Unfortunately, I think the shares may continue to fall. As I’ll explain, even at current levels the group’s valuation looks too high to me.

What’s gone wrong?

Purplebricks now expects revenue for the current year to be between £130m-£140m, about 20% lower than previous guidance of £165m-£175m. The company blames “challenging” conditions in the UK and Australia and an unsuccessful marketing campaign in the US for this shortfall.

I suspect problems may run deeper. The company warns that UK sales growth is likely to slow to 15-20% this year, compared to 80% last year. Are sellers finding better deals elsewhere?

In the US, the firm says it has recently moved to a pay-on-completion business model. This sounds to me like a standard no-sale, no-fee arrangement. I’d expect this to result in slower revenue growth.

A final concern is that the firm is losing two key managers at the same time. The chief executives of the UK and US businesses will both leave shortly, having been with the outfit for just two years.

I won’t be investing

Neil Woodford’s funds own 27% of Purplebricks, making him the group’s biggest shareholder. His shareholding is probably too big to sell without destroying the share price, so I guess he’ll have to remain patient and hope things improve.

This business could succeed — I’m sure there’s space for online-based estate agents in the market. But as I’ve commented before, despite its online model, the company still has an extensive network of agents. So it doesn’t have the low-cost structure and scalability of a true online business.

Another concern is the amount of money being spent on overseas expansion. If management had focused its efforts on building a profitable and successful business in the UK, I might be more interested. But the firm is spending millions on loss-making efforts to break into Australia, Canada and the US. That seems too ambitious to me.

Analysts expect a loss of 12.9p per share this year, or about £40m. A further loss is expected next year. Even after today’s fall, this loss-making company is still valued at about three times its sales. That looks much too expensive to me.

An agent I’d buy

LSL Property Services (LSE: LSL) lacks the catchy name and trendy advertising of Purplebricks. But this group, whose businesses include estate agents Reeds Rains, Your Move and Marsh & Parsons, looks much more appealing to me.

Last year, LSL reported revenue of £312m and an underlying operating profit of £37.5m. A similar result is expected for 2018. Despite these favourable figures, the group’s market capitalisation is just £254m. That’s roughly 30% below Purplebricks.

In my view, LSL’s 11% operating margin and strong cash generation make it of much more interest than Purplebricks. I’d also note that this smaller firm has a sizeable lettings business and this should help support earnings even if the housing market slows.

LSL shares currently trade on a 2018 forecast price/earnings ratio of 9.7 and offer a 4.1% dividend yield. This payout should be covered 2.5 times by earning, suggesting that it’s quite safe. I’d rate LSL as a possible buy.

The post Is it game over for Neil Woodford pick Purplebricks after today’s 25% drop? appeared first on The Twelfth Magpie.

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Roland Head 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.

Today, I’m going to outline why I believe these two stocks deserve a place in your portfolio. 

Explosive growth 

When it comes to earnings growth, Treatt is in a world of its own. Over the past five years, the ingredients manufacturer to the flavour, fragrance and consumer goods markets has reported earnings per share (EPS) growth of 21% per annum. Net profit has grown from £3.1m to £9.6m for 2017. 

And today the company announced yet another positive performance for the year ended 30 September. Adjusted operating profit for the period grew 8.1% year-on-year to £12.6m, and adjusted EPS jumped 9.8%, or by 14.1% on a constant currency basis. 

What’s more, according to management, the company has already made a strong start to the new financial year. CEO Daemmon Reeve said the firm has “had a steady start to the new financial year” and sees a “number of attractive opportunities in our pipeline of projects with both existing and new customers.” Treatt’s CEO goes on to confirm that the business is trading in line with current market expectations for the full year. 

While the company’s current financial year has only just started, considering its track record of growth I’m confident that the business can hit analyst targets for the next fiscal year. Current figures suggest the group will report EPS growth of around 4% for next year. Even though the stock might look expensive, trading at a forward P/E of 24.6, I reckon this is a price worth paying for such an impressive track record of earnings growth. 

Income champion 

LSL’s growth track record isn’t as impressive as Treatt’s, but when it comes to income, this property services business is by far the better buy. Right now, the stock supports a dividend yield of 4.2%, and the payout is covered 2.5 times by EPS. 

