Is there a multi-year bull run on the way?

Some believe that the index is set up for a multi-year bull run after around two decades of consolidation. I think that’s a reasonable theory. Last decade’s credit-crunch was a blow that left the world’s economy and financial system in a big hole that has proved difficult to climb out of. Leading up to the crunch, many firms and individuals were engaged on a spending spree fuelled by borrowings. The world seemed to be living above its means and I see the credit-crunch as the leveller that rebased expectations. I reckon it makes sense that the world’s economy and financial system would take a decade or so to ‘repair.’ But now that the healing process is advanced, why shouldn’t we move into an extended period of prosperity and growth?

If we do, I think the FTSE 100 will do well. Many of the firms in the index operate in cyclical sectors such as finance, mining, oil & gas, retailing, housebuilding, construction and outsourcing. Macroeconomic wobbles tend to make cyclical companies’ share prices wobble too, so we often see big swings in the index. Yet the possibility of a period of prosperity suggests the potential for the cyclicals to shine and drive the index higher along with other firms in the index as their businesses grow.

Although I’m bullish about the FTSE 100, I’m even more bullish about the prospects for consumer products supplier Norcros (LSE: NXR). The firm scores well against value, quality and momentum indicators, pays a big dividend and could rally from here to outpace the FTSE 100, perhaps driven by a valuation re-rating and decent forward growth projections.

Good trading and a low-looking valuation

Today’s full-year results are encouraging. Constant currency revenue rose 8.6% compared to the prior year, underlying operating cash flow increased 4% and underlying earnings per share moved 6.1% higher. The directors expressed their confidence in the outlook by pushing up the total dividend for the year by 8.3%.

The firm supplies items such as showers, shower enclosures, trays, taps, tiles, bathroom furnishings, accessories and adhesives, and owns brands such as Triton, Merlyn, Vado, Abode, Johnson Tiles and Norcros Adhesives. During the trading year to 31 March, the firmed earned 55% of its operating profit in the UK and 45% in South Africa. There’s no doubt that operations are cyclical, but just as a period of prosperity could drive up the FTSE 100, I think Norcros could thrive too.

The stock is perky today, up around 7% as I write. But even at 213p or so, the forward price-to-earnings rating for the year to March 2020 sits below seven and the forward dividend yield is a tempting-looking 4.2%. On the face of it, there’s plenty of room for a valuation uprating and I think the stock is well worth your further research time.

The post This dividend, value and momentum stock could crush an outperforming FTSE 100 appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Norcros. 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 bathroom products and tiles business has been expanding steadily over the past five years, although the market seems to have ignored this growth. 

Since 2012, operating profit has grown at a compound annual rate of 9%. However, today shares in the company trade at a depressed forward P/E of only 6.3, a valuation which, in my opinion, fails to reflect the group’s outlook.

Double-digit growth

A mid-single-digit valuation implies that Norcros is struggling to grow, but that is not the case. According to a trading update issued by the firm today, for the year ending 31 March, following the significant acquisition of Merlyn — the UK and Ireland’s No. 1 supplier of shower enclosures and trays — last year, revenue increased to 10.7% year-on-year. 

On a like-for-like basis, excluding this acquisition, revenues increased 4.4% as tough trading in the UK was more than offset by growth in the South African business, which reported constant currency revenue growth of 6%.

Unfortunately, Norcros is not immune from the headwinds affecting the broader retail sector here in the UK. The group’s Johnson Tiles business suffered significantly during the second half of the year, prompting management to begin a restructuring programme. As trading continues to deteriorate, management has now unveiled a new round of cuts with the goal of saving £2m per annum at a cost of £2.1m and the loss of 50 jobs. 

Poor trading at Johnson Tiles dragged down UK like-for-like sales to a dip of 0.8% during the second half of the financial year. Excluding this business, second half like-for-like revenue grew 8.4% in the UK, following growth of 11.4% in H1. So it looks to me as if, barring this one division, Norcros is powering ahead.

With this being the case, and considering the low valuation, as well as its 4.5% dividend yield (covered nearly four times by earnings per share) I believe the stock has what it takes to outperform the FTSE 100, as the market wakes up to the opportunity on offer.

And I believe that the same is true for marketing business Communisis (LSE: CMS). 

