Patisserie Holdings News | The Twelfth Magpie

What should investors do about potential fraud at Patisserie Valerie?

Alan Oscroft — Wed, 10 Oct 2018 11:00:08 +0000

I was shocked, as no doubt were many, by the admission on Wednesday morning of “significant, and potentially fraudulent, accounting irregularities and therefore a potential material mis-statement of the company’s accounts” from Patisserie Holdings (LSE: CAKE), the owner of the Patisserie Valerie café chain and other brands.

My only recent encounter was a cycling lunch stop at a Patisserie Valerie, which opened my eyes to the firm as an investment candidate. Actually, though their food was undoubtedly good, the first thing my eyes did after opening was water on seeing the prices — even £2.50 just for a bottle of soft drink that has a usual retail price of £1.

That experience made me understand my colleague Roland Head’s comments on the company’s “high profit margins and strong cash generation.” With the café packed, I could see how the cash was rolling in — and I do like to understand where a company’s profit is coming from, not just by reading the numbers in the accounts. I very much agreed with Roland’s assessment.

Accounting irregularities

But now, the company says that the potentially fraudulent accounting irregularities which were brought to its attention on Tuesday have “significantly impacted the company’s cash position and may lead to a material change in its overall financial position.”

The shares, traded on the Alternative Investment Market (AIM), have been suspended temporarily. But what does this tell investors, and what should we do?

It reminds me of my good fortune in once attending a lecture by Terry Smith, author of “Accounting for Growth“. That book lifted the lid on some of the accounting frauds that were taking place in the 80s and 90s, including the Polly Peck and British and Commonwealth collapses — both members of the FTSE 100 at the time.

Thankfully Mr Smith’s endeavours helped tighten the accounting rules governing the FTSE indices, but we’re still seeing “accounting irregularities” today. It’s only last year that we saw BT Group taking a £225m hit over its Italian accounting scandal, but the hardest market for us to get our heads around is AIM.

AIM risk

AIM has significantly less stringent accounting rules than the main London Stock Exchange indices, intended to help smaller companies get off the ground without facing the same expensive red tape as bigger and more established firms. I think that’s a valuable ambition, but I do firmly believe that trusting in its standards for investors wanting to avoid this kind of calamity carries significant risk.

A recent example is Quindell, which faced an accounting controversy and was forced to restate its accounts — turning claimed profits into losses. The company went on to rename itself Watchstone Group after selling most of its assets to Australia-based Slater & Gordon, but is still the subject of a Serious Fraud Office investigation (and legal action by Slater & Gordon).

Diversification

When accounting irregularities occur, shareholders are left carrying the can — when we buy a share of a company, we take on responsibility for that company’s actions and it can be very hard to get anything back should we suffer a loss through fraudulent practices.

My only answer is to diversify. Diversifying hedges you against all sorts of things that can go wrong with individual investments, not just possible fraudulent accounting. And I do hope any Patisserie Holdings investors reading this are well diversified.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Patisserie Holdings. 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.

Retire wealthy: Two stunning growth stocks that are absolutely smashing the FTSE 100

Roland Head — Wed, 19 Sep 2018 12:59:01 +0000

Investing in high quality growth stocks can be a powerful way to build retirement wealth.

The two stocks I’m looking at today have both delivered potentially life-changing gains for early investors, and are still growing fast.

My first company has risen in value by more than 2,900% since its flotation in 2002 and by 51% over the last year. In contrast, the FTSE 100 has risen by just 40% since 2002 and has remained flat over the last year.

The company in question is Accesso Technology Group (LSE: ACSO). This firm started out by producing queue management systems for theme parks, so that customers would not have to stand in line for hours on popular rides.

The product range has expanded and now includes systems used at ski resorts and ticketing solutions for sports events and concerts. Accesso is also developing wearable products for use in the healthcare sector, and expanding into the hotel business.

Still growing fast

Growth has been driven by a mix of organic expansion and acquisitions. Today’s half-year results suggest that the company’s momentum remains strong.

