K3 Capital

K3 Capital (LSE: K3C) is a leading business sales and brokerage firm that acts for businesses valued between £50,000 and £100m. With a market cap of just £126m, this is certainly a small company, but given the speed the group is growing at, I think K3C has the potential to develop significantly in coming years.

Indeed, full-year results released last month demonstrated that the company has considerable momentum at present. For the year ending 31 May, group revenue rose 53%, earnings per share surged 114% and the full-year dividend payout was increased 56% – an impressive performance. Furthermore, the company advised that for FY2019, all three of its businesses have started the year strongly and that the group as a whole is “trading ahead of market expectations.”

K3C shares are up 83% over the last year, yet have pulled back around 25% since April to now trade on a trailing P/E ratio of 21.1. At that price, I think value is on offer.

Clipper Logistics

Another small-cap stock that I think warrants a closer look right now is £302m market cap Clipper Logistics (LSE: CLG). The company is an innovative logistics company that has grown significantly in recent years and counts Asos, John Lewis and Asda among its customers. 

While full-year results released in July looked quite robust with revenue rising 17.6% and earnings per share climbing 13.6%, investors dumped the stock after the company advised it was bringing “an element of caution” into its planning due to the wider forces affecting the UK retail sector. Yet I think the sell-off has been overdone, because top-tier directors have been loading up on shares recently, suggesting that they have confidence in the outlook.

At the current share price of 304p, Clipper trades on a forward P/E of 17.5 and offers a prospective yield of 3.3%. Those metrics look attractive, in my view.

Somero Enterprises

Lastly, check out £217m market cap Somero Enterprises (LSE: SOM), which produces laser-guided equipment that assists in the installation of concrete slabs, and has operations in the US, Europe, China, the Middle East and Australia.

Somero shares have had a good run recently and are up more than 20% since I last covered the company in 2017. But with the stock trading on a forward P/E of 13.8 at present, I believe there’s plenty more to come from this exciting smaller company.

Recent interim results certainly looked solid, with revenue rising 6%, cash flow from operations jumping 31% and diluted adjusted earnings per share surging 20%. A 100% increase in the interim dividend was another highlight. It’s also worth noting that Somero has practically no debt and has generated an average return on equity of 35% over the last three years.

Overall, I see a great deal of long-term potential in Somero Enterprises.

The post 3 buy-and-hold small-cap growth stocks for October appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in K3 Capital and Clipper Logistics. The Motley Fool UK has recommended Somero Enterprises, Inc. 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.

With that in mind, here’s a look at two small-cap stocks I like the look of right now.

XP Power

XP Power (LSE: XPP) is a leading developer and manufacturer of power controllers – the essential bit of hardware in every piece of electrical equipment that converts power from the electricity grid into the right form for the equipment to function. Headquartered in Singapore, the group serves a global customer base across a range of sectors from 29 locations in Europe, North America and Asia.

Over the last two years, XPP’s share price has surged 125%, turning £1,000 into £2,250. Can the stock continue to deliver big gains going forward? I think that it’s certainly possible.

Half-year results for the £690m market cap company, released this morning, looked strong. For the six months to 30 June, revenue climbed 16% (or 13% on a like-for-like, constant currency basis) on the same period last year, with adjusted profit before tax rising 17%. Adjusted diluted earnings per share came in at 83.7p, up 24% on last year. The company advised that the board expects full-year performance to be in line with existing expectations.

Looking at XPP’s financials, there’s a lot to like. Debt is low and return on equity is high, averaging 25% over the last five years. Revenue and profits are trending upwards at a healthy rate, and the group has an excellent track record of increasing its dividend, which indicates that the company looks out for its shareholders. Trading on a forward-looking P/E ratio of 20.4, I rate XP Power as a higher-risk ‘buy.’

K3 Capital

Another small-cap stock I hold in high regard (I own the stock myself) is K3 Capital (LSE: K3C). It’s a leading business sales and brokerage firm that acts for businesses valued at between £50,000 and £100m. The group has recently won a number of awards, including first place in the FY2017 Thomson Reuters Small-Cap Financial Advisory Review, after completing 35% more transactions than any other advisor in the UK.

This is a company that is growing quickly and over the last three years, revenue has surged from £2.9m to £10.8m, an increase of 270%. And unlike many other companies of its size (its market cap is just £124m), it’s already a highly-profitable business.