Sector discount 

Like Norcros, shares in Communisis look cheap. The stock is currently trading at a forward P/E of 9.4 and supports a dividend yield of 4.3%, even though earnings per share have grown by 17% annualised over the past six years.

It looks as if this growth is set to continue. As my Foolish colleague Jack Tang recently pointed out, Communisis has just embarked on a three-year Value Enhancement Programme to deliver 5%-10% annualised adjusted earnings growth through to 2020, via its three critical strategic themes: Digital First, Global Reach and Empowered Organisation. 

If the company can hit this goal, then in my opinion, the shares deserve a much higher valuation. How much higher? Well, the broader media services sector is currently trading at a median forward P/E of 12 while the professional and commercial services sector is trading at a median valuation of 14.2. I think Communisis deserves a valuation between the two, around 13 times forward earnings, implying a share price of 95p based on City projections that the firm will earn 7.3p per share for 2019.

The post Two 4% small-cap dividend stocks that could beat the FTSE 100 appeared first on The Twelfth Magpie.

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• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

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

Software and IT services provider Sanderson Group (LSE: SND) is one that I think fits the bill. The share price has been a bit volatile over the past couple of years, but at 74p today we’re looking at a 55% gain over five years.

But more important from an income perspective is a dividend that has soared from 1.5p per share in 2013 to 2.65p for the year ended September 2017. That represented an 11% rise over last year, for a 3.6% yield on the current share price. It’s also almost two-and-a-half times covered by earnings per share, so it’s really not stretching the company at all.

Big 5-year jump

With the dividend having risen by 77% in four years, if you’d bought shares around the start of 2013 for about 50p, you’d be earning an effective yield of 5.3% this year on your original purchase price, and the 2.9p forecast for next year would take that to 5.8% — just a shade short of that 6%.

Revenue for the year was largely flat at £21.56m, but adjusted operating profit picked up 5.7% to £3.9m with adjusted basic earnings per share up 18% to 5.2p.

Most importantly (in my view), the firm reported continued strong cash generation which led to a year-end net cash balance of £6.18m — up from £4.34m a year previously and “well ahead of market expectations.“

Buying now could lock in some big future returns.

Superior cover

Norcros (LSE: NXR) has exhibited a slightly less spectacular dividend progression in the past few years, but it’s still impressive. From 4.6p in 2013 (adjusting for 2015’s share consolidation), the dividend has grown to 7.14p for the year to March 2017. That’s a rise of more than 55% in four years, which is massively ahead of inflation.

Forecasts suggest a 4% dividend hike this year followed by a further 5.2% next year, which is a slowdown in the rate of growth — but still beating inflation, and I’m happy with it for a couple of reasons.

First, the cash would be more than three-and-a half times covered by forecast earnings, so it’s looking pretty safe. The other thing is that this is while Norcros, which supplies showers, taps, bathroom accessories, tiles and adhesives, is facing difficult trading conditions — and if it’s looking this good in tough times, I’m optimistic about the longer term.

Acquisition

In fact, Norcros looks to be in a good state to benefit from trade headwinds by making acquisitions at attractive prices. On 23 November, the firm competed the acquisition of Merlyn Industries funded by a new £31.4m open offer, with the enlarged company now on a market cap of £145m.

On top of that, debt at the interim stage at 30 September stood at £20.8m, down 24% and not what I’d call remotely troubling, and the company saw fit to lift its first-half dividend by 8.3%.

Forecast yields currently stand at a little over 4%, with the shares on a forward P/E of only around 6.3. I reckon Norcros is a dividend and growth combination to hold for the long term.

The post Two growing dividend stocks that could soon yield 6%+ appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

The Motley Fool UK has recommended Norcros. 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.

Norcros (LSE: NXR), a supplier of branded showers, taps, bathroom accessories, tiles and adhesives, flies under the radar of most investors. Over the past year, shares in the company have hardly budged, despite a positive trading performance. 

Today the company published yet another set of upbeat figures. For the first half, management expects revenue to be 12% higher at £145m, up from £129m in the same period last year. UK revenue for the period was 8.4% higher than the previous year, while its South African business revenue was up 4.8% on a constant currency basis. A focus on cash flow has helped the business reduce debt from £27m to £21m year-on-year. 

Looking forward Norcros said: “Against the backdrop of challenging market conditions, our performance demonstrates the strength of our market positions and the resilience of our diversified business portfolio delivering revenue growth.“

Following this robust first-half performance, the firm expects results for its fiscal year ending March 31 2018 to meet its expectations.

