Trading has “remained strong” since the end of H1, according to the £3.5bn-cap online giant, “with a record performance across the Black Friday weekend.” Somewhat unsurprisingly, Boo has therefore continued to trade “comfortably in line with market expectations,” suggesting an earnings upgrade could be just around the corner.  

Despite no longer being a holder of the stock, I continue to see this as a classy outfit and certainly one I’d own over peer ASOS, thanks to its bullet-proof balance sheet and the high returns generated on the capital it invests.

The fact that new additions Karen Millen, Coast and MissPap have all been integrated — and initial ranges “very well received” — is also both unsurprising and a further endorsement of the company’s growth strategy. 

As usual, the only drawback to owning a top growth stock like this is the high valuation (57 times earnings before markets opened this morning). While I don’t think owners should necessarily jump ship yet, I’d be tempted to wait until after some inevitable profit-taking has occurred if I were intent on building a position from scratch. 

Also bucking the trend

Another exception to the all-retailers-are-suffering ‘rule’ has been jewellery seller Ramsdens (LSE: RFX). Revenue from this part of its business rose 22% to £5.5m over the six months to the end of September.

But this market minnow is more than just a play on our love for things that sparkle. Having exchanged £340m to more than 500,000 customers over the reporting period, income from its currency exchange business was up 15% to £8.4m — not bad considering how weak sterling has been as a result of our EU departure being delayed. 

The rise in the price of gold over the period was also reflected in the £4.1m gross profit made on precious metals purchases, up 57% compared to the same period in 2018. A 17% increase (to £4.3m) in income at its pawnbroking arm rounded things off nicely. 

All told, revenue and underlying pre-tax profit improved 30% and 12% respectively, with CEO Peter Kenyon saying the company “remains confident” of meeting its full-year expectations following a “solid start” to H2. Given that it’s growing its estate at a time when many retailers are closing stores, this looks very achievable.

Three new sites were opened during H1 with another added since the end of the reporting period. Four stores were also captured following the demise of rival The Money Shop. Despite these outlays, the company continues to boast a strong balance sheet with net cash of £12.3m. 

But Ramsdens is more than just a prudently-managed growth story. It’s also a great income stock, evidenced by today’s 13% increase to the interim dividend (to 2.7p per share).

Before this morning, analysts had penciled in a 7.24p per share total cash return in FY20, covered 2.8 times by expected profits. That equates to a very satisfying yield of 3.6% based on today’s share price. 

I’ve been a holder of Ramsdens for some time now and, based on these numbers (and the fact that the shares still trade on a little under 10 times forecast earnings), there’s no danger of me selling anytime soon.

The post Boohoo isn’t the only growth stock defying the retail doom and gloom! appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Ramsdens Holdings. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo 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.

This being the case, what options are available to investors looking to gain gold exposure, if only for the short term?

1. Track the gold price

Perhaps the simplest way of profiting from gold’s growing popularity is to buy an exchange-traded commodity fund that tracks its spot price. One of the best-known examples of this kind of fund (which is passively managed and subsequently charges very low annual fees) is offered by iShares.

Unsurprisingly considering ongoing concerns over slowing global growth, the US/China trade spat and the never-ending saga that’s Brexit, its Physical Gold fund has had a great 2019 so far, rising 18% in value. 

The only drawback to holding something like this is it doesn’t generate any income. Gold is, after all, regarded as a store of value, not something that produces any cash flow in itself. If dividends are what you’re looking for, there are some other options.

2. Buy a gold miner 

An alternative to buying a fund that merely tracks the spot price would be to buy shares in a gold miner or two. Examples of such firms listed on the London Stock Exchange are Fresnillo and Centamin. They yield 1.6% and 3.2%, respectively.

Of course, buying shares in individual companies carries considerable risks but particularly so when it comes to those in this often-volatile sector. For less risk-tolerant investors, pumping some money into an exchange-traded fund that tracks a bunch of gold producers (such as giants Barrick Gold and Newcrest Mining) might be more appealing.

Again, the iShares Gold Producers ETF is one of the most popular examples of such a fund. It’s up 39% in the year to date and has an ongoing charge of 0.55% — fairly reasonable considering the diversification it offers.

3. Buy a pawnbroker

A final option for investors would be to buy shares in a company that benefits from the rise in the price of gold but doesn’t carry the inherent risks that come with mining for it. Within this category, I’d include pawnbrokers H&T and Ramsdens, both of whom purchase gold from customers and then sell on the non-retail pieces to bullion dealers. 