A positive announcement in June saw the company advising that trading for the full year ended 31 May is expected to be “comfortably in line” with market expectations (revenue of £16.2m is forecast) and that the group had achieved “significant” revenue and profit growth across its three divisions. But despite this, the shares have pulled back recently, after a strong rise earlier in the year.

As a result, I think they could now be worth a closer look. With analysts expecting earnings of 13.5p per share for last year, the estimated trailing P/E ratio is just 21.3, which looks very reasonable to my mind, given the rate at which the company is growing.

The post Two hot growth stocks you could buy with £1,000 today appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Edward Sheldon owns shares in K3 Capital. The Motley Fool UK has recommended XP Power. 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.

While I think this is a sensible strategy, I’m also not against adding a little small-cap exposure to an ISA in an attempt to boost capital gains. Obviously, smaller companies are riskier than large companies, so you don’t want to be overexposed. However, a small allocation to high-growth companies could be rewarding over the long term and potentially get you to ISA millionaire status faster.

With that in mind, here are two exciting high-growth small-caps to consider.

Alpha FX

£160m market cap Alpha FX (LSE: AFX) is a UK-based foreign exchange service provider that focuses on managing exchange-rate risk for UK companies that trade internationally. The firm is relatively new to the stock market, only floating on the AIM market in April last year. But don’t let that put you off. The company has enjoyed strong revenue and profit growth in recent years, and this morning’s FY2017 full-year results demonstrate significant further progress.

For the year ending 31 December, Alpha recorded revenue growth of 60% to £13.5m, with underlying operating profit surging 55% to £6.8m. Underlying basic earnings per share climbed 31% to 17.5p (vs the consensus estimate of 16.1p) and the board recommended a final dividend of 3.4p per share, taking the full-year payout to 4.9p. The group finished the year with a cash pile of £13.1m, up from £7.6m last year.

The growth story looks exciting here, in my opinion. Alpha increased its client numbers by 39% in 2017, yet stated today that it has only penetrated a “small proportion” of its addressable market. Going forward, the group plans to continue attracting corporate clients in the UK as well as expanding to the institutional and overseas markets, which leads me to believe there is significant growth potential ahead.

Alpha shares currently trade on a forward P/E of 26 times estimated FY2018 earnings, a valuation that looks reasonable to me, given the company’s momentum. The stock is up 6% today, but I think there could be plenty more gains to come from this exciting small-cap company.

K3 Capital

Another small-cap that is growing at an incredible rate, and a stock that I own myself, is K3 Capital (LSE: K3C). The £130m market cap company is a business sales and brokerage one with operations throughout the UK. K3C shares have doubled in price over the last six months, but I believe they can keep moving higher in the medium-to-long term.

A trading update at the beginning of March was bullish, with management stating that group performance had been strong since interim results were released in mid-January. The company advised that it is trading “substantially ahead” of management’s expectations for the year ending 31 May 2018 and that it expects full-year revenue to climb around 50%.

Unfortunately, after a 40% share price rise over the last month, K3C shares no longer offer the value they did earlier in the year. The forward P/E is now around 31, which reduces the margin for error. I say stick this one on your watchlist and keep a close eye on it. It could be a good stock to buy on a pullback.

The post Could these high-growth small-caps help you achieve your ISA millionaire goal? appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Edward Sheldon owns shares in K3 Capital. 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.

K3 Capital

K3 Capital (LSE: K3C) only floated in April last year. The £69m market cap company is a business sales and brokerage firm with operations throughout the UK. Through its three trading subsidiaries Knightsbridge, KBS Corporate and KBS Corporate Finance, it acts for vendors of businesses in the price range of £50,000 to £50m. The group has recently received a number of adviser awards, including first place in the 2017 Thomson Reuters Small-Cap Financial Advisory Review.

Since listing on the stock exchange at a price of 95p last year, the shares have soared to 180p today. That’s not surprising when you consider the momentum K3 currently has. Last year revenue and profit before tax rose 26% and 18% respectively, and the dividend was hiked 250%.

Yet to my mind, there could be plenty more to come from this micro-cap star. Today’s half-year results look excellent. For the six months ended 30 November, revenue rose 34% on H1 last year and EBITDA climbed 28%. Earnings per share increased 32% and the interim dividend was lifted by 217%.