Slow and steady 

This is one of my favourite companies. While it may not be the fastest growing business in the world, the group has reported stable double-digit revenue and profit rises year after year. Growth has come from both acquisitions and organically. Cash generation is high with the business converting around 100% of net income to free cash flow on average for the past five years. This has enabled management to pay a lucrative dividend to investors (currently 4.4%) and pay for acquisitions. Pre-tax profit has expanded fourfold since 2013. 

As long as management can maintain this course for the next decade, investors should be well rewarded. What’s more, at current levels the shares are a steal. Despite its historical growth and cash flows, the shares currently trade at a deeply discounted 6.1 times forward earnings. 

Pricey but attractive

Scapa Group (LSE: SCPA) is at the other end of the valuation spectrum. The company, which is a global supplier of bonding solutions and manufacturer of adhesive-based products for the healthcare and industrial markets, said yesterday that group revenue, trading profits, and margins are all ahead of last year. 

For the full-year, management now expects to beat analyst projections. Analysts had been expecting earnings per share growth of 11%. Off the back of this forecast, the market has awarded the company a forward P/E of 28.8. 

Scapa has managed to increase pre-tax profits threefold in the past five years. Considering the group’s leading position in its key markets, as well as the defensive nature of the healthcare industry, I believe that the business is a great long-term buy for investors. 

The one downside, however, is Scapa’s dividend yield. At the time of writing, the shares only support a yield of 0.5%. That being said, the payout is covered more than seven times by earnings per share, leaving plenty of room for further payout growth, or special dividends. 

The post 2 growth stocks I’d buy and hold for ten years appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Rupert Hargreaves owns shares in Norcros. The Motley Fool UK has recommended Norcros. 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 believe both of these potential attractions apply to the two companies I’m looking at today.

A smart acquisition

Packaging firm Macfarlane Group (LSE: MACF) has announced plans for a step change in the size of its operations. The company will pay up to £16.75m to acquire Nottingham-based peer Greenwoods Stock Boxes Limited.

The deal will be funded with a mix of cash and new shares, and as part of this process Macfarlane will raise £8m in a share placing to help fund the deal. Although this creates some dilution for shareholders, the firm still expects Greenwoods to make a positive contribution to earnings in the first full year of ownership.

This acquisition certainly seems attractive to me. Greenwoods generated an operating profit of £1.6m last year from sales of £14.1m. That gives the firm an operating margin of 11%, more than twice the 4.9% margin generated Macfarlane’s 2016 operating profit of £7.8m. So this deal should help to lift the combined company’s profit margin, boosting future returns.

If Greenwoods fails to perform as expected, Macfarlane will be able to claw back £3.25m in cash, as this will only be paid if certain trading targets are met over the next year.

Cross-selling opportunities

Management says that there is “minimal overlap” between the two companies. They expect the combined group’s shared customer base to provide new selling opportunities, which sounds positive to me.

Macfarlane stock currently trades on a forecast P/E of 11, with a prospective dividend yield of 3.2%. If Greenwoods performs as expected, I believe there’s scope for decent gains over the next couple of years. I’d rate this stock as a buy after today’s news.

Due for re-rating?

I have to admit that the performance of electric shower and bathroom fittings group Norcros (LSE: NXR) has been a little disappointing in recent years. This firm owns brands such as Triton Showers, Vado, Jonson Tiles and Croydex and operates in the UK and South Africa.

Despite generating stable profits, reliable dividends and strong cash generation, the company’s shares trade on a forecast P/E of just 6.1. One reason for the market’s caution may be the group’s pension deficit. At £62.7m, this is quite large when compared to the market cap of £104m.

However, this deficit is largely the result of ultra-low bond yields. If the Bank of England raises interest rates as expected in November, bond yields could strengthen. In common with many companies, Norcros would only need a relatively small increase in bond yields for its deficit to fall significantly.

In my opinion, this is fundamentally a good company, with a robust business and good long-term growth potential. I think it makes sense to keep the faith for a little longer yet.

Based on last year’s figures, I expect this year’s forecast dividend yield of 4.5% to be well covered by free cash flow. And as I’ve already mentioned, a low forecast P/E of 6.1 means that Norcros stock has scope for re-rating if it can deliver on growth forecasts.