Last week’s half-year results from the former were decent enough with a 7.9% rise in pre-tax profit to £6.8m, and a further reduction in net debt. Ramsden’s most recent set of results weren’t bad either. 

Another reason for buying stock in H&T and/or Ramsdens are the dividends on offer. At their current prices, the shares have forecast yields of 3.3% and 3.9%, respectively. So, not only will counter-cyclical stocks like these benefit from a rise in the gold price, they should also be able to pay holders a steady income during economic downturns. 

The above, when combined with the fact that shares in Ramsdens and H&T are still very reasonably priced — trading as they do on 10 and 11 times forecast earnings — makes me think either could be a great buy for investors wishing to protect their portfolios from a likely recession. 

The post Fear a recession? Here are 3 ways to tap into the rising gold price appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Ramsdens Holdings. The Motley Fool UK has recommended Fresnillo. 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.

Overreaction?

As a result of its leading status in a niche market, excellent returns on capital, robust balance sheet, and experienced management team, laser-guided equipment manufacturer Somero Enterprises (LSE: SOM) is a company I’ve admired for some time. Following a surprise profit warning earlier this month, as a result of very poor weather in the US, it’s finally taken a place in my own portfolio.

According to the company, trading over the first fives months of 2019 dipped below expectations following record rainfall and the subsequent slower pace of equipment sales to customers (Somero’s technology ensures concrete floors are laid absolutely flat). Despite remaining positive on market conditions, the small-cap revised its revenue and earnings expectations for the year, to $87m and $28m, respectively.  

Unsurprisingly, the market didn’t take this news well and Somero’s shares fell almost 23% on the day of the announcement. 

As you might gather, I consider this an opportunity for new investors to climb on board. While certainly not immune to the economic cycle, Somero continues to invest in its future by expanding its training facility and developing new products.

It’s attempting to grow in other markets such as Europe and China to reduce its dependence on the US and is also a great source of dividends with an expected yield of 5.4% this year. 

There’s a chance that this warning might not be a one-off, of course. On a price-to-earnings ratio (P/E) of 10.5, however, I consider it worth the risk. 

Industry consolidator

Another stock I think looks undervalued is pawnbroker, jewellery retailer, gold buyer/seller and foreign exchange specialist Ramsdens Holdings (LSE: RFX).

Annual results for the 12 months to the end of March were perfectly respectable with the minnow reporting a 17% increase in revenue (to £46.8m) and 4% rise in underlying pre-tax profit (to £6.7m). All parts of the business showed growth with jewellery retail revenue jumping 23% to £9.8m.

A total dividend of 7.2p was declared — 9% more than the previous year and equating to a trailing yield of 3.9%, covered well over twice by profits.

With a market-cap a touch below £60m, Ramsdens still has a lot of room left to grow. And that’s just what it’s doing. 

It acquired 18 stores and five loan books from rival The Money Shop in the previous financial year and another four stores and 12 loan books after March.

Given the latter announced last week that it would cease trading as a result of poor financial performance and a flood of customer complaints, it seems likely that Ramsdens will continue adding to its estate in the not-to-distant future. As CEO Peter Kenyon said a few weeks ago, the company “continues to see further opportunities to grow Ramsdens by capitalising on consolidation opportunities in what remains a highly fragmented market.”

Taking into account all this potential, the diversified business model, solid financials, decent dividend yield, and the recent spike in the price of gold, Ramsden’s continues to look far too cheap on a valuation of just under 10 times forecast earnings. 

The post These quality small-cap stocks look like bargains to me appeared first on The Twelfth Magpie.

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• The London Stock Exchange just lost a hidden gem
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• Ramsdens Holdings: a sub-£5 stock offering growth and passive income

Paul Summers owns shares in Somero Enterprises, Inc and Ramsdens Holdings. The Motley Fool UK has recommended Somero Enterprises, Inc. 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.

According to CEO Malcolm Le May and co, the £1.3bn offer undervalues the company and its prospects as well as presenting “significant operational and execution risks given NSF’s track record of value destruction“. Ouch. 

Instead, shareholders are being asked to put their faith in Provident’s management team and their strategy to return the business to growth.

Based on last week’s numbers, they do appear to be making at least some progress. The mid-cap reported a statutory pre-tax profit of £90.7m for 2018 compared to a £147.9m loss the year before.

