However, it’s share price may now be dirt-cheap. It has a price-to-earnings (P/E) ratio of around 11, which is relatively low at a time when the FTSE 100 is trading close to a record high. As such, it could be worth buying alongside another stock that reported a positive update on Tuesday and which could offer excellent value for money.

Improving outlook

The company in question is Paragon Banking (LSE: PAG). It released an encouraging trading update ahead of its 30 September year end. It has performed in line with previous guidance while making progress on growing its retail deposit base. It now exceeds £5bn, and the performance suggests that it could grow further in the medium term.

The company’s buy-to-let pipeline at the end of the financial year is expected to be 25% above the level reported last year. This is set to support lending volumes into the next financial year. With around 90% of application flows coming from professional landlords, the prospects for the business may be more resilient than for some industry peers.

Looking ahead, Paragon is forecast to report a rise in earnings of 9% in the current year, followed by further growth of 14% next year. Despite this, it has a forward P/E ratio of around 11, which suggests that it offers a wide margin of safety. As such, now could be the perfect time to buy it for the long term.

Growth potential

Similarly, Saga’s share price performance could improve in future. Although the company’s performance in the current year is set to be below previous expectations, with its bottom line due to fall by 5%, the scale of the decline in its share price in recent months seems excessive. That’s especially the case when the business is forecast to report a rise in earnings of 2% in the next financial year.

With Saga having a dividend yield of around 7% from a payout which is covered 1.5 times by profit, its income investing prospects appear to be bright. They could attract investors to the stock, which could have a positive impact on its share price.

Ultimately, the company faces a period of change and uncertainty. Fundamentally, it appears to be sound, with a strong position in its core markets and a relatively loyal customer base. Therefore, for value investors who take a long-term view of their portfolios, it could be a worthwhile buy. It has the potential to return to its level from one year ago, although it may take a number of years for it to do so. In the meantime, its dividend yield could keep its returns relatively high.

The post Are you tempted by the 35% fall in the Saga share price? Here’s what you need to know appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Saga. 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.

An upbeat performance

Paragon Group of Companies (LSE: PAG) has delivered underlying operating profits for the quarter ending 31 December which show that it’s making encouraging progress. They were in line with management expectations and were supported by sound underlying trends in volumes, cost control, bad debts and margins.

Significantly, each of the company’s lending and investment entities generated quarter on quarter volume growth, with total originations and investments of £380.7m versus £254.4m in the previous quarter. This was despite a tightening on rules concerning buy-to-let, which saw lenders toughen up criteria ahead of the Prudential Regulation Authority’s (PRA) underwriting changes.

Difficult outlook

As mentioned, trading conditions for lenders could worsen. The affordability of debt may decline if inflation pushes higher and wage growth fails to at least match it. However, Paragon has a sound funding position and its capital ratios remain relatively high. For example, it has a core equity tier 1 (CET1) ratio of 16.1%, while free cash balances of £269m should be able to support future growth.

The company’s forecasts are somewhat mixed. In the current year it is forecast to record a rise in its bottom line of 3%, but then deliver earnings growth of 10% next year. While this compares unfavourably to the outlook for other lenders, such as Standard Chartered (LSE: STAN), Paragon has a far less demanding valuation. For example, Standard Chartered is expected to record a rise in its net profit of 137% this year, followed by 54% next year. However, its price-to-earnings (P/E) ratio of 19.9 is more than double Paragon’s rating of 9.8.

Share price potential

In terms of the scope for a 20% rise in Paragon’s share price, its valuation suggests this will not be particularly difficult to achieve. Its low P/E ratio is difficult to justify, given that it expects to post double-digit growth next year. Therefore, a rating of 12 would give a share price gain of 23%. This appears to be realistic target and would leave it with a price-to-earnings growth (PEG) ratio of only 1.2.