Sales rose by 16.7% to $54.4m during the six months to 31 March, while adjusted operating profit rose by 68% to $11m.

Admittedly, this profit figure is flattered by excluding all acquisition-related expenses and non-cash charges. But even if we include cash expenses relating to past acquisitions, my sums suggest underlying operating profit rose from 72% from $5.4m to $9.3m.

Too late to buy?

Accesso Technology’s share price of 2,650p puts the stock on a 2018 forecast price/earnings ratio of 47. It would be easy to view this market-leading business as fully-priced, but earnings are expected to rise by 34% over the next year, reducing the 2019 forecast P/E to 35.

I think further gains are possible. If I was a shareholder I would certainly sit tight after today’s results.

Simple done well

My next stock is a great example of how a simple concept, executed very well, can be a great investment.

Patisserie Holdings (LSE: CAKE) isn’t very high tech compared to Accesso Technology. But the company — which owns café group Patisserie Valerie — has grown from eight branches in 2006 to more than 200 today. Since its flotation in 2014, profits have doubled and the share price has risen by 125%.

High profit margins and strong cash generation mean that the group has funded this expansion without needing much debt. Indeed, Patisserie Holdings’ free cash flow is so strong that the group’s net cash balance has risen from £6.1m in 2015 to £28.8m at the end of March 2018, despite regular store openings.

Growth + income

I can see two opportunities here for investors. The first is that the expansion of the Patisserie Valerie chain will be complemented by another big success. The company already operates a number of other bakery brands, but could also branch out through acquisition.

The other possibility is that management will be content to focus on maximising the profitability of its existing business. As expansion slows, the amount of cash available for dividends should rise sharply. This could make the stock an attractive income option, rather like some pub stocks.

In either case, I think Patisserie Holdings looks fairly valued on a 2018 forecast P/E of 24, falling to a P/E of 22 for 2019. I’d hold at current levels, and buy on the dips.

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

Patisserie Holdings’ share price is smashing the returns from the FTSE 100

Edward Sheldon, CFA — Tue, 15 May 2018 13:15:32 +0000

If you’re looking for big returns from the stock market, it can pay to look outside the FTSE 100. Sure, the index has jumped 12% in the last six weeks or so, but over the long term, its performance hasn’t been breathtaking. It’s returned just 7.1% per year, on an annualised basis, for the five years to the end of April.

In contrast, plenty of high-quality small-cap stocks have generated returns considerably higher than that. Here’s a look at one such stock that’s significantly outperformed the FTSE 100 in recent years.

Affordable luxury

£441m market-cap Patisserie Holdings (LSE: CAKE) is a leading cafe and casual dining group offering cakes, pastries and meals from over 180 stores in the UK. It currently operates across five differentiated brands including Patisserie Valerie, Philpotts and Baker & Spice, essentially catering to those seeking affordable luxury.

Listing on the AIM market just under four years ago at an IPO price of 170p, CAKE shares have since surged 155%, easily outperforming the return from the FTSE 100 of 13% (not including dividends) over that period. Revenues and profits have grown strongly in that time, and the group has begun paying its shareholders a dividend. Can the stock continue to keep smashing the returns from the large-cap index going forward?

Half-year numbers

A glance at the group’s half-year numbers released today reveals that Patisserie has solid momentum across its business right now. For the half year to 31 March, group revenue climbed 9.1% to £60.5m and diluted earnings per share increased 13.2% to 8.92p. Sales from the company’s website rose an impressive 63% to £2.6m. Net cash on the books increased to £28.8m, up from £16.2m last year and the group hiked its interim dividend by a healthy 20% to 1.44p per share.

Executive Chairman Luke Johnson was upbeat about the results, commenting: “The group has delivered a strong set of results in a sector which has well-documented challenges. Our vertically integrated and flexible business model enables us to deliver consistent profits with our affordable treats remaining popular with our very diverse customer base.” He added that the firm remains focused on organic growth and with a strong balance sheet, continues to assess acquisition opportunities which will have a strategic and cultural fit.

