A long history and growth opportunities

The company can trace its origins to 1871, which makes me believe it’s found something to earn its living from with staying power. And it’s been listed on the FTSE AIM market since 1995. I’ve had a scoot around the firm’s website and listened to the chief executive being interviewed. Result is, I’ve come away with the feeling that the three divisions have traction in their markets, and the whole enterprise seems well managed. The common thread linking each division is the firm stores then delivers stuff with lorries, which means it can apply its expertise across each of its three markets.

The directors are focused on building up the business both organically and via selective acquisitions. In the fuel sector, for example, the company sees a fragmented market, which it’s working to consolidate with an acquisition and integration policy. Then in the animal feeds division, NWF does more than just transport the feeds to farms and customers around the country. It also mills and manufactures the product and works with its customers to offer advice. I think a distribution-plus-benefits service like that will make the company an important partner to those purchasing the products, which should work to ensure solid repeat custom, adding to NWF’s defensive credentials.

Encouraging results

I find today’s half-year results report encouraging. Revenue rose 11.7% compared to the equivalent period the previous year and adjusted, diluted earnings per share moved 5.6% higher. The net debt figure fell more than 9.2% to £14.8m, suggesting strong real cash earnings over the period. The interim dividend held firm, which is normal because the company usually increases the final dividend at the time of the full-year results.

The revenue growth came from “increased activity in Food and Feeds and higher commodity prices.” Profits rose in the food division because of pre-planned efficiency improvements, and the firm acquired Midland Fuel Oil Supplies within its fuel division in December.

Meanwhile, the headline operating profit in Fuels slipped a bit because the warm summer reduced demand for heating oil. Operating profit rose a bit in Food because of a strong recovery “as planned,” and due to new business won. In Feeds, operating profit shot up as much as 75% because of strong demand in the summer “when grazing conditions were poor,” and because of the investment the firm made in its Feed operations in prior years.

A pleasing long-term trend

So, it’s up a bit and down a bit for profits in individual accounting periods. But the long-term trend appears to be up, driven by the firm’s efforts to grow the business and to plough money back into developing it.

I see the stock as a tempting long-term ‘hold’ and, at today’s share price close to 175p, the forward-looking earnings multiple for the trading year to May 2020 is just below 12, and the anticipated dividend yield is a shade below 4%.

The post Why I’m tempted to load up with this growing company’s dividend-paying shares 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.

Why is this popular utility stock underperforming the market? One reason may be that the shares got a little overheated. National Grid’s share price topped out at more than 1,200p in June 2016, and reached 1,150p in 2017. In my view this was a little too high, as it pushed the dividend yield down to around 4%.

As the FTSE 100 average yield was about 4% at that time, it made more sense to buy the index than to buy an individual stock.

Falling earnings forecasts

A bigger concern is that earnings forecasts have been falling steadily. One year ago, broker consensus forecasts suggested that the group would report adjusted earnings of 69.7p per share for the 2018/19 financial year. That forecast has now fallen by 17% to 57.6p.

Interestingly, these earnings downgrades mirror the fall in National Grid’s share price over the last year. This means that the valuation of the stock is pretty much unchanged, based on the price/earnings ratio. One year ago, the 2019 forecast P/E of 14.7. Today, the equivalent figure is 14.4.

What has changed is the stock’s dividend yield. Although dividend forecasts have dropped, the change hasn’t been so great. As a result, the utility giant’s shares now offer a forecast yield of 5.6%, compared to 4.8% one year ago.

Buy, hold or sell?

My main concern here is that earnings could continue to fall. However, that’s not expected to happen. The latest guidance from the firm suggests that we should see profit growth of “at least 7% in the near term” and of 5%-7% annually over the medium term.

A dividend yield of 5%-6% looks about right to me for a long-term income stock like this. I’d rate National Grid as a buy at current levels.

A better alternative?

If you’re looking for a smaller energy-related stock with more growth potential, one company that might be of interest is NWF Group (LSE: NWF).

This £100m firm supplies heating oil, agricultural feed and groceries through a network of specialist businesses. The share price rose by more than 5% on Thursday when the group announced that profits for the year ended 31 May would be “significantly ahead of current market expectations”.

Cold winter warms profits

Management said that “extended cold winter conditions” boosted profits from its fuel division, which supplies heating oil. I know from personal experience that prices rose sharply during the cold spell. Suppliers like NWF were inundated with orders and were often booked up several weeks ahead.

This boost may not be repeated in 2018/19, but improvements in the group’s Feed division are said to result from planned investments as well as improved conditions in the dairy market. I expect some of these gains to be sustained next year.