The post 2 stunning small-cap dividend stocks I’d buy today appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Norcros. 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.

However, 12 months on and the firm appears to be suffering no ill effects from Brexit just yet. Today the company reported its results for the year ended 31 March and the referendum is only mentioned three times in the release. Revenue for the period grew by 15% on a reported basis to £271m, and underlying profit rose 11.7% to £23.8m. Operating cash flow jumped by 46.1% to £29.8m giving management headroom to reduce debt by 28.6% from £32.5m to £23.2m and hike the company’s full-year dividend payout by 9.1% to 7.2p from 6.6p. Even after this hefty increase, the payout is still covered 3.9 times by earnings per share. 

Growth ahead 

Norcros is rapidly closing in on the growth goals management set out several years ago. Management is targeting revenues of £420m by 2018, and a pre-tax return on underlying capital employed of 12% to 15% over the economic cycle. ROCE is currently ahead of target and has been for the past two years at 18.4%, but revenue is still lacking. 

Excluding the negative impact of the South African rand’s depreciation against the pound, revenue for the year to 31 March would have been £304m. Still, even though the company looks as if it may struggle to meet its growth objective, management remains convinced that it can find opportunities to accelerate it over the next few years. 

And if Norcros does not meet this aim, the shares still look incredibly cheap based on current earnings. Today the company reported underlying diluted earnings per share of 27.8p for the year to March giving a historic P/E of 6.3. Even if we assume no earnings growth for next year, a mid-single digit P/E looks too hard to pass up. A payout of 7.2p gives a yield of 4.1%. 

Undervalued growth

Unlike Norcros, over the past year shares in Severfield (LSE: SFR) have charged higher, rising 75% as the firm’s recovery gathers steam. And today the company reported further progress with revenue for the year to 31 March growing by 10% to £262m and underlying profit before tax rising 50% to £19.8m.

Basic earnings per share for the period nearly doubled to 5.1p, although despite this growth, the shares still look relatively expensive at 83p. 

That being said, Severfield’s value is in its growth potential. Indeed, management is seeking to double group profits by 2020. City analysts believe this is possible and have pencilled-in earnings per share of 6.6p on a pre-tax profit of £24m for the year to 31 March 2019.

Based on this estimate, shares in the steel producer are trading at a 2019 P/E of 12.4 and could be even cheaper if additional growth emerges in the year after. 

The post 2 value stocks on my watch list today appeared first on The Twelfth Magpie.

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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Rupert Hargreaves owns shares of Norcros. The Motley Fool UK has recommended Norcros. 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.

Was I right?

I remember taking a deep breath, and advising readers to go against the advice of others, be brave, and buy a stake in the nation’s largest housebuilder, Barratt Developments (LSE: BDEV). Buy why would I be so Foolish as to go against the herd and recommend a battered FTSE 100 company that could be heavily impacted by the cyclical nature of the UK housing market? And was I right to do so?

Well, it had been exactly two weeks since the result of the EU referendum, and City analysts had been busy revising their earnings estimates for the forthcoming year, and beyond. All of a sudden things didn’t seem so bad, our leading housebuilders weren’t going to stop building and selling houses overnight, and the UK’s housing shortage would surely provide a degree of support for the battered sector.

Record order book

At 373p, Barratt’s shares were trading at a 44% discount to their 2015 peak of 662p, and were supported by a well-covered dividend yielding over 7%. The group’s shares had been hit hard by the Brexit sell-off and were available at a bargain six times forecast earnings. It was time to take action and buy. Nine months later, investors now find themselves sitting on healthy gains of around 55%.

I think the shares could well be worth hanging onto. Barratt’s half-year report suggested a very positive outlook given the record forward order book, strong consumer demand and a positive lending backdrop. The Coalville-based developer reported that completions outside the capital were now at their highest level for nine years, with completions in London in line with the planned build programme, with significant uplift expected on wholly owned sites in the second half.

I believe Barratt continues to offer a great blend of growth and income, with an attractive valuation at just 10 times earnings for FY 2017, supported by a prospective dividend yield of 7%.

Exciting prospect

Meanwhile, at the other end of the market, a company that I believe could provide even more dividend and share price growth is Norcros (LSE: NXR). The Wilmslow-based group is a leading supplier of high quality and innovative showers, taps, bathroom accessories, ceramic wall and floor tiles and adhesive products, with operations primarily in the UK and South Africa.