Compelling investment thesis

Analysing the numbers, the outlook for CAKE shares looks good, in my opinion. Revenues and profits are trending up, cash flow is strong and dividends are rising. Furthermore, with a high current ratio, a low debt-to-equity ratio, and an attractive return on equity, it also meets three key must-haves that Warren Buffett looks for in a stock when investing.

The shares currently trade on a forward P/E of 23 and while that’s not an overly cheap valuation, I think it’s a fair price to pay for a ‘slice’ of this fast-growing niche business. I believe Patisserie Holdings shares have considerable long-term potential.

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Edward Sheldon has no position in Patisserie Holdings. The Motley Fool UK has recommended Patisserie Holdings. 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.

These small-cap growth stocks are crushing the FTSE 100

Paul Summers — Thu, 19 Apr 2018 10:45:19 +0000

For a lot of people, buying and holding a tracker or exchange-traded fund that follows the FTSE 100 index can make a great deal of sense. These passive vehicles allow you to earn the same return as the market — minus fees and a bit of tracking error — while getting on with life and more important matters. Over the last year, this return has been 3%, ignoring dividends.

For those with time on their hands and a desire for better returns however, it pays to look further down the market spectrum for those companies that have shown an ability to outperform the market’s top tier. Here are just two examples, one of which reported to investors this morning.

Encouraging end to the year

Shares in small-cap industrial fastenings manufacturer Trifast (LSE: TRI) have performed well over the past 12 months, rising 23% and thus vastly outperforming the index housing the UK’s biggest companies. Although no actual numbers were given, today’s trading update for the full year to the end of March suggests this momentum should continue.

With the exception of the US, all of Trifast’s main geographies delivered profit growth over the financial year. Indeed, underlying pre-tax profit is now expected to be “slightly ahead” of previous expectations thanks to what the company labels as an “encouraging” end to the financial year. Organic revenue growth was seen in all of the regions in which the company operates.

Looking ahead, Trifast’s future earnings are likely to be enhanced by this month’s acquisition of Precision Technology Supplies — a UK supplier and distributor of stainless steel fastenings. This purchase was made in response to what the company perceives as “growing demand” from a number of its customers looking for “fully recyclable, high strength and corrosion-resistant” fastening solutions. Despite also increasing investment in its facilities over the last year (with more due in 2018/19), Trifast’s balance sheet remains strong.

Although management wished to emphasise that some macroeconomic factors (such as foreign currency movements and the impact of Brexit) could not be fully mitigated, I’m inclined to think that a price-to-earnings (P/E) ratio of 20 feels just about reasonable given Trifast’s solid growth credentials.

Big gainer

Another small-cap that’s been performing well recently has been cafe and casual dining group Patisserie Holdings (LSE: CAKE). Indeed, the stock is up almost 40% since I last looked at it back in November following an encouraging set of full-year results.

To recap, revenue and pre-tax profit rose 9.7% (to £114.2m) and 17.1% (to £20.2m) respectively in the 12 months to the end of September last year.

A total of 20 new stores were opened, all of which were funded with operating cash flows. According to Executive Chairman Luke Johnson, many of these were already performing “ahead of expectations” at results time. The signing of a supply-only agreement with supermarket giant Sainsbury’s was another interesting development, helping to further raise the company’s profile among shoppers.

Results for the full year are due mid-May. While some may use this as an opportunity to take profits, I’d be inclined to stick with the shares a while longer. While the impact of reduced consumer confidence can’t be ignored, Patisserie’s strong management, excellent financial position (£21.5m net cash back in November) and growth prospects suggests its best days still lie ahead.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Patisserie Holdings. 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 I’ve bought this small-cap growth stock for 2018

Roland Head — Mon, 08 Jan 2018 14:00:58 +0000

In today’s article I’m going to look at one growth stock I’ve bought recently, plus another I’ve decided to avoid.

A sweet choice?

Patisserie Valerie has become a popular presence on many high streets and in shopping centres. Investors in the company behind this successful rollout, Patisserie Holdings (LSE: CAKE), have seen the value of their shares double since July 2014.

