A ‘heavyweight’ appointment

The valuation looked toppy before, but today’s 85p puts the company on a forward price-to-earnings ratio of around 16.5 for 2019 when measured against City analysts’ forecasts for an almost 50% upsurge in earnings that year. At some point, the shares will stop falling, and I reckon yesterday’s news that a new Chief Financial Officer (CFO) has been appointed could turn the share price around.

Since the tragic passing of the previous long-serving CFO, Phillip J Rasmussen, earlier in the year, the directors have been searching for a high-calibre replacement. The new man will be Tim Pullen who is currently CFO of ARM Limited– the ex-FTSE 100 technology company that was taken over by Japan’s Softbank Group in 2016. Mr Pullen will take over his new desk at IQE in early 2019 after working out his notice with ARM. Executive chairman and interim CFO Dr Godfrey Ainsworth has been holding the financial fort and will continue until the handover is complete.

The appointment strikes me as ‘heavyweight’ and a great coup for the firm. I’m optimistic that Tim Pullen’s experience in the sector will combine with his ability to help drive the company’s ambitions. At the very least, this appointment puts an end to the uncertainty surrounding the issue, and the stock market will like that.

A move capturing fast-track growth

I’m also keen on Netcall (LSE: NET), which provides what it describes as “low-code and customer engagement software.” Today’s full-year figures show revenue up 32% compared to last year and adjusted, diluted earnings per share 5% higher. Fast-growing annualised cloud revenue rose a healthy 321% to make up 22% of total revenue. However, last year’s net cash position of almost £13m has been wiped out because of the August acquisition of MatsSoft Limited, described as “a leading cloud-based low-code software provider.” The firm reported net debt this year of £0.74m.

Netcall is working hard to integrate its big acquisition, which is aimed at increasing the firm’s cloud presence. The directors said in the acquisition announcement that the move opens up access to “the fast-growing low-code market,” which organisations in the public and private sector are adopting. Netcall aims to offer the service both to new and existing customers.

I think there is a good chance that Netcall has just moved into the fast lane with this acquisition. Chief executive Henrik Bang said in today’s report that he has “increased confidence” in the firm’s growth prospects. He pointed to the large size of recently announced “multimillion pound ” low-code contract wins and the “significant increase” in annualised cloud revenue as evidence of the scale of the firm’s potential opportunity to grow. I think the change in the set-up resulting from this acquisition makes Netcall an attractive share right now.

The post Why I’d invest £2,000 in IQE and this fast-growing small-cap now appeared first on The Twelfth Magpie.

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Kevin Godbold 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.

I was once a big fan of the likes of Imperial Brands (LSE: IMB) thanks to the formidable brand power of cartons like John Player Special and West, and the FTSE 100 firm’s drive to shut down scores of underperforming labels in favour of prioritising these terrific revenues-driving brands. I myself used to own shares in the London business up until fairly recently.

But the rising headwinds in developing and emerging economies alike, from public smoking bans to the introduction of plain packaging, has caused me to revise my previously-bullish perspective. Indeed, the US Food and Drug Administration’s plans to possibly cut the levels of nicotine in cigarettes to non-addictive levels, which was declared in August, was the final straw for me.

Fighting or flailing?

The industry is fighting a fierce rearguard action to stop sales falling off a cliff, underlined by the vast amounts manufacturers across the sector are ploughing into the e-cigarette sector. Although a fast-growing segment, the revenues created by the likes of Imperial Tobacco’s blu brand remains a very small slice of the overall pie. And besides, the vaping sector is also coming under attack from politicians on health grounds, undermining the long-term sales opportunities of these brand new technologies.

These pressures have seen Imperial Brands’ share value decline 16% over the past six months alone, with analysts warning that earnings growth should keep on slowing. A 9% bottom-line advance is predicted for the year to September 2017, down from 17% last year, and this is expected to cool further to 4% in fiscal 2018.

Many investors may still be drawn in by a very-cheap forward P/E ratio of 11.9 times for the forthcoming financial year, not to mention an abundant 5.3% dividend yield. But the cloudy long-term outlook for the entire tobacco sector is likely to encourage me to keep away from the likes of Imperial Brands.

Another scary sell

I am also underwhelmed by the investment prospects of Netcall (LSE: NET), even if the company’s share price has bounced on Tuesday after the release of fresh trading details. The Hertfordshire firm was last 6% higher from the start-of-week close.