There’s been some concern recently that LSL will have to reduce its distribution due to the cooling housing market. But a trading update issued by the company today seems to alleviate these concerns.

Unlike other property-focused businesses, which are struggling with declining numbers of transactions and falling home prices, LSL’s diversified business model helped the company grow revenues for the 10 months ended 31 October by 3.7%. Unfortunately, net debt has increased marginally over the year as the group has splashed out on acquisitions to expand its presence in the market for property financial services. However, I think the diversification seems sensible, considering the uncertain outlook for housing in the UK over the next few years. 

As well as the market-beating dividend yield, shares in LSL also look relatively cheap, changing hands for just 9.4 times forward earnings. In my mind, when coupled with the attractive income distribution, I think this is a price worth paying for a well-diversified property business.

The post Have £5,000 to invest? Two income and growth stocks I’d add to my portfolio appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Treatt. 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.

Built for all markets 

LSL’s diversified business model has helped the company ride out the peaks and troughs of the property market. Indeed, today the firm announced that revenue for the year to December 2017 expanded 1% year-on-year and underlying operating profit rose 8% thanks to “strong growth” in financial services income of 16%, “continued growth of recurring income” with lettings up 4% year-on-year and profit growth of 8% at the surveying division.

However, despite the steady growth at these divisions, residential sales exchange income declined 9%, and the estate agency division only reported total revenue growth of 2% for the period. The company owns a total of 12 estate agency brands including Your Move, which is the largest UK single brand estate agent measured by the number of branches. 

Still, while there are weak points in the results, overall, the group is growing against a backdrop of “subdued market conditions.“

Following these figures, management has decided to increase the firm’s dividend payout to investors for the year to 11.3p per share, up from last year’s 10.3p. This is “at the upper end” the board’s policy to return 30% to 40% of group underlying operating profit before interest and tax and gives a dividend yield of 4.2% at current prices. 

And as well as this attractive dividend yield, shares in LSL trade at a deeply discounted valuation of 8.3 times 2017 earnings based on today’s reported basic earnings per share figure of 32.6. Using the adjusted figure, the shares are trading at a 2017 multiple of 9.6 rising to 10.3 for 2018, based on current City numbers. 

So overall, if you’re after a market-beating dividend yield, from a well-diversified, cheap property business, LSL looks to me to be a good pick. 

Cash-rich dividend stock 

Another dirt-cheap income stock I like the look of is recruiter Harvey Nash Group (LSE: HVN). 

Shares in this company currently trade at a forward P/E of 8.2, which looks too cheap to pass up. That said, as my Foolish colleague Roland Head pointed out at the beginning of this year, investors are concerned about Harvey’s outlook with Brexit on the horizon as 40% of the firm’s income comes from the UK and Ireland. First-half earnings did little to offset these concerns as, although revenue rose by 9.2% to £425m, excluding exchange rate effects, underlying pre-tax profit was only 1.8% higher. 

Nonetheless, as an income play, there’s plenty to like about this business. At the time of writing the stock supports a dividend yield of 5.2% and the payout is covered 2.5 times by earnings per share, so there’s plenty of headroom for further growth, or flexibility if earnings start to fall. 

On a cash flow basis, the distribution also looks secure. Last year, the dividend cost Harvey £2.9m, which was just 20% of free cash flow from operations (£14m). Put simply, it looks as if the dividend is here to stay. 

The post 2 dirt-cheap dividend shares I’d buy with £2,000 today 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.

Being neglected by the City sometimes creates attractive buying opportunities for value investors. I believe that could be the case with these two companies.

Profits up 11%

The Mission Marketing Group (LSE: TMMG) is a specialist marketing and advertising firm which operates 15 agencies. According to today’s interim results, recent client wins include Neff, Mars, Revlon and Universal Studios.

This operating progress appears to have driven a solid financial performance. Although revenue fell by 4% to £71.2m during the period, this includes pass-through costs such as television advertising. Operating income, which excludes such costs, rose by 4% to £33.8m, while headline pre-tax profit rose by 11% to £2.9m.

Cash flow from operating activities rose by 20% to £5.8m, compared to the same period last year. This enabled the firm to reduce its net bank debt by £2.1m during the period, despite settling £3.5m of acquisition liabilities.