The group’s new stores had an average payback period of just 23 months last year. This rapid payback means that the group has been able to fund its 200-store rollout without borrowing cash. Indeed, net cash rose to £21.5m last year, providing support for a 20% dividend increase.

Is it too late to get on board?

Last year’s financial performance was extremely strong. Pre-tax profit rose by 17% to £20.2m, while the group’s operating margin of 17.6% and return on capital employed (ROCE) of 21.5% highlighted the appeal of this business for investors.

The group plans to open a further 20 stores this year and I’m confident that it’s likely to remain successful, profitable and popular. But I do have some reservations about investing at current levels.

The firm’s earnings per share have risen by an average of 28% each year since 2012. But this key profit figure is only expected to rise by 13% to 18.4p per share during the current year, and by 8% next year.

One reason for this slower growth may be that as the group’s store estate expands, opening new stores has a smaller percentage impact on profits. I’m pleased that management isn’t trying to compensate for this by speeding up store openings, but I’m not sure that the current valuation justifies a forecast P/E of 21.

I’d be interested in these shares at around 300p. But at more than 400p, the price is too high for me today.

One stock I’ve bought

Pawnbroking and personal loan firm H&T Group (LSE: HAT) is the UK’s largest such firm. It’s essentially a kind of banking business, lending against portable assets and providing loans to the sub-prime market.

Shares in the firm rose by 4% today after management said that profits for the full year should be “ahead of current market expectations”. The Sutton-based firm enjoyed a strong fourth quarter, thanks to a good retail performance in the run-up to Christmas.

The pawnbroking business also benefitted from the rising price of gold and a focus on quality watches. These factors helped lift the overall value of the pledge book by 11% to £46.1m last year.

Value and growth

I added this stock to my portfolio shortly after I wrote about it last November. While my timing wasn’t perfect, I’m fairly confident I’ll see a positive return on this investment. Today’s update suggests to me that the group’s three-pronged strategy of pawnbroking, retail and loans is working very well.

Even after today’s gains, these shares continue to trade on a forecast P/E of about 12. With a well-covered yield of 3.2%, I believe this valuation could be an attractive entry point.

Although the firm is exposed to the price of gold and to future regulatory changes, I believe strong management and the group’s large market share should help to mitigate these concerns. The shares remain a ‘buy’, in my view.

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Roland Head owns shares of H&T Group. The Motley Fool UK has recommended Patisserie Holdings. 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.

This small-cap growth stock could be a millionaire-maker in 2018

Peter Stephens — Fri, 05 Jan 2018 13:17:13 +0000

Finding the best opportunities to boost your portfolio returns can be tough. After a Bull Run that has seen the FTSE 100 more than double within the last nine years, it is arguably now more difficult than ever. Indeed, a number of larger companies appear to be relatively overvalued and this may prompt a period of disappointing share price performance.

As such, it may be worth considering smaller stocks. While they may be riskier than their large-cap peers and lack diversity, they may also deliver higher rewards over the long run.

Investment potential

Reporting on Friday was UK-based online retailer of musical instruments and music equipment Gear4music (LSE: G4M). The company’s four months to the end of 2017 were relatively positive, with UK sales increasing by 25% versus the same period of the prior year. Outside of the UK, the company’s sales grew by 69%. This means that revenue was 42% up on a group basis, which suggests that the strategy employed by the business has been successful.

This impressive period follows a strong first half of the year, where 44% sales growth was achieved. Active customer numbers increased by 38% while website conversion was up to 3.3% from 3% in the prior year. These figures indicate that further growth could be ahead for the business.

Looking ahead, Gear4music is forecast to post a rise in its bottom line of 31% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 1.9, which suggests that it offers good value for money at the present time. With the business being diverse and having the potential to offer sustainable double-digit growth in the long run, now could be the perfect time to buy it.

Strong momentum

Also offering an impressive outlook at the present time is Patisserie Holdings (LSE: CAKE). The café operator has been able to grow its bottom line by 20% and 19% respectively over the last two years. This is despite a somewhat uncertain outlook for the UK economy, where consumer confidence has declined.