Strong momentum

NWF shares have risen by nearly 30% so far this year. After today’s news, I estimate that the stock now trades on about 13.5 times 2018/19 earnings, with a prospective yield of about 3.1%.

Further growth is expected during the year ahead. I continue to rate this well-run firm as a buy.

The post National Grid share price: why is it underperforming the FTSE 100? appeared first on The Twelfth Magpie.

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Roland Head owns shares of NWF Group. 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.

However, it looks as if the firm is finally starting to turn things around. Even though City analysts are forecasting no growth for the group this year, according to a trading update issued by the firm today, earnings are currently “ahead of the prior year,” which indicates that the City’s forecasts are now out of date. 

Pushing ahead

2017 has been somewhat of a turnaround year for NWF. The bulk of the company’s profits are linked to the UK dairy industry, which has been struggling in recent years thanks to low-cost overseas imports. A stronger milk market is helping the group make a comeback. Today management noted that “benefits of previous capital investment being delivered, alongside a recovering dairy market due to higher milk prices” is helping its feeds division that supplies close to 5,000 dairy farms. 

A dairy industry recovery should help NWF return to growth in the years ahead. For the past few years, management has been preparing for this turnaround, investing in the businesses asset base to expand its offering. Over the next few years, this investment should pay off.

Indeed, one group of City analysts believes that NWF’s normalised earnings per share could rise by 61% by 2019 as the combination of an improving market and better customer offering starts to boost the firm. Based on these figures, shares in the company are currently trading at a forward P/E of 10.9, which seems to me to be too cheap compared to the growth on offer here. The shares also support a dividend yield of 3.9%. 

Services in demand 

Another stock that I believe can help you make a million is equity investment manager Impax Asset Management (LSE: IPX). 

Over the past five years, as the demand for private equity products has surged, Impax’s earnings per share have more than doubled and analysts are projecting further growth next year.

For the fiscal year ending 30 September 2018, Impax’s earnings per share are expected to expand by 25% to 8.1p and the dividend is set to rise 20% to 3.5p. Based on these forecasts, the shares are trading with a yield of 2.2% and forward P/E of 19.4. 

So why do I believe that Impax is still a good buy? Well, the company has really proven itself over the past few years. Asset managers only succeed if they can attract investors, and the firm has proven itself to be highly adept at this. Assets under management increased by 61% to a peak of £7.3bn for fiscal 2017, rising to £7.6bn one month after year-end. To help complement growth, management recently negotiated the acquisition of Pax World Management, which is set to complete in the first quarter of 2018. 

If Impax can continue to impress investors, then I believe that there’s no reason why the group cannot continue to grow earnings at a double-digit percentage.

The post 2 shares to help you to make a million? 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.

With a market cap just north of £70m and a business model covering everything from providing farmers with food stock, delivering fuel to petrol stations, and providing grocers with ambient warehousing, its little surprise that NWF Group (LSE: NWF) is relatively unknown to most investors. However, as its shares trade on just 11 times trailing earnings and offer a respectable 4% dividend yield, I reckon this small-cap is well worth taking a closer look at.

The company is a bit of a classic conglomerate of yesteryear with its focus on so many disparate business lines that all have little overlap. And while many City analysts would rightly find flaws with this business model it has worked wonders for NWF by diversifying and smoothing out the lumpy profits that come from the feed and fuels business, which are highly dependent on commodity prices.  

Indeed, in the year to May the group was able to achieve record earnings despite operating profits from the core feeds business falling from £2.1m to £1.5m year-on-year (y/y) due to rising commodity prices impacting margins. The food business, which provides warehousing for grocers, recorded another year of enviably dependable profitability with operating profits rising from £2.7m to £3m y/y as capacity was maintained at record levels. Finally, the fuels business benefitted from increased volumes shipped from its depots and raised operating profits from £3.9m to £4.5m.

Now, it must be said that these businesses all have very low margins with group underlying operating margins just 1.6% last year. This provides little room for error, but NWF’s management team has proved adept at growing the business even through tough trading conditions by acquiring smaller competitors. And with cash flow safely covering last year’s dividend payouts several times over and net debt just one times EBITDA, income investors who aren’t afraid of a little volatility may find NWF an appealing long-term holding.

Selling Britain abroad 

A second small-cap income stock worth looking at is porcelain maker Portmeirion (LSE: PMP), which offers shareholders a 3.4% dividend yield and is valued at 14 times forward earnings. Since listing in 1988, the group has never had to cut its dividend thanks to a management team that has successfully sought out overseas markets that demand the quintessentially British porcelain it can produce.