What’s the outlook?

Last year’s performance was heavily weighted to the second half of the year, when almost two-thirds of profits were generated. Management guidance in today’s results is for a similar performance this year.

On that basis, I estimate that the group’s half-year adjusted earnings of 2.58p per share should translate into full-year earnings of about 7.5p per share. That’s slightly ahead of broker forecasts and puts the stock on a forecast P/E of just 6.1. A forecast dividend payout of 1.6p per share should give a yield of 3.6%.

Although this type of business could be hit hard by an economic downturn, these shares look good value to me at current levels and could be worth a closer look.

An overlooked property play

Property-related stocks were hammered by the sell-off that followed the EU referendum last year. But much of this doom and gloom has proved unecessary, at least so far.

The good news for investors is that some quality small-caps are still available at very affordable prices. One example is LSL Property Services (LSE: LSL), which operates a surveying business and several estate agencies.

Like most estate agency businesses, these serve both the selling and letting markets. So even in areas where house sales are slowing, letting demand should help to support profits.

Although revenue was unchanged at £151.5m during the first half of the year, LSL’s underlying operating profit rose by 37% to £15.5m during the period. This suggests that the cost-cutting and restructuring measures taken last year have paid off.

One area where the company is investing for growth is online. LSL recently acquired a 17.3% stake in internet estate agency Yopa. The plan is to provide some services to Yopa and potentially to make more online services available in LSL’s estate agency business.

This year’s surge in profits isn’t likely to be repeated next year. But earnings are still expected to climb by around 6% in 2018.

In the meantime, the group’s shares trade on an undemanding forecast P/E of 9.3, with a prospective dividend yield of 4.3%. In my view, this could be one of the better value buys in the property sector.

The post 2 under-the-radar small-cap value stocks appeared first on The Twelfth Magpie.

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• 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?

Roland Head 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.

Charles Taylor (LSE: CTR) flies under the radar of most investors, but the company does not deserve its overlooked status. The firm provides professional services to the insurance market, a specialist and lucrative job. 

The company is growing its business both organically and through bolt-on acquisitions. According to figures released today, for the six months to 30 June, 2017 revenue grew 36.1% year-on-year to £100.7m. Adjusted earnings per share expanded 5.8% thanks to “ongoing programme of investing in the group to expand our service offering for our clients globally and to deliver long-term growth in profits for shareholders.”

Management outlined four key strategic initiatives at the end of 2016, to help drive growth and the pursuit of these objectives has pushed costs higher, but shareholders should benefit over the long run. 

For the full-year, City analysts are expecting Charles Taylor to report earnings per share of 19.9p, down 11% year-on-year as the company continues to allocate capital to growth. However, in 2018 earnings expansion of 6% is pencilled in, taking earnings to 21.2p per share, giving a P/E of 12.3.  

Conservative dividends 

Charles Taylor operates a conservative dividend policy. For the past five years, payout cover has averaged two times, and management has not been afraid to cut the dividend in lean years to make sure the business does not overstretch itself. 

Going forward, the group is expected to pay out 11p per share to investors this year, and 11.6p for 2018. Both payouts will be covered at least twice by earnings per share. At the time of writing, shares in Charles Taylor support a dividend yield of 4.5%, rising to an estimated 4.7% by 2018. Continued investment in growth should underpin steady payout growth for the foreseeable future. 

Undervalued dividend

Concerns about the state of the UK property market have helped cut the value of shares in LSL Property (LSE: LSL) in half since the beginning of 2014. Over this period, earnings per share have declined by less than 20% as the firm’s diversified offering has helped it avoid the issues hurting other estate agents. 

As well as its estate agent division, LSL also provides services for landlords, valuation services for lenders for residential mortgage purposes, surveying services for private house purchasers, and the provision of Home Reports and professional services in Scotland. 

One of the company’s biggest clients is Barclays. Today the firm announced that its contract to supply UK residential survey and valuation services to the company has been extended, which should help boost confidence in LSL’s outlook. 

Dividend growth 

City analysts are not expecting much in the way of earnings growth this year but next year growth of 6% is projected, and the firm is on track to pay a dividend of around 10.3p to shareholders this year (based on last year’s numbers), giving a dividend yield of 4.5%. That said, considering the company reported a 34% increase in adjusted earnings per share for the first half, I would not rule out a full-year dividend hike to reward investors. 

