

Strong pipeline

Also reporting today was infrastructure specialist John Laing (LSE: JLG). It has maintained its full-year guidance for investment commitments, namely in line with the £180.5m delivered in 2015. It has also maintained its full-year guidance for investment realisations and expects to record proceeds of £100m.

Encouragingly, Laing has a strong pipeline of new investment opportunities in public-private partnerships, renewable energy and other infrastructure sectors. Furthermore, the market for the disposal of secondary infrastructure investments remains buoyant. This bodes well for the company’s future and its exposure to international markets such as North America and Asia Pacific should provide stability at a time when the UK outlook is rather uncertain.

Laing trades on a price-to-earnings (P/E) ratio of just 6.4 and has a yield of 3.5%. This indicates that now could be an excellent time to buy it – especially with positive growth in earnings forecast for each of the next two years.

Up for discussion

Meanwhile, shares in Beowulf Mining (LSE: BEM) have soared by 37% today after it announced that the Swedish government has listed the company’s application for an Exploitation Concession for Kallak North on its meeting agenda for discussion today. Although this news has been welcomed by the market (as evidenced by Beowulf’s rising share price), the results are due out shortly and there can be no guarantee that they’ll be favourable.

Clearly, Beowulf has considerable long-term potential and believes that it will be able to deliver a modern and sustainable mining operation in partnership with the local community at its Kallak asset. However, with the company’s shares being highly volatile, it may be prudent to await further news flow before buying them. That’s especially the case when there are a number of post-Brexit buying opportunities on offer.

The post Are Tritax Big Box REIT plc, Beowulf Mining plc and John Laing Group plc post-Brexit ‘buys’ after today’s updates? 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. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Looking ahead, John Laing appears to have significant growth potential. That’s because, in the long term, demand for infrastructure is likely to increase as a result of population growth, urbanisation and climate change. And with its shares trading on a price-to-earnings (P/E) ratio of just 7.5, it appears to offer excellent value for money as well as significant upward rerating potential.

Furthermore, John Laing currently yields 3.4% despite paying out just 25% of profit as a dividend. This shows that there’s tremendous income potential from the stock, with dividends due to rise by 21% next year. A key reason for this is the company’s forecast growth rate in earnings of 30% next year, which puts it on a price-to-earnings growth (PEG) ratio of only 0.25. This indicates that buying now appears to be a very sound move and that John Laing not only looks set to benefit from favourable market conditions in the coming years, but also offers a relatively wide margin of safety.

Bright prospects

Also trading on a low valuation is life insurance company Aviva (LSE: AV). Its shares trade on a P/E ratio of just 11.1 which, for a dominant player such as Aviva, appears to be unjustifiably low. Certainly, there are concerns that its merger with Friends Life won’t deliver the level of synergies that were expected at the outset. But with Aviva’s recent update highlighting that the combination is on track and on target, its long term growth prospects are very bright.

As with John Laing, Aviva pays out a rather modest proportion of profit as a dividend. Its payout ratio stands at 47% and over the coming years, it would be of little surprise for this figure to rise. One reason for this is an upbeat earnings growth outlook. Aviva’s bottom line is due to increase by 11% next year and it has the potential to post index-beating performance due to its commanding position within the life insurance space.

Undoubtedly, Aviva has been one of the major success stories within the FTSE 100 in recent years, with it moving from a lossmaking position in 2012 to being highly profitable today. And while its shares have already risen by 32% since the start of 2013, there could be a lot further to go. That’s due to the progress made in integrating Friends Life and the scope for earnings and dividend growth in 2016 and beyond.

The post Are Aviva plc And John Laing Group PLC Star Buys For 2016? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Aviva. 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.