Growth in overseas markets and continuous small acquisitions have proven a winning combination for Portmeirion with revenue up 16% y/y in H1. That said, it did run into some problems last year as lapping a tough comparative period in India and falling demand for luxury products in South Korea dented sales growth. Still, despite problems in these two large markets, total revenue increased 11.7% y/y due to an acquisition and growth in more developed markets.

There is still plenty of room for expansion through acquisition to complement organic growth as the company had net debt of just £2.4m at year-end, compared to operations that generated £8.7m in cash. With decent cash flow, high growth potential and very safe dividend payments, I believe Portmeirion could be a hidden gem for income and growth investors alike.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Portmeirion Group. 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.

Former FTSE 100 member Serco Group (LSE: SRP) is a good example. It announced a £1.5bn contract this morning to run what will become Australia’s largest prison. Operations won’t start until 2020, but this 20-year contract is the kind of long-term deal that chief executive Rupert Soames hopes will attract investors.

Mr Soames has done a good job of stabilising the business and Serco’s latest results showed an improvement in underlying earnings and revenue. But the group’s profit margins remain very much lower than they used to be. In 2012, the company reported an adjusted operating margin of 6.4% on turnover of £4.9bn. Last year, the equivalent figures were 2.7% and £3bn. Adjusted operating profit has fallen from £314.8m in 2012 to just £82.1m last year.

The company is expected to achieve adjusted earnings of 2.7p per share in 2017, rising by 33% to 3.5p per share in 2018. But even using next year’s earnings, the shares still have a hefty forecast P/E of 33 and a prospective dividend yield of just 0.4%.

If Serco can rebuild its profit margins, then earnings could rise rapidly and the stock could look cheap at current levels. But the outsourcing sector is under a lot of cost pressure at the moment. The firm’s guidance suggests to me that it could be several years before margins improve.

Although I believe Serco does have the potential to deliver a strong recovery, I think this may take longer than expected. I’m not convinced the shares are a compelling buy today.

A contrarian buy?

Small-cap stocks aren’t always very closely followed by City analysts and fund managers. As a result, they can sometimes offer much greater value for investors who are willing to do their own research.

One potential value pick that’s appeared on my radar is agricultural feed and fuel supplier NWF Group (LSE: NWF). This business has grown steadily over the years by buying independent local firms and combining them into a larger group, with significant cost savings.

However, demand for the firm’s products fluctuates depending on weather conditions and commodity prices. It’s also a very low-margin business, with a five-year average operating margin of about 1.5%.

NWF had a slow start to last year, and the shares have fallen by 23% so far in 2017. However, today’s year-end trading update confirms that trading conditions have improved as the year progressed. Results for the year ended 31 May 2017 are expected to be in line with market expectations.

That leaves the stock looking fairly cheap, on a forecast P/E of 9.9 and with a prospective yield of 4.4%. Although the group’s growth prospects are probably limited, today’s update confirms that infrastructure upgrades last year have now been completed and may help to provide incremental growth opportunities.

Last year saw heavy investment, which has limited the group’s ability to generate free cash flow. But historically NWF has been strongly cash generative and operated with low levels of debt. This could be a good, cheap income stock to tuck away for long-term gains.

The post This promising turnaround stock could help fund your retirement 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.

Including one-off items, which in this case included a £3.7m loss on the company’s defined pension scheme, total income for the period fell from £2.1m in the year-ago period to -£2.1m. Fully diluted earnings per share slumped 27.6% to 2.1p, from 2.9p in the year-ago period. 

In addition to NWF’s earnings collapse, the group also reported a near doubling of net debt from £10.4m to £19.1m. Net debt to earnings before interest, tax, depreciation and amortisation rose from 0.8x to 1.6x. 

Top line growth 

Despite earnings coming under pressure, NWF reported a 14% rise in revenues for the period. Revenues increased from £224.6m to £255.9m as all three of NWF’s feeds, food and fuels divisions registered growth. Growth was driven by contributions from acquisitions, higher activity levels, and by increased commodity prices in its feeds and fuels units. 

However, low milk prices hit summer trading volumes in the group’s feeds division, while its fuels arm was bruised by a downturn in heating oil demand in the summer. Both of these uncontrollable factors dented margins. 