Shares understandably reacted well to the news, although they’re still worth 75% less than the 2,300p-a-pop valuation hit back in April 2017. 

Quite what happens next is anyone’s guess, particularly as the Competition and Markets Authority (CMA) has confirmed that it will investigate Non-Standard Finance’s bid and Provident has refused to comment on whether it is in talks with other companies on a possible merger.

Personally, I can do without the hassle of wondering how this increasingly hostile state of affairs will resolve itself. Investing is hard at the best of times and attempting to profit from such uncertainty (as opposed to the more general ‘be greedy when others are fearful’ maxim) is fraught with risk. 

Moreover, the dividends aren’t really worth the bother. A 10p total cash return for the last financial year gives a trailing yield of just 1.7% — far less than you can get elsewhere in the market. 

All things considered, I certainly won’t be joining the queue for Provident’s stock.

Hassle-free

Right now, I still favour a different set of alternative ‘financial’ stocks, namely pawnbrokers Ramsdens Holdings (LSE: RCX) and H&T Group (LSE: HAT).

Last week, the latter released another encouraging set of full-year numbers, which included a 13.4% rise in pre-tax profit to £13.5m and, interestingly, a 37.6% rise in its net loan book from £14.9m to £20.5m.

For its part, Ramsdens recently revealed that it had bought 18 stores trading as The Money Shop for a total consideration of £1.5m. Management expects these will make “a small contribution” to pre-tax profit in FY 2020 and “approximately £0.6m” the following year. More deals like this are expected. 

To be clear, these are not glamour stocks whose share prices will rocket. They are, however, well run, diversified businesses (both also offer foreign exchange currency services and are involved in gold purchasing and jewellery retail) and should do well if the economy takes a turn for the worse in the next few years.

Another positive is that both still trade on the same reasonable valuation of around 11 times forecast earnings. Dividend yields are pretty much identical at 4.1% and are covered over twice by expected profits at each company. 

That said, I’m perfectly happy to stick with only owning stock in Ramsdens for now. Returns on capital and operating margins are higher at H&T’s smaller rival and it also had net cash of £12.4m at the half-year point back at the end of November. Expect an end-of-year trading update in early April.

The post Tempted by the Provident Financial share price? I think these small-cap stocks are far better buys appeared first on The Twelfth Magpie.

More reading

• The London Stock Exchange just lost a hidden gem
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• Ramsdens Holdings: a sub-£5 stock offering growth and passive income

Paul Summers owns shares in Ramsdens Holdings. 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 its stock already trading on a low multiple, is this simply another example of an already-skittish market overreacting?

Growth and dividends

The initial 6% fall in the share price certainly seems a bit harsh, particularly as revenue rose 10% over the interim period to just under £24m.

Ramsden’s jewellery business was arguably the best performer, growing revenue by 27% to £4.5m.  The fact that this included a 126% rise in online sales is encouraging, particularly given the all-important festive trading period that lies ahead. Elsewhere, income from pawnbroking rose 5% and gross profit in its precious metals division climbed 6% to £2.6m.

On the downside, income from its currency exchange service — the biggest part of the market minnow’s diversified offering — declined 2% to £7.3m, due in part to the superb weather experienced across the UK in the summer motivating more people to stay at home.  

All told, earnings before interest, tax, depreciation and amortisation (EBITDA) fell 3% to £5.7m — something the company attributed to “the absence of peak Easter holiday FX trading“, ongoing investment and new store openings. Hardly the stuff of nightmares.

Positively, the four new stores added to Ramsdens estate over the six months are already “trading ahead of initial expectations” when combined with those opened in the second half of the last financial year. Four more stores have been added since the end of September. 

As mentioned, shares in Ramsdens were already looking pretty cheap at under 10 times earnings before this morning. In contrast to some listed companies, dividends are also growing with today’s interim payout, at 2.4p per share, 9% higher than in 2017. At the current share price, the 7.13p total cash return expected by analysts this year equates to a yield of 4.7%, covered more than twice by profits. 

The above, when combined with the fact that Ramsdens continues to boast a solid net cash position of £12.4m, means that I’m in no hurry to sell my holding just yet. 

Bargain for Brexit?

Another small company whose shares trade on a low earnings multiple while also offering a more-than-decent dividend is the UK’s second-biggest home collected credit lender Morses Club (LSE: MCL). 