Looking ahead, trading conditions could remain tough for the business. Inflation has moved ahead of wage growth, and this means that consumers have less disposable income available in real terms. This could negatively impact on sales growth, while higher inflation may cause input costs to rise at a faster pace than they have done in recent years. The effect of this could be a squeeze on the wider consumer goods sector.

However, with Patisserie Holdings forecast to post a rise in its bottom line of 12% in the current year, it appears to offer strong growth potential. Its PEG ratio of 1.6 indicates that it could deliver capital growth over the medium term. And with a solid growth strategy, the business looks set to continue its expansion in the coming years. As such, now could be an opportune moment to buy it.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Patisserie Holdings. 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.

1 FTSE 100 growth stock I’d buy today

Royston Wild — Sat, 23 Dec 2017 14:16:07 +0000

2017 been a year to remember for Schroders (LSE: SDR), its share price having leapt 17% since the start of January and seeing it take out the record levels set way back in mid-2015.

The financial asset manager’s all-time high now stands at £35.27 per share, set just before Christmas, and I can easily see it continuing to surge in the new year.

Business keeps on tearing higher at Schroders, the FTSE 100 giant reporting a 9% uptick in assets under management and administration during January-September, to £430bn. And I am confident that expansion into hot growth territories should keep inflows moving northwards.

City analysts share my bullish take, and they expect Schroders’ long-running growth story to continue, with bottom line rises of 11% and 6% pencilled in for 2017 and 2018.

What’s more, there is plenty for income chasers to get their teeth into over at Schroders. The business has lifted dividends by 116% over the past five years, and with earnings predicted to keep sprinting and the firm boasting a robust balance sheet, dividends are expected to jump from 93p in 2016 to 104.1p this year and 110.5p in 2018.

As a consequence yields clock in a healthy 3.1% and 3.2% for 2017 and 2018 respectively.

Despite its rapid share price ascent Schroders can still be picked up on an undemanding prospective P/E ratio of 16.8 times and a corresponding PEG reading of 1.5. I reckon this is a steal given the company’s impressive momentum.

Take a bite

I reckon those seeking delicious earnings growth should also give Patisserie Holdings (LSE: CAKE) a close look today.

Thanks to its ongoing expansion programme (it opened 20 new stores in the year to September, taking the total to just shy of 200) the AIM-quoted firm saw revenues shoot 9.7% higher in the period, to £114.2m.

Patisserie Holdings aims to open a similar number of stores in the current fiscal period, a drive that is seeing it look beyond the borders of England to generate sales growth. The company opened two new stores in the Republic of Ireland last year, two in Scotland and one in Northern Ireland.

But rampant sales growth is only one side of the story as, thanks to its tight grip on costs, Patisserie Holdings is also managing to deal with an environment of rising labour and ingredient costs. As a consequence the business saw pre-tax profit explode 17.1% last year to £20.2m.

So City analysts are expecting the Birmingham business to keep doling out bright double-digit earnings growth, and they are forecasting a 12% earnings improvement in the year to September 2018.

While a subsequent forward P/E ratio of 20 times may look a tad toppy on paper, a corresponding PEG readout of 1.7 can hardly be considered unreasonable.

What’s more, Patisserie Holdings is also giving the impression of being a future cash cow given the rate at which it is raising dividends. The business hiked the full-year dividend 19.8% in fiscal 2017, to 2.4p, and another hefty hike — to 4.1p — is forecast for the present period. As a consequence investors can also enjoy a handy 1.1% yield.

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

Time to take profit on this top growth stock?

Paul Summers — Wed, 22 Nov 2017 12:42:11 +0000

Having rocketed 80% in value over the past year before today, few investors in global food and drink concessions operator SSP Group (LSE: SSPG) are likely to be grumbling right now. But does a sky-high valuation suggest that some profit should now be taken? Let’s check this morning’s full-year numbers.