The good new is that even though margins have come under pressure NWF’s management believes the company is still on track to hit full-year figures. For the full-year, City analysts have pencilled in earnings per share of 13.4p, down 2% year-on-year and revenues of £487m, up from £466m last year. For the fiscal year ending 31 May 2018 analysts are expecting the group to return to growth with earnings per share growth of 5% projected. Based on these estimates share in NWF are currently trading at a 2018 forward P/E of 12.4. 

A warning to investors

While NWF has blamed the last half’s poor performance on factors out of its control, the figures send a worrying warning to investors. NWF is a low margin business and any unforeseen headwinds could have a significant impact on the company.

This year, NWF is on track to chalk up a pre-tax profit margin of 1.7% indicating that after tax the margin could be as low as 1.4%.  With almost no margin for error, the company’s shares look expensive, as they currently trade at a forward P/E of 13. 

On the other hand, NWF’s peer Anpario (LSE: ANP) looks more appropriately priced. 

Animal feed producer Anpario’s growth has exploded in recent years. Pre-tax profit has risen 150% since 2012 and analysts are expecting further pre-tax profit growth of 25% by 2018. Investors have placed a premium on the company’s shares thanks to this growth outlook, but based on the expected growth going forward, shares in Anpario still look attractive. 

City analysts have pencilled in earnings per share growth of around 10% per annum for the next few years. The shares currently trade at a forward P/E of 17.8 and unlike NWF, Anpario’s pre-tax margin is a healthy 17%. 

The bottom line 

NWF’s 30% profit slump shows that the company is not for the faint-hearted and the shares look expensive at current levels. As a result, peer Anpario may be a better buy. 

The post After income crashes by 30%, should you avoid NWF Group plc? appeared first on The Twelfth Magpie.

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Rupert Hargreaves 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.

Moneylender

Non-Standard Finance (LSE: NSF) is a sub-prime lender, only listed on the stock market in February 2015. Since then the shares have lost 39%, but they’re up 9% today to 66.7p after the release of first-half results.

The doorstep lender reported a normalised adjusted operating profit of £3.9m, compared to a £0.9m loss at the same stage last year. We still saw a reported loss per share of 1.67p, but that didn’t stop the company offering a maiden interim dividend of 0.3p per share. The firm’s loan book had risen to £146.8m by 30 June, including the effect of acquisitions.

Chairman John van Kuffeler said that “we remain on-track to achieve our targets of 20% annual loan book growth and a 20% return on assets in 2017.” The P/E drops to 10 on forecast 2017 earnings, so it could be a profitable punt if you’re happy investing in this kind of business.

Farming profits

NWF Group (LSE: NWF), a specialist agricultural and distribution business delivering feed, food and fuel, reported a 5.4% drop in first-half revenue today, to £465.9m, but got from that a headline pre-tax profit of £8.3m (up 2.5%) and headline earnings per share pf 13.6p (up 3%). Net debt in the period rose sharply, by 67.8% to £9.9m, though the agricultural and distribution firm did invest £10m “in development capital including three acquisitions.“

Chief executive Richard Whiting told us: “We continue to see opportunity for further strategic and operational progress and performance to date in the current financial year has been in line with our expectations.“

That suggests a modest full-year EPS fall close to the market forecast of 2%, putting the shares on a P/E of 12.4 and with a dividend of 3.6%. The shares were down 1% to 164p at the time of writing, and could well provide a steady long-term investment.

Financial services

Shares in StatPro Group (LSE: SOG) have soared by 44% since the middle of May, including a 7% hike today to 106p on the back of first-half figures. The “leading provider of portfolio analysis and asset pricing services for the global asset management industry” reported a 14% rise in revenue to £17.55m, with its StatPro Revolution service seeing a 64% revenue rise to £4.02m. Adjusted EBITDA is up 19% to £2.05m, leading to a 10% rise in adjusted earnings per share to 1.1p and an interim dividend of 0.85p per share.

Chief executive Justin Wheatley said: “Our strategy to convert our portfolio analytics and risk services to the cloud has secured us a significant technological lead in our market,” as the firm reported a 19% increase in its order book of contracted revenue to £44.13m.

After today’s price rise, StatPro shares are on a forward P/E of 37, dropping only to 29 based on 2017 forecasts, so we’re looking at a seriously demanding growth valuation for this £73m company — but it could be on the verge of great things.

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

Wide margin of safety

Certainly, BHP has an excellent track record of delivering improved productivity in its coal business, with the division having recorded $3bn in productivity gains in the last four years. Furthermore, BHP is targeting an additional $600m in productivity gains by the end of the 2017 financial year and this looks set to have a positive impact on its bottom line.