Shares in LSL currently trade at a highly attractive valuation of 9.2 times forward earnings. 

The post 2 small-cap 4.5%+ yielders you probably haven’t considered appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Rupert Hargreaves owns shares in LSL Property Services. The Motley Fool UK has recommended Barclays. 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.

A first-half results update from SDL (LSE: SDL) was subtitled Delivering our transformation, but unfortunately it transformed the share price into one worth 22.5% less — down to 498p as I write.

The content management and translation services specialist is in the first year of a three-year turnaround plan, and today’s figures show how much that is needed.

Before one-off items, profit before interest, tax and amortisation slumped from £9.5m at the halfway stage in 2016, to £4.9m this time, and adjusted earnings per share crumbled to 3.19p from 9.11p.

What’s more, chief executive Adolfo Hernandez said that margins in the second half are now expected to be “to be slightly below… the second half of 2016,” telling us  that “the first half performance has underlined the importance of the actions already under way to invest in our turnaround.“

Forecasts for a 29% EPS rise seem unlikely to be met now, and even if full-year EPS remained flat we’d still be looking at a P/E of 22 based on the fallen share price — and that’s with dividend yields of only around 1%.

Unmissable bargain?

Is this an oversold bargain to snap up now, or is it one to avoid?

Translation software and services should continue to see rising demand around the globe, and SDL’s investment in things like cloud technology and machine translation are to be welcomed.

But I’m wary of a technology company having to play catch-up, which is what chairman David Clayton seemed to imply when he said that “our growth in revenue, particularly within our Language Services business had been consistently lower than the market.“

I also don’t like the sudden surprise of today’s announcement, and I can’t help fearing there’ll be more profit warnings before things turn around. I would not buy right now.

Irresistible dividends?

LSL Property Services (LSE: LSL) investors had a better day, seeing their shares pick up 1.5% to 258.5p on first-half results — only a modest gain on the day, but we’ve seen a 14% rise since a trading update on 17 July.

Revenue was flat, but the UK’s second largest estate agency saw its underlying operating profit rise by 37%, with an operating margin growing from 7.5% to 10.2%.

Adjusted earnings per share came in 34% ahead, and net bank debt was slashed by 49% to £31.7m. The interim dividend was held at 4p per share.

Investors have been shunning LSL due to fears that a weakening property market will put further pressure on its dividend — last year’s was cut by 18%, but it was still well covered by both adjusted earnings per share and by cash flow, even if both did fall from 2015 levels.

Ignore the short term

We are likely to see house sales falls this year, but chief executive Ian Crabb reckons that “mortgage costs and availability remain positive and the medium-to-longer term fundamentals of the UK housing market remain robust.“

Taking into account this short-term pessimism, I can’t help feeling LSL shares are oversold. A forecast drop in EPS this year would give us a forward P/E of only 9.6, and that would drop to 9.4 based on a modest EPS recovery pencilled in for 2018.

Last year’s dividend, if maintained, would yield 4.1% — and even if we saw a further reduction, I still don’t see the justification for such a low P/E multiple. I think LSL shares are cheap.

The post Down 20%: are SDL plc shares now an incredible bargain? appeared first on The Twelfth Magpie.

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• With a 7% yield, is this dividend share a no-brainer?
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• 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?

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.

Improving outlook

Reporting on Monday was residential property services specialist LSL Property Services (LSE: LSL). The company’s share price jumped 11% after it announced a strong trading performance for the first half of the year. It expects to report half-year results which are ahead of the board’s expectations, and which are a major improvement on the same period of last year.

In particular, the Estate Agency division has performed well and delivered strong growth in Lettings and Financial Services income. There has also been a sound performance from LSL’s Surveying division, while a smaller number of non-recurring items versus the same period of last year has also boosted the company’s performance.

Overall, operating profit for the first half of the year is due to be ahead of prior expectations. This could push the company’s share price even higher in the short run, although LSL continues to be a relatively unpopular share. Evidence of this can be seen in its valuation, with it trading on a price-to-earnings (P/E) ratio of just 10.8 and having a dividend yield of 3.6% from a payout which is covered 2.6 times by profit. This suggests there is upside potential – especially with the company forecast to record a rise in earnings of 8% next year.