The company, which provides customer engagement solutions to business, advised that revenues fell to £16.2m during the 12 months to June 2017 from £16.6m a year earlier, reflecting its decision to switch to a cloud-based model. As a result, adjusted EBITDA rose just 1% year-on-year to £4.5m.

However, chief executive Henrik Bang said that he was “pleased with progress in the year which was in line with our strategy of positioning the business towards the high-growth cloud market.” I for one will not be investing in the firm any time soon, I’m afraid.

Despite today’s bounce, Netcall still deals at a 24% discount to levels seen at the start of August. And the company still trades on an elevated forward P/E ratio of 24.5 times, created by City predictions of a 2% earnings rise in the current year. In my opinion this could prompt further waves of selling activity should its restructuring package result in prolonged sales slippage.

The post Imperial Brands plc isn’t the only falling knife to avoid today appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.

Cohort’s adjusted pre-tax profit rose by 21% to £14.5m last year, but the group’s statutory pre-tax profit fell by 81% to £1m. These figures translate into adjusted earnings per share of 27.9p and statutory earnings per share of 9.1p.

If you’re a shareholder in the group, you may wonder which of these figures you should rely on. Having looked at the figures, I’m inclined to accept the adjustments, most of which relate to acquisitions and genuine one-off costs. On that basis, today’s figures give Cohort a P/E of 15. The dividend has been increased by 18% to 7.1p, giving a trailing yield of 1.7%.

One of the reasons I’m prepared to accept the firm’s adjusted earnings is that management has a fairly good record of making successful acquisitions. Since 2011, sales have risen by 72%, while earnings per share have risen by an average of about 20% each year. During this time, the group hasn’t issued many new shares and has maintained a net cash balance.

Although revenue was flat at £112m last year, the firm’s order book grew by 18% to £136.5m. Sales and profit growth can often be uneven at this type of business, as the timing of contract wins isn’t always predictable.

Analysts remain bullish on this stock and expect the group’s adjusted earnings to rise by at least 10% this year, putting the shares on a forecast P/E of about 14. I’m encouraged by the strong order book and believe Cohort’s long-term growth potential is attractive.

Pumping out cash

Software group Netcall (LSE: NET) makes customer relationship and workforce management systems. This £94m business is increasingly focused on selling subscription services which provide a high level of recurring revenue.

During the first half of this year, the order book rose by 14% to £16.6m, while annualised recurring revenue rose by 8% to £11.3m. That represents about 65% of the group’s forecast revenue for the current year.

Pre-tax profit rose by 17% to £0.92m during the first half, lifting earnings per share by 7% to 0.6p. However, the biggest attraction for me is the group’s apparent ability to generate cash.

Netcall’s free cash flow was £1.7m during the first half of this year, more than 25% higher than during the same period last year. This strong performance meant that despite an increase in development expenditure, net cash rose by £0.5m to £14.6m.

The company’s strong first-half performance is expected to continue. Broker forecasts indicate that earnings per share should increase by 63% to 2.15p for the year ending 30 June. A bumper dividend of 3.8p per share is expected, giving a yield of 5.6%. Although this level of payout may not be sustainable, I think it’s good discipline for management to return surplus cash to shareholders in this way.

Netcall seems a solid business to me. The only catch is that the firm’s shares are already priced for success, with a 2018 forecast P/E of 28. In my view, shareholders should definitely continue to hold, as more growth may be in the pipeline. But new investors may want to wait for a dip before buying.

The post This fast-growing dividend stock could help you retire as a millionaire appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Cohort. 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.

Pessimism priced in

The thing is, in these tough times when the final extent of banking penalties for past misbehaviour is still an unknown, I’m really not so much interested in this year’s dividend as in future ones — and I’m encouraged by Barclays’ longer-term expectations to “pay out a significant proportion of earnings in dividends to shareholders over time“.

The 3p per share that Barclays intends to pay this year and next would be covered 5.6 times by forecast 2016 earnings and 7.6 times on 2017 predictions, which is massively over-covered in comparison to long-term requirements — even if Barclays aimed for longer-term cover of two times, which would be above the likely sector average, we’d be looking at yields getting up towards 8% or so.