Of course, Standard Chartered’s PEG ratio of 0.2 indicates it has substantially greater share price potential than its lending peer. As such, it appears to offer a superior risk/reward ratio – especially in the long run as it takes advantage of its strong position in Asia to deliver high growth rates. However, I believe that Paragon remains a sound buy that’s financially strong and which has upside of over 20%.

The post Why I see 20%+ upside in this lender in 2017 appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Standard Chartered. 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.

Paragon’s revenue rise was accompanied by greater diversification. Non buy-to-let lending made up 29.5% of group lending versus just 11% in 2015. This shows that Paragon now offers a more stable income stream ahead of what could prove to be a challenging period for the buy-to-let industry. Tax rises and uncertainty surrounding Brexit could negatively impact on the sector, which makes Paragon’s earnings profile more appealing now that it is less reliant on buy-to-let.

Financially sound

Against a challenging backdrop, Paragon’s results are strong. Total completions and asset purchases increased to £1.65bn versus just under £1.5bn last year. Its earnings rose by 14.1% and underlying return on tangible equity improved to 13.2% versus 11.4% in 2015. This was as a result of profit growth and the company’s share buyback programme. On this topic, a further £50m share buyback programme will be undertaken.

Paragon’s core equity tier 1 (CET1) ratio of 15.9% and leverage ratio of 6.2% indicate that the lender is financially sound. Alongside its rising profitability, this provides it with the scope to raise dividends by 22.7% to 13.5p per share. This puts Paragon on a yield of 3.9% and with its dividend being covered 2.8 times by profit, there is potential for it to rise rapidly.

Certainly, Paragon has greater income appeal at the present time than Barclays. The latter yields just 1.4% following its decision to cut dividends in favour of strengthening its financial position. This makes sense for the long term and should create a more stable bank which has a lower risk profile.

Opportunity knocks

In this respect, at least, Barclays has more appeal than Paragon, since Paragon is in the midst of a transitional period, one that will see it move from being a non-bank that focuses on mortgages, to a retail-funded banking group. While this change brings with it great opportunity to win new customers and grow its bottom line, it also means that there are potential challenges and delays ahead.

Looking ahead, Paragon’s earnings are forecast to flat line in the current financial year. However, with a price-to-earnings (P/E) ratio of just 9.1, it has significant upward re-rating potential. This compares with Barclays’s expected growth rate of 58% next year. This puts Barclays on a forward P/E ratio of 10.9, which, while higher than Paragon’s P/E ratio, indicates that there is still a wide margin of safety on offer.

With Barclays having a lower risk profile, given Paragon’s transition towards being a bank during a highly uncertain period for the UK economy, Barclays appears to have the superior risk/reward ratio. Therefore, while Paragon could deliver significant capital gains in future, Barclays offers the greater investment appeal right now.

The post Will Paragon Group of Companies PLC beat Barclays PLC after reporting 9% revenue growth? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Barclays. 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.

Equiniti Group

Specialist technology outsourcer Equiniti Group (LSE: EQN) has had a good month, its share price rising nearly 15% in that time, and today’s half-year report has handed it a further lift. Revenue growth was a decent 5.9%, with organic revenue growth of 4.3%. It also reported 12% revenue growth from cross-selling and up-selling to its top 32 key accounts. Net debt has dropped from £471m to £261m, a fall of 44%, reducing company leveraging from 5.5 to 2.9. Acquisitions have been integrated well.

Equiniti’s profits have benefitted as it has signed longstanding contracts with many of the biggest firms in the country, giving it a broad base of revenue streams. As a share registrar it may benefit from the weaker pound, as this may attract further overseas buyers in the wake of the ARM Holdings deal. The company can perform well in troubled economic times, when many companies raise emergency cash through rights issues. Today, chief executive Guy Wakeley hailed a “strong top line and profit progression whilst reducing leverage.” Forecast earnings per share growth of 12% this year and 9% next, and a valuation of 12.48 times earnings, make the stock worth a look. Especially with the yield forecast to rise from 0.4% today to a more impressive 2.8%.