In fact, BHP is expected to increase its earnings by 179% in the next financial year and this puts its shares on a price-to-earnings growth (PEG) ratio of just 0.2. While volatility may be high and BHP remains a risky stock to own, its low valuation indicates that it has a sufficiently wide margin of safety for investors to buy for the long term.

Also reporting today was NWF Group (LSE: NWF), the specialist agricultural and distribution business, which announced that its performance in the year to 31 May was in-line with expectations. Notably, it made progress in terms of strategic development, with three acquisitions performing well following successful integration into NWF.

Well-diversified business

Although market conditions are challenging, NWF continues to invest for future growth and its cash generation remains strong. This has allowed it to conduct a major capital expenditure programme which could help to boost profitability in the long run.

With NWF expected to increase its earnings by 6% in the current year and its shares trading on a price-to-earnings (P/E) ratio of only 11.4, it seems to offer good value for money. Certainly, its financial performance could disappoint over the medium term, but with a wide margin of safety and a well diversified business NWF has a relatively appealing risk/reward ratio at the present time.

Meanwhile, shares in Futura Medical (LSE: FUM) have soared by 13% today after the release of its AGM statement. In a very positive update, Futura said that it is pleased with the recent progress in the commercialisation of its pipeline.

Clear potential for value generation

The company is preparing for the commercial launch of new products, as well as being in discussions with regulatory authorities regarding manufacturing sites. And with interest being received following Futura’s positive clinical data announced last year, it believes there is clear potential for value generation in this year and beyond.

Of course, Futura remains a relatively high risk play and with it due to remain loss-making in each of the next two years, its shares could fail to maintain today’s strong gains. As such, and while it has a bright long term future, it may only be of interest to less risk averse investors.

The post Do today’s updates from BHP Billiton plc, NWF Group plc and Futura Medical plc make them star buys? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of BHP Billiton. 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.

For example, it was late to the online ‘party’, with a number of other supermarkets having had an online presence for almost a decade before Morrisons rolled out its own offering in 2014. Furthermore, Morrisons was also late to launch its chain of convenience stores, with the sector already having becoming rather saturated in recent years as its peers took advantage of a gradual shift towards smaller, more frequent shopping trips by UK consumers.

Despite this, Morrisons now appears to have a much clearer strategy in terms of what it is seeking to achieve. It is no longer attempting to merely belatedly copy its rivals, but is instead seeking to go back to its roots in terms of offering good value products from local suppliers, many of which are owned by Morrisons itself. Although a relatively simple idea, this approach served Morrisons well in previous years and, looking ahead to next year, is expected to make a positive impact on the company’s bottom line alongside efficiencies and a focus on its core operations.

For example, Morrisons is due to post a rise in its earnings of 22% next year and, with its shares trading on a price to earnings (P/E) ratio of 15.4, this equates to a price to earnings growth (PEG) ratio of just 0.6. This indicates that its shares could deliver an upbeat performance in 2016 and, with the UK economic outlook continuing to be relatively strong, buying Morrisons now seems to be a sound move.

Of course, Morrisons is not the only stock which could be worth buying at the moment. For example, shares of  animal feed distributor NWF Group (LSE: NWF) have soared by 48% in 2015. Despite this, they still trade on a relatively low P/E of 13.7, although with only low-single digit earnings growth forecast for the next two years, NWF’s PEG ratio of 3.7 does not hold the same appeal as that of Morrisons.

Still, with NWF yielding 3.1% from a dividend covered 3.4 times by profit, it has considerable income appeal. However, with Morrisons yielding 3.7% from a dividend which is covered twice by profit, it remains the more appealing income option.

Similarly, Majestic Wine (LSE: MJW) could prove to be a sound purchase after a very challenging period which has seen the wine warehouse’s bottom line fall by 11% last year, with a further decline in earnings of 17% being forecast for the current year.

As a result of this, Majestic Wine’s share price has fallen by 19% since the turn of the year, although its rating remains rather high as evidenced by a P/E ratio of 19.1. With net profit forecast to rise by 20% next year, though, Majestic Wine has a PEG ratio of 0.95 and this indicates that there is capital gain potential on offer over the medium term. Furthermore, with dividends due to double next year, Majestic Wine could become an excellent income play, although with a forward yield of 2.6%, Morrisons remains a better income, value and growth play.

The post Can NWF Group plc And Majestic Wine PLC Beat WM Morison Supermarkets PLC In 2016? 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?
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Peter Stephens owns shares of Morrisons. The Motley Fool UK has recommended Majestic Wine. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.