Flying high…for now

In the year to the end of September, revenue climbed 11.7% to £2.38bn (once foreign exchange fluctuations are taken into account) with a 3.1% rise in like-for-like sales the result of growth in air passenger travel and what the company labels as “retailing initiatives“. The latter percentage, when combined with operational improvements and new openings in North America and Asia, allowed SSP to record a stonking 27% jump in operating profit (to just under £163m) over the period. Underlying pre-tax profit soared 38.3% to almost £149m.

While economic uncertainties have led the Upper Crust and Ritazza owner to speculate that revenue will slow in 2018, it also revealed that the new financial year had started in line with expectations. Although its bi-annual payouts to shareholders remain low relative to some companies on the market, today’s final dividend of 4.9p brings the full-year payout to 8.1p — a 50% increase on that returned to investors last year. A further bonus was the announcement of a proposed £100m special dividend in the near future.

With figures like these, it’s really no shock that SSP’s share price rose over 7% in early trading. Factor-in the company’s rising returns on capital employed, excellent free cashflow and captive audience and you begin to understand why investors continue to clamour for the stock.

Nevertheless, with a valuation of 29 times earnings for the next financial year, I’d say a lot of good news is now firmly priced-in. Indeed, with a price-to-earnings growth (PEG) ratio of over 3 for 2018/19 (with anything below 1 indicating good value) and a market cap approaching £3bn, I’m beginning to question how recent share price performance can be sustained.

All told, I wouldn’t blame those with short investing horizons for realising some of their gains sooner rather than later.

A tempting alternative

Those looking for exposure to the general industry in which SSP operates but unwilling to pay up for its stock may be more tempted by cake-specialist and casual dining operator Patisserie Holdings (LSE: CAKE).

After what feels like an exceptionally quiet period in terms of news, many existing holders will be eagerly looking forward to full-year results from the £310m cap, particularly after May’s interim numbers revealed an 11% rise in revenue and 16% increase in pre-tax profit. Back then, Executive Chairman Luke Johnson declared he was confident in being able to deliver “a successful second half of the year“. By next Monday, we’ll know whether this was achieved.

Even if the recent rise in inflation and reduction in consumer spending (not to mention Brexit-related nervousness) has impacted negatively on trading, I’d still be tempted by the stock. While not screamingly cheap, Patisserie — trading at 17 times expected earnings for the next financial year — is significantly less expensive than SSP Group. Returns on sales and capital employed are also far higher at the debt-free Birmingham-based business.

While making an investment around results time is a risky strategy, I think any price weakness could be a great opportunity for new investors to take a position.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of SSP Group. The Motley Fool UK has recommended Patisserie Holdings. 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.

One growth share I’d buy over Purplebricks Group plc right now

Royston Wild — Sat, 19 Aug 2017 08:30:24 +0000

It is unsurprising that Purplebricks Group’s (LSE: PURP) share price has gone gangbusters since its IPO back in late 2015. The online estate agency’s share price has almost quadrupled since then as its low-cost model has proved extremely popular with property sellers tired of being ripped off by traditional operators.

I am becoming concerned, however, that the company’s stock value is looking a little hot right now. And because of this, I would be far happier to plough my investment cash into cake-and-coffee colossus Patisserie Holdings (LSE: CAKE).

The Patisserie Valerie owner defied tough trading conditions to post an 11% revenues advance between October and March, to £55.5m, a result that powered pre-tax profit 15.7% higher to £9.7m.

The pastry powerhouse’s flagship chain led the charge, and sales here exploded 15.7% during the first half, to £40.4m. And the company is engaged in an aggressive expansion scheme to keep the tills glowing red — it is aiming to open 20 new stores each year, and took its first step into international in May by opening a cafe in Blanchardstown, in the Republic of Ireland.

News has been thin on the ground since the company’s last release in May, and its shares have failed to make significant progress in the subsequent weeks. However, I reckon the market is missing a trick here, particularly as it advised back then that “performance in the six weeks after the period end has been good with a strong Easter period.”

Pukka projections

City brokers share my optimistic take and current forecasts suggest that it will keep its recent run of double-digit earnings expansion going with a 16% rise in the year to September 2017.