That’s largely because the share price has taken a pummelling, losing 40% over the past 12 months to 145p. That puts Barclays on a forward P/E of only nine for this year, dropping as low as six on 2017 forecasts — and to me that means the current share valuation has far more pessimism built in than is warranted. And I see Barclays shares now as one of the best dividend bargains for 2020 and beyond.

Building profits

The housebuilding and construction sector has been the big success of the past few years, with Galliford Try (LSE: GFRD) a shining light. We’ve seen year on year of double-digit rises in EPS with two more forecast, and that’s helped boost the share price by 235% in five years — though a 24% fall back since September last year has left us with a forward P/E of under 11, dropping to nine on 2017 expectations.

That alone sounds like bargain territory, but the big attraction is Galliford Try’s dividends. They’ve been galloping ahead, and it was only the soaring share price that kept last year’s yield down to 3.9%. The year saw a 28% rise in the annual payment, with the board stressing its “progressive and sustainable dividend policy” and telling us it now aims to maintain dividend cover at 1.5 times rather than its previous more cautious 1.7 times.

That bodes well for the yield of 5.6% forecast for this year, and the 7% on the cards for 2017, which would be covered sightly more than 1.5 times by forecast earnings.

Calling customers

Who’s Netcall (LSE: NET), you may well ask. Netcall produces telephone and data services for call centres and customer engagement, and it’s used by healthcare and public-sector organizations as well as the private sector. After a few years of very strong earning growth, we saw EPS fall back by 4% last year and there’s a further drop forecast for this year. That’s taken the shine of the share price a little, and despite a five-year rise of 184% to 49p, there’s been a 7% drop in the past 12 months.

But what I really like about Netcall is that it is generating oodles of cash. At the interim stage in December, net cash had risen to £15.2m, boosted by £1.82m in operating cashflow in the period. Oh, and there’s no debt.

With more cash than it needs to invest in its latest cloud computing developments, the firm is embarking on “an enhanced three-year dividend programme“, leading to a forecast dividend yield of 6.1% this year followed by 7.8% next.

The post Are Barclays PLC, Galliford Try plc And Netcall plc Among The Best Dividend Payers Out There? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

If you have never heard of them, which is a distinct possibility, this would be a good opportunity to gauge the risks and possible rewards associated to both shares.

Netcall

Netcall announced today that it was in “advanced discussions regarding a possible acquisition by Eckoh” in a deal set to be financed by cash and stock. The acquirer offers secure payment solutions and is a good fit for Netcall, which is a process management software and services business. 

The terms are “1.25 Eckoh shares and 13 pence in cash for each Netcall share“, which would would imply a value of about 63.94p for each Netcall share, based on the closing mid-market share price per Eckoh share of 40.75p on 24 June 2015.

Judging by the reaction of both stocks on the market, investors seems to believe that the deal will be done on these terms — or, at least, at a very similar price. 

That said, given that “Eckoh reserves the right to introduce other forms of consideration and/or vary the proposed mix of consideration in any offer“, there remains room for a larger cash component. 

Eckoh has struggled to create value ever since mid-2014, but its trailing performance before then was truly impressive, and should it bulk up by acquiring Netcall, whose stock trades at a significant discount based on P/E multiples, it could be an equity investment worth keeping as part of a diversified portfolio, particularly if “significant synergies” — which will be targeted — are actually achieved.

Eckoh’s full-year results were also released today, and made for a good reading. 

Norcros

It announced today that it had completed the acquisition of Croydex Group Ltd for a “total consideration of £21.9m, of which £20.8m has been settled in cash and £1.1m consideration deferred for three years“.

The deal was funded entirely by debt through existing facilities, hence it’s accretive to earnings from day one. Norcros clearly boosts its offering with Croydex, given that the target manufactures and distributes high-quality bathroom furnishings and accessories both in the UK trade and retail segments. 

The group has found it more difficult to deliver value since early 2014, but I doubt it’ll stop with Croydex, as it needs growth to shore up its valuation. While it doesn’t look expensive, and it pays dividends, which are covered by earnings, I would not invest in it at present — but I’d keep an eye on future trading updates, paying particular attention to key cash flow metrics and trends for core operating margins. 

The post Netcall plc & Norcros plc Are Flying High Today, But Should You Buy Or Sell Them? appeared first on The Twelfth Magpie.

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Alessandro Pasetti 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.