Paragon of virtue

Property firm Paragon Group of Companies (LSE: PAG) posted a 12.1% rise in underlying profits to £109.9m for the nine months to 30 June. That’ solid growth given that normal trading had been disrupted by the stamp duty surcharge on buy-to-let property purchases and by Brexit uncertainty. The referendum result could still swing a nasty surprise, although management said it’s too early to know for sure.

Despite the surcharge, buy-to-let lending for the nine months to 30 June rose 21.2% to £989.6m, although we might expect to see that slow in the future, as landlord caution grows. Paragon’s pipeline has dipped to £339m from £350.6m at the start of the quarter. It has protected itself with a disciplined approach to pricing and credit, hiking minimum affordability tests in January 2016 to reflect looming cuts to landlord tax relief. The buy-to-let market could be bumpy for some time, which is reflected in Paragon’s current valuation of 7.51 times earnings.

Get the power

Energy storage and clean-fuel company ITM Power (LSE: ITM) posted a full-year pre-tax loss of £4.36m this morning, a mild improvement on the £5.72m it lost a year ago, helped by a £300,000 increase in revenue to £1.93m. The £35.79m market cap minnow currently has a total pipeline of £16.32m, with £15.81m of projects under contract and a further £0.51m of contracts in the final stages of negotiation.

Markets responded positively, with the share price up more than 3% in the morning, helping continue the share price recovery of recent months. However, at today’s 16p, it’s still well below its 52-week high of 30p. Clean fuel should be a global growth area and ITM has struck a hydrogen fuel contract with Toyota and a strategic forecourt siting partnership with Shell. In May, ITM hit the headlines by launching London’s first HyFive hydrogen refuelling station and its two working power-to-gas reference plants in Germany are attracting global attention. But early stage technology like this is a risky power play for investors.

The post Have today’s results thrown up three hidden winners? appeared first on The Twelfth Magpie.

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

A key reason for this is Lloyds’ valuation. The part-nationalised bank has a price-to-earnings (P/E) ratio of just 8.8 and this indicates that an upward share price movement of even 50% isn’t unrealistic over the medium term. Clearly, investor sentiment in Lloyds is relatively weak at the present time, but with the bank having a sound strategy which has included making asset disposals, cutting costs and producing a more efficient operation, Lloyds has excellent growth potential.

Furthermore, its income prospects are also very bright. Lloyds has a yield of around 6.6% and although its dividends are perhaps less stable than those of some of its index peers, such a high yield indicates that Lloyds’ share price could move higher. That’s especially the case since interest rate rises are set to be slow and may cause dividend stocks to remain in vogue through the remainder of 2016.

Tough times ahead?

Also falling in value since the turn of the year have been shares in Paragon (LSE: PAG), with the buy-to-let specialist recording a decline of 14% year-to-date. Clearly, this is disappointing and a reason for this is likely to be concern surrounding the outlook for the buy-to-let market. With a 3% surcharge now in place for additional properties and the tax changes that will end mortgage interest relief for higher rate earners, buy-to-let could be at the beginning of a tough period.

Add to this the gradual rise in interest rates set to take place over the coming years and Paragon’s potential to gain 20% this year appears to be slim. So, while Paragon trades on a price-to-earnings-growth (PEG) ratio of just 0.7 and is a high quality business, its operating environment appears to be highly uncertain. Therefore, it may be best to watch rather than buy Paragon right now.

Meanwhile, Aberdeen Asset Management (LSE: AND) has had a rather volatile 2016 thus far. At one point its shares were down by as much as 27% as fears surrounding China took hold and hurt investor sentiment in the emerging markets specialist. However, after a stunning recovery in the last two months, Aberdeen is now up by 6% year-to-date.