And the number crunchers expect the cake maker to remain a hot growth star for some time yet, a further 15% rise anticipated for fiscal 2018. This estimate may leave the Birmingham business dealing on a slightly-toppy P/E ratio of 19.6 times, although a PEG readout of 1.2 times suggests that Patisserie Holdings is actually nicely priced in relation to its expected growth trajectory.

Hit the bricks

In sharp contrast to Patisserie Holding’s great growth forecasts, City brokers expect Purplebricks to remain in the red for the year to April 2018, with losses of 4.2p per share currently forecast. The online estate agent is predicted to become earnings generative next year, however, and earnings of 1.7p are predicted.

Although a step in the right direction, this estimate creates a hulking P/E multiple of 256.5 times. Sure, the company continues to grab business from its rivals at a terrific rate with a market share of 4% of all UK ‘subject to contract’ listings, according to UBS, taking it past industry giant Countrywide. But I reckon this huge reading leaves it in danger of a colossal correction should the housing market show signs of cooling in the months ahead.

On top of this, Purplebricks’ meaty premiums reflect hopes that the firm’s fledgling operations in Australia and upcoming launch in the US will make the same stunning progress as at home, something that is far from guaranteed in my opinion. I reckon share investors should probably park their interest in the estate agent, at least for the time being.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Patisserie Holdings. 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.

2 hot growth stocks with stunning potential

Royston Wild — Wed, 17 May 2017 13:38:58 +0000

Patisserie Holdings (LSE: CAKE) has bounced higher in Wednesday trade following the release of bubbly full-year financials.

The baking beauty was last 4% higher from last night’s close and just off 11-month highs around 340p per share. And I fully expect it to rise to fresh peaks sooner rather than later.

The Birmingham business advised that revenues grew 11% between October and March, to £55.5m, a result that powered pre-tax profit 16% higher to £9.7m.

Patisserie Valerie once again proved the outstanding performer, with sales here surging 15.7% year-on-year to £40.4m. Revenues at the baker’s other brands grew by a far-more-modest 0.6%, to £15.9m.

And Patisserie Holdings continues to make good progress following the period’s end, with chief executive Paul May commenting that “performance in the six weeks after the period end has been good with a strong Easter period.”

But strong sales momentum is not the only cause for celebration at the cakes colossus. Indeed, Patisserie Holdings also advised that the high food costs witnessed during the first half are now stabilising “with the majority of core ingredients now at normalised levels.”

A tasty treat

And it has ambitious plans to keep the tills ticking over. The business opened 10 new stores during October-March alone, and today affirmed its target to open 20 per annum across a variety of locations including high streets, concessions and retail parks.

And promisingly Patisserie Holdings advised that its new outlets are “trading strongly.”

The City certainly believes the café group has what it takes to keep charging, and to print earnings growth of 15% in both of the years to September 2017 and 2018.

While a forward P/E ratio of 21.5 times may appear a little toppy on paper — the widely-regarded value benchmark falls at around 15 times — I reckon Patisserie Holdings’ potential to keep profits marching long into the future merits such a premium.

Staffing star

Pagegroup (LSE: PAGE) has also ripped to significant price levels in recent sessions, the stock recently dealing at its highest since December 2015, above 500p per share.

The recruiter received a boost last month after advising that group gross profit surged 9.1% at constant currencies during January-March, to £170.3m. This represented a record quarter for Pagegroup and reflected strong growth across most of its markets, including at its Europe, Middle East and Africa (EMEA) regions where collective profits rocketed 14.8% to £78.6m.

Sure, Pagegroup benefitted from the later timing of Easter this year, but I fully expect sales to continue to impress as economic conditions improve in Europe. And in the longer term, I expect operations in Asia and the Americas to provide spectacular returns (gross profits in the Americas alone shot 15.2% higher during quarter one).

The number crunchers expect Pagegroup’s strong growth record to keep on rolling with advances of 9% and 7% in 2017 and 2018 respectively.

And although these figures make the staffing specialist slightly expensive on paper (the firm deals on a prospective P/E ratio of 19.7 times), this should not prove a barrier to the stock continuing its recent punchy advance, in my opinion.

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