In a trading update issued just last week, management indicated that revenues for the year just ended were now expected to be in the region of £271m. That’s 14.9% higher than fiscal 2016.

Norcros now expects to deliver its eighth consecutive year of revenue and underlying operating profit growth. With rapidly rising dividend payouts, a prospective yield of 5.6%, and a P/E rating of just six, I believe Norcros could provide an exciting mix of dividend and share price growth over the coming years.

The post 2 top dividend stocks at bargain basement prices appeared first on The Twelfth Magpie.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Norcros. 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.

Indeed, there are many studies which show that value investing has outperformed all other methods for decades and following a value strategy has helped billionaire Warren Buffett build the reputation and fortune he has today.

While I can’t give you the secret to guaranteeing riches like Warren Buffett, here are three attractive looking value stocks that may help put you on the path to investing success. 

Pipes and plumbing

Norcros (LSE: NXR) is, in my opinion, one of London’s most undervalued stocks. The company manufactures and sells bathroom products such as showers, taps and tiling equipment and has ambitious growth plans. 

However, for some reason, the market doesn’t trust management to hit growth targets or even hit annual profitability targets. Nonetheless, management has continually proved the market wrong. 

Net profit has grown at an average compounded rate of 14.2% since 2011. Analysts are expecting a slight fall in earnings per share for the year ending 31 March thanks to high costs from the integration of a new acquisition. Still, even though earnings per share are expected to fall 7%, the shares trade at a forward P/E of only 6.7 and support a dividend yield of 4.2%, a valuation that seems too hard to pass up for a business that’s achieved such an impressive historic growth record.

Oil troubles 

Gulf Marine Services (LSE: GMS) is one of the many companies that has suffered from the decline in oil prices over the past few years. The company is expected to report a net profit of only £33.5m for 2017, more than 50% below its 2014 peak of £75m.

Gulf Marine operates self-propelled and self-elevating support vessels, which are used by the oil and gas industry to maintain and service offshore oil platforms. Other companies that operate offshore platforms also use the company’s services, so Gulf Marine has customers outside the oil and gas sector. 

Even though the company has sailed into stormy waters recently, it’s likely that over the long term the demand for support vessels will return to normal levels and when it does, Gulf Marine’s profit should go back to 2014 levels. 

The shares currently trade at a forward P/E ratio of 9.3 and a price-to-book ratio of 0.6. If you have the patience to wait for demand to pick up, Gulf Marine could be an attractive long-term investment. 

Come fly with me

Aircraft leasing firm Avation (LSE: AVAP) has seen the value of its shares rise by around 50% since August of last year, but even after these recent gains, the shares still look cheap. Indeed, at the time of writing shares in Avation trade at a forward P/E of 7.2 and a price-to-tangible book ratio of 0.8. City analysts expect the company’s earnings per share to grow by 5.7% this year. 

Over the past five years, the company has grown earnings per share at a steady rate of 13.1% per annum on average. With a high single-digit P/E it looks as if the market is ignoring Aviation’s impressive growth record.

The post 3 small-cap value stocks set for big things in 2017 appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Rupert Hargreaves owns shares of Norcros. The Motley Fool UK has recommended Norcros. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Small caps such as Norcros (LSE: NXR) and TT Electronics (LSE: TTG) both offer well-funded yields of 4% or more. Both companies have also issued trading updates today. While market reaction has been limited, my impression is that both sets of figures look quite promising.

Is this too good to be true?

Pre-tax profit rose by 10% to £7.7m during the first quarter at bathroom fittings firm Norcros. Net debt fell from £29.2m to £27.5m, while underlying operating cash flow rose by 20% to £16m.

The interim dividend has been lifted by 9.1%, and now stands at 2.4p per share. This suggests that full-year forecasts for 7.1p per share are entirely reasonable. That’s equivalent to a dividend yield of 4.9%.

A mixture of organic growth and acquisitions has lifted Norcros’s after-tax profits from £13.5m in 2011, to £25m last year. But investors refuse to buy into this growth story. Norcros shares trade on a forecast P/E of just 5.7.

What’s the problem?

Norcros has a massive pension deficit. According to today’s results, the gross deficit on its UK final salary scheme rose from £55.7m to £97.8m during the six months ending 30 September. This is the result of falling bond yields following the EU referendum.