Looking ahead, this recovery could continue. Part of the reason for that is Aberdeen’s high yield, which currently stands at 6.3%. As mentioned, high yields could remain popular this year and with Aberdeen having raised dividends on a per share basis in each of the last five years, it appears to be a sound income play. Plus, with investor sentiment towards the emerging world now stabilising, it would be of little surprise for Aberdeen to become more appealing to investors who are feeling more ‘risk-on’ than they were earlier this year.

The post Can Lloyds Banking Group PLC, Paragon Group Of Companies PLC And Aberdeen Asset Management plc Still Rise By 20%+ This Year? appeared first on The Twelfth Magpie.

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Legal & General Group

Life insurance leviathan Legal & General Group (LSE: LGEN) has led the FTSE 100 field following news of a gigantic North American deal, and the business was last 3.1% higher on Friday. The business announced an agreement with Royal Philips to provide the electrical giant’s US subsidiary with retirement payments under a group annuity contract. The deal will cover 14,000 retirees and other previous employees of Philips.

 The US has been identified as a key territory for Legal & General looking ahead, and today’s deal marks its entry into the pension risk transfer market. And with the financial giant also making steady headway into other overseas markets, the City expects earnings growth of 14% and 7% in 2015 and 2016 respectively, creating very attractive P/E multiples of 12.9 times and 11.9 times. On top of this, projected yields of 5.4% for this year and 5.8% for 2016 will no doubt cheer income hunters.

Paragon Group of Companies

But Legal & General is not the only FTSE play lighting up the boards in end-of-week trade, and diversified finance provider Paragon Group of Companies (LSE: PAG) was recently chugging 10.6% higher from Thursday’s close. The Solihull firm advised it had bought Five Arrows Leasing Group from Rothschild & Co. for $117m, a provider of equipment, vehicle and construction equipment financing, as well as lease servicing.

The City expects Paragon Group of Companies to have enjoyed earnings expansion of 9% for the year ending September 2015, resulting in a P/E multiple of just 11.9 times. And this reading falls to a splendid 10.3 times for fiscal 2016 as strong market conditions — particularly in the buy-to-let market — create a 15% bottom-line bounce. The finance house’s bubbly outlook is expected to keep driving dividends confidently higher, too, pushing a yield of 2.7% for the outgoing year to a very decent 3.2% for the current period.

Treatt

Industrial chemicals producer Treatt (LSE: TET) — which provides ingredients for the food and fragrance sectors — also enjoyed a bump in Friday’s session and was last 1.9% higher. Investors cheered the firm’s latest trading update which revealed that Treatt had “performed well in the second half of the financial year,” meaning that revenues and profits for the 12 months to September 2015 should meet management’s expectations.

And with demand for speciality foods and beverages heading steadily higher — and especially in the craft beer segment — the number crunchers expect Treatt to deliver delicious returns in the years ahead. Earnings are expected have risen 7% in fiscal 2015, and an extra 8% rise is forecast for 2016, pushing a P/E reading of 15.3 times to just 14.1 times for the current period. And dividend yields of 2.7% for 2015 and 2.9% for 2016 sweeten the firm’s attractive investment case, in my opinion.

SDL

Information management specialist SDL (LSE: SDL) also rose nicely in the final trading session of the week and was last 9.7% higher from the previous close. The Bury St Edmunds business advised that founder and current chief executive Mark Lancaster will be stepping down at the end of the month. It added that “trading for the full year remains in line with its expectations.“

Due to strength across the business — and particularly from its Language Services arm — SDL saw group revenues rise 4% in January-June, to £133.9m, it advised in August. And thanks to the firm’s robust pipeline, the City expects earnings to grow 28% and 24% in 2015 and 2016 respectively, resulting in very appealing P/E ratios of 16.9 times and 13.3 times. And a yield of 0.9% for 2015 and 1% for 2016 provides a handy-if-not-quite-astonishing bonus.

The post Should You Buy Legal & General Group Plc, Paragon Group of Companies PLC, Treatt plc And SDL plc Following Friday’s News? appeared first on The Twelfth Magpie.

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Royston Wild 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.