Growth potential

Also relatively unpopular among investors at the present time is Foxtons (LSE: FOXT). The London-focused estate agency has endured a difficult period of late, with its profitability coming under pressure at least partly because of weakness in the London property market. In the short run, those pressures could continue and the company may experience difficult trading conditions. However, in the long run there could be a buying opportunity for dividend investors.

Although Foxtons currently yields just 2.1%, there is scope for significant growth in shareholder payouts. One catalyst for this could be a rising bottom line, with earnings expected to rise by 15% in the next financial year. This could put the company on a dividend coverage ratio of 1.9, which suggests a much higher dividend is affordable.

In addition to dividend growth potential, it remains unpopular among investors. It trades on a price-to-earnings growth (PEG) ratio of just 1.5, which suggests there is capital growth potential. Certainly, the outlook for London property and estate agents is uncertain as a result of Brexit, but with a low valuation and dividend growth potential, the company could prove to be a sound buy.

The post Two unpopular dividend stocks I’d buy today appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• 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?

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.

Short sellers

Construction and support services group Carillion (LSE: CLLN) is one such stock which has seen its share price slump and its dividend yield soar. After a 28% fall in its share price over the past 52 weeks, the stock currently yields 8.5%.

Carillion is one of the most heavily shorted companies in the FTSE 350 as hedge funds worry about its mounting debt and the uncertainty of its long-term revenues. Although the company continued to deliver steady double-digit revenue growth in 2016, investors seem increasingly sceptical that the company can continue to grow revenues at its current pace and avoid further margin pressure.

The company’s balance sheet is not looking too good either, with average net borrowing rising to £586.5m, up from £538.9m in the prior year. And it’s not just the company’s growing debt levels that investors have to worry about. Carillion also has a sizeable pension deficit, which has only gotten worse as bond yields have declined following the Brexit vote last June. In its final results for 2016, the company revealed that the deficit had widened to more than £800m, which is worth nearly 90% of its market cap.

As such, Carillion’s long-term dividend outlook seems uncertain. It’s likely that earnings will continue to deteriorate over the next two years, and there isn’t a great deal of financial flexibility given its weak balance sheet.

Under pressure

Another high-yield stock I’m staying away from is LSL Property Services (LSE: LSL), the UK’s second largest estate agency chain. Its dividend, which had been cut by 18% in 2016, could face another squeeze this year as analysts expect earnings to come under pressure from a weak housing market.

The company has in place a variable dividend policy, with LSL currently targeting a dividend payout ratio of between 30% to 40% of group underlying operating profit after interest and tax. This means falling profits would have a direct impact on dividends, especially as its 2016 dividend was at the upper end of its targeted dividend payout ratio.

On the upside though, LSL nearly halved its net debt to £20.3m from £39.9m last year, following the sale of its remaining shares in online property portal Zoopla. As such, the company benefits from a robust balance sheet with relatively low levels of gearing, which should help it to weather the downturn for longer than some of it peers.

LSL has also reacted decisively to the changing market conditions, by investing in its lettings and financial services businesses, which helped to offset the 10% decrease in residential sales exchange income.

Nevertheless, City analysts expect underlying earnings to fall 12% this year, which means LSL’s dividend yield is forecast to fall from its current figure of 5.1% to around 4.3%.

The post 2 risky high-yield dividend stocks you should probably avoid appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• 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?

Jack Tang 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 group’s share price has fallen by 32% over the last year, most recently after February’s profit warning. However, today’s figures suggest to me that the outlook for Go-Ahead may have stabilised. The firm’s share price could even be due a bounce, if no further news is forthcoming.

The bigger picture

Although Southern Rail has had a lot of publicity, it’s only responsible for a small part of Go-Ahead’s profits. The group has other rail franchises and extensive bus operations. Around two-thirds of its operating profit comes from its bus operations, so in my view it’s a mistake to attach too much importance to rail disruptions.

Thursday’s Q3 statement showed a fairly flat picture. Revenue from regional bus routes rose by 1.5%, while London bus revenue rose by 2.5%. Revenue rose by 3% on the Southeastern rail franchise and by 6% on London Midland. As expected, Southern Rail operator GTR saw revenue fall by 5% and passenger journeys fall by 3.5%.