Chief Executive John Rigby was upbeat in his assessment of the future, stating: “The positive momentum in the business continues to gain pace and the improved performance across all KPIs, coupled with the robust deal pipelines that exist across all three trading brands, lead us to a confident outlook for both the full year FY2018 and beyond.”

The stock is up around 10% today, but I believe the valuation still looks appealing at present. With analysts forecasting earnings per share of 10p for FY2018, the forward-looking P/E of 18.5 seems justified. Furthermore, if analysts’ dividend estimates are on the money, there could be some huge cash payouts coming to investors. The latest FY2018 consensus dividend estimate is 8.2p per share, a yield of 4.4% at the current share price.

Of course, stocks of this size can be volatile. That means they are higher risk. Yet overall, the risk/reward profile here looks attractive, in my view.

AFH Financial

Another micro-cap financial services stock that looks to offer strong value right now is AFH Financial (LSE: AFHP). The £112m market cap company is an independent financial advisor and discretionary investment manager that is growing at an impressive speed.

Indeed, between 2014 and 2016, assisted by several key acquisitions, revenue increased 60%, while net profit surged 180%. For the year ended 31 October 2017 (full-year results will be released in two weeks), revenue and net profit are expected to rise a further 37% and 130% respectively. Yet it’s not just the acquisitions that are powering the company’s growth, as AFH revealed in a November trading update, like-for-like growth for the year was around 20%.

Over the last three years, AFH shares have risen almost 100%, yet at the current share price, I believe value is still on offer. With earnings per share of 22.6p expected this year, the forward-looking P/E ratio is just 13.1. That valuation looks very reasonable to me, given the company’s track record of strong growth.

The post Alert: this micro-cap stock has massive growth potential appeared first on The Twelfth Magpie.

More reading

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Edward Sheldon 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.

The business sales and brokerage specialist — which was only admitted to the London Stock Exchange’s AIM market in April — advised that group revenues charged 26% higher in the 12 months to May 2017, to £10.8m. As a result, pre-tax profit rose 18% to £3.6m.

And the company’s bullish view of the market suggests that it can look forward to further hefty sales growth.

Chief executive John Rigby said: “The small-cap M&A market continues to enjoy robust market conditions, with deal volumes above the 10-year average. Despite Brexit and wider economic and political uncertainties, the market has been boosted by a significant upturn in inward investment, as foreign bidders look to take advantage of favourable exchange rates.”

“This coupled with high levels of private equity funding, creating strong activity from both UK and overseas houses, are just two factors driving current transaction volumes,” he added.

And Rigby noted that the improving momentum witnessed through the course of last year has continued into the current period, the company talking of a “strong start to the new financial year, with trading comfortably in line with management expectations.” K3 Capital has already chalked up two significant transactions so far this year, each of which has generated transaction fees in excess of £1m.

Be patient

Those hoping for immediate, stratospheric long-term earnings growth may be disappointed as the Bolton-based company is expected by analysts to endure a 63% bottom-line fall in fiscal 2018.

Having said that, I believe the ever-improving backdrop, allied with K3 Capital’s ambitious growth strategy (it is investing huge sums in its marketing and sales capabilities to secure higher value and more profitable mandates) should deliver excellent bottom-line growth in the longer term. Indeed, the number crunchers are predicting this to start with profits growth of 17% next year.

And I reckon a forward P/E ratio of 13.6 times is an attractive level upon which to latch onto the M&A mammoth.

Heading higher

Those seeking exceptional long-term earnings growth also need to take a look at Flybe Group (LSE: FLYB), in my opinion.

The budget flyer has not proved to be a resilient profits creator in years gone by, but the City is expecting the Exeter business to break this trend by posting earnings of 1.6p per share in the year to March 2018, and to follow this up with a further upward blast — to 7.2p — in the following period.

And it is difficult to disagree with analysts’ bullish projections, certainly in my opinion. Not only does traveller demand for cheap airline tickets continue to take off (Flybe itself saw passenger numbers soar 7.1% between April and June, to 2.4m), but the company’s plans to dial back its previously-lofty expansion programmes should create a more efficient, earnings-generating machine.

Whilst looking toppy on paper, I reckon a forward P/E ratio of 23.3 times is fair value given Flybe’s fast-improving earnings outlook.

The post 2 growth stocks that could make you rich appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Neither Royston Wild nor The Motley Fool UK have any 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.