Norcros currently makes a deficit reduction payment of £2.5m each year. This payment may rise in the future, hence the market’s caution. But it may be worth remembering that bond yields have risen sharply since the US presidential election. If this continues, we could see a sharp reduction in pension deficits, as fewer bonds will be required to produce the income needed to fund pension obligations.

In my view, pension risks are already fully priced into Norcros’s share price. At current levels, I rate the shares as a strong buy for patient investors.

Ahead of market expectations

Electronic component manufacturer TT Electronics has had a tough few years. The firm’s shares have lagged the market and are still worth less than they were at the end of 2011. But today’s trading statement suggests that the tide could be turning.

Organic revenues rose during the four months to the end of October. TT said that its order book is “marginally ahead” of where it was one year ago, while the integration of recent acquisition Aero Stanrew has added further orders.

I was disappointed that TT didn’t include any details of sales growth in today’s update. But the firm did provide some numbers to show how the weaker pound has boosted profits.

Exchange rate movements during the first 10 months of 2016 have added £2.5m to underlying operating profit. To put this in context, the group’s operating profit was £21.7m last year.

TT Electronics now expects full-year results to be ahead of expectations. This suggests that earnings per share will be above current consensus forecasts of 10.6p per share. My estimates suggest that the shares now trade on a forecast P/E of no more than 12, and offer a prospective dividend yield of 4.3%. I’d rate TT as a buy at these levels.

The post Should you buy small-cap income champions Norcros plc and TT Electronics plc? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
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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. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Imperial’s tobacco sales rose by 16.8% during the first half of the year, thanks partly to a £468m contribution from its recently acquired US cigarette brands. Total adjusted operating profit was 19.5% higher than during the same period last year, while adjusted earnings per share were 20.4% higher.

The interim dividend was increased by 10%, maintaining the firm’s long track record of double-digit growth. This is likely to continue. In a recent strategy update, Imperial confirmed that it intends to maintain its current policy of increasing the dividend by at least 10% per year “over the medium term”.

In my view this policy is entirely realistic, as long as Imperial’s board is also able to find some surplus cash to reduce its record £13.7bn net debt. With a forecast yield of 4.3%, Imperial is likely to remain a solid income buy, regardless of the outcome of next week’s EU referendum.

Cash generation set to improve

Shares in FirstGroup (LSE: FGP) rose by as much as 10% this morning, after the bus and train operator said that “significantly increased cash generation” was expected during the 2016/17 financial year.

The news suggests that FirstGroup’s business is now getting back on track, after being forced into a £615m rights issue in 2013. Today’s results show that adjusted pre-tax profit rose by 2.7% last year, despite the loss of certain rail franchises.

Commenting on the year ahead, Tim O’Toole, First’s chief executive, said that lower fuel costs and more operating days in the firm’s US school bus business would help boost profits this year.

FirstGroup shareholders will be hoping that Mr O’Toole can make good on his promises. The group’s net debt remains high, at 2.3 times earnings before interest, tax, depreciation and amortisation (EBITDA). This ratio didn’t improve last year and FirstGroup hasn’t yet restarted dividend payments.

This may help to explain why FirstGroup shares are still only trading on 8.8 times 2016/17 forecast earnings. In my view, FirstGroup could be worth a closer look — although investors may still need to be patient.

This small cap looks cheap to me

Today’s full-year results from bathroom fittings and tiles group Norcros (LSE: NXR) looked pretty solid to me. Sales rose by 11% last year, while underlying pre-tax profit rose by 29% to £20.4m.

Norcros’ full-year dividend rose by 17.9% to 6.6p, giving an attractive 3.8% yield. Although some of these gains were the result of acquisitions, net debt remains reasonably low at £32.5m. In my view the firm’s shares now look notably cheap, on a trailing P/E of 6.3 times underlying earnings.

Norcros reported a group operating margin of 9.0% for last year, up from 7.6% in 2014/15. Excluding acquisitions, free cash flow was enough to comfortably cover last year’s dividends. Norcros now trades on a forecast P/E of 7 for 2016/17, compared to a multiple of 9 times 2014/15 profits.

I’m not sure why Norcros shares are so cheap. Despite its heavy exposure to the UK housing market, Norcros looks good value to me.

The post Are Imperial Brands plc, FirstGroup plc & Norcros plc a buy in today’s uncertain market? 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. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.