Go-Ahead confirmed on Thursday that full-year profit expectations are unchanged from the update given in February. As we’re less than three months from Go-Ahead’s year-end date of 2 July, it would be surprising if this guidance was changed again now.

This leaves the stock on an undemanding forecast P/E 8.5, with a prospective dividend yield of 5.9%. Analysts expect a flat performance in 2018, but debt costs are expected to fall following a refinancing later this year. If trading remains stable, I think the shares could perform strongly from here.

This property stock could surprise

Estate agency and surveying business LSL Property Services (LSE: LSL) has lost a third of its value over the last year. The shares fell sharply in wake of the EU referendum as markets priced-in the increased risk of a housing crash.

The housing market does seem to have slowed in certain areas, notably London. But overall activity levels are still fairly firm and some of the decline in house sales is being taken up by increased levels of letting activity.

LSL reported a 3% rise in revenue in its estate agency division last year, helped by 9% growth in lettings income.  The group’s surveying division saw its operating margin fall by 1.2% to 27.1%, on revenue which rose by 1%.

To strengthen its balance sheet ahead of a potential downturn, LSL sold its shareholding in online group ZPG (formerly known as Zoopla) last year. This netted it a cash windfall of £36.1m and enabled it to reduce net debt from £39.9m to £20.3m and spend about £12m on acquisitions and related payments.

LSL’s adjusted earnings are expected to fall from 25.9p to 22.6p per share this year. This puts the stock on a forecast P/E of 9.3, which looks undemanding based on current conditions in the housing market.

Shareholders should also receive a well-covered dividend of 9.1p per share, giving a prospective yield of 4.3%.

If you feel positive about the outlook for the housing market, then I believe LSL Property Services could be worth a closer look.

The post Are these bargain dividend stocks about to rebound? appeared first on The Twelfth Magpie.

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Roland Head 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 first issue the company is grappling with is the secular decline in footfall to large department stores. Consumers have fallen in love with the convenience of e-commerce, rediscovered a passion for local, more personal, shops, and young shoppers are increasingly gravitating towards fast fashion retailers if they visit the high street at all. Needless to say this has been bad for Debenhams.

The company’s new management team is trying to ameliorate these issues by increasing online sales and opening up itsstores to a variety of restaurants and non-clothing beauty and gift retailers. This strategy is showing signs of working, with constant currency like-for-like sales rising 0.5% year-on-year over the Christmas period.

However, I don’t think this shift will be enough to save the retailer as we know it or make its shares a good investment over the long term. For one, the margins on these non-clothing sales are much lower than the profits to be had from selling clothes. So without a viable plan to once again make Debenhams a popular clothing brand the company is faced with a future of increasingly shrinking profits.

Evidently other analysts agree with me because the company’s earnings are expected to fall by 14% and 9% respectively in the next two years. With its clothing options increasingly unpopular I believe the company’s future may be little more than as a mall for make-up stalls and chain restaurants. And we only have to look across the pond to the US to see how well malls are faring in the 21^st century. For these reasons I will be staying well clear of shares of Debenhams.

Renters across the land rejoice 

Another seemingly irresistible bargain that I reckon should be resisted is estate agent LSL Property Services (LSE: LSL). The company’s shares trade at a very depressed 8.4 times forward earnings and offer a 6.18% yielding dividend that is covered by earnings. Again, the market’s pessimism is well deserved.

For one, the company is threatened by what appears to be a peaking housing market. That is issued a profit warning back in July and then blamed a “weak housing market” for a 3.4% year-on-year fall in revenue in the quarter to October certainly suggests this may be the case.

Another worry is the government’s proposed ban on letting fees charged to tenants. This would hit LSL especially hard as the company has long relied on the counter-cyclical nature of the rental market to offset the boom and bust nature of the broader housing market.

These combined threats have already caused analysts to forecast dividend cuts in the future for LSL as profits fall. Take away the company’s income potential, add in a slowing housing market and potential end to highly profitable letting fees and you have a recipe for one share I’ll be avoiding in 2017.

The post 2 bargain basement stocks I’m avoiding like the plague appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• 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?

Ian Pierce 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.