Back in October, the company reported a 6% increase in statutory revenue (to £57.5m) and a 20.6% rise in adjusted pre-tax profit (to £10.5m) over the six months to 25 August. Customer numbers remained stable at 230,000 and the number of live Morses Club Cards was 145% higher (at 27,000) than at the same point last year. 

In addition to its growth potential, the business should also appeal to income hunters. A hike of 18.2% to the interim payout (to 2.6p per share) was over double that rewarded to Ramsden’s owners today. If analyst projections prove correct, the stock will yield 5.8% in the current financial year.  

Having fallen over 20% in value since July, you can now pick up the shares for 10 times earnings. If you believe that the UK economy is likely to suffer post-Brexit (assuming, of course, we do end up leaving the EU) and that demand for the company’s services could rise, the current price of just over 137p looks a pretty attractive entry point.  

The post Why I’m sticking by this cheap small-cap dividend stock appeared first on The Twelfth Magpie.

More reading

• The London Stock Exchange just lost a hidden gem
• Profits up 173%! Is this surging FTSE small-cap still worth a look?
• Ramsdens Holdings: a sub-£5 stock offering growth and passive income

Paul Summers owns shares in Ramsdens Holdings. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’ve long thought pawnbroker H&T Group (HAT) fits the bill nicely.  

“Solid start”

Having seen an influx of new customers, pre-tax profit rose 10.9% to £6.1m in the first half of 2018. That’s a pretty good result given that the average gold price dipped 2.6% (to £958 per troy ounce) over the reporting period. All told, the company’s net pledge book rose 8.6% in value to £47.8m. 

Elsewhere, the £117m cap’s personal loan book soared by 78% in value over the reporting period to £17.8m. In addition to this, I particularly like the fact that 54% of H&T’s lending now falls outside of the “High-Cost Short Term credit category“, implying that it has no intention of pursuing a questionable ‘growth-at-any-cost’ strategy. 

Hailing a “solid start to the year“, CEO John Nichols stated that the company would carry on investing in its digital offering following the overhaul of the retail-focused www.est1897.co.uk, in addition to H&T’s main site. Given the importance of offering a quality online experience these days, that seems sensible to me, even if the increase in expenditure has contributed to a sizeable rise in net debt from 11.5m in June 2017 to the £16.8m revealed today.

But H&T should have appeal for income as well as growth-focused investors. The 2.3% increase to the interim dividend (to 4.4p per share) may look modest but the company is forecast to yield 3.7% in the current financial year, with the payout easily covered by profits.

H&T’s shares were up over 4% in early trading, suggesting that the market is more than satisfied with progress at the Sutton-based business. Notwithstanding this, the stock still looks a screaming bargain at just 9 times earnings, particularly for those who are pessimistic on the health of the UK economy in the short-to-medium term.

Even bigger yield

While I continue to be a fan of H&T, I’m even more positive about its high street jewellery rival Ramsdens Holdings (LSE: RFX).  It does, after all, boast a higher forecast yield (4.5%) and net cash position. 

That said, the recent disposal of shares by management hasn’t helped sentiment towards the stock, compounded by investors’ growing indifference to the shiny stuff. Back in June, the company’s IT Director, the wife of its Operations Director and CEO Peter Kenyon all sold significantly large proportions of their holdings.

While such news may have unnerved some investors, I can’t see anything to worry about just yet. With recent trading being very strong, I’m attributing the sales as nothing more than a desire to crystallise profits following the doubling of Ramsden’s share price since coming to the market back in February 2017. I could be wrong, of course.

Even if the stock continues to struggle for a while yet, the fact that it changes hands on a near-identical P/E suggests Ramsdens is just as much — if not more — of a bargain as H&T. 

The post This secret small-cap growth and dividend stock still looks ridiculously cheap appeared first on The Twelfth Magpie.

More reading

• The London Stock Exchange just lost a hidden gem
• Profits up 173%! Is this surging FTSE small-cap still worth a look?
• Ramsdens Holdings: a sub-£5 stock offering growth and passive income

Paul Summers owns shares in Ramsdens Holdings. 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.

Reporting “continued growth across all business segments” this morning, group revenue at the small-cap rose 16% to just under £40m over the 12 months to the end of March.   

The diversified firm’s Foreign Currency Exchange and Retail divisions were the standout performers, with revenue growing 26% (to £11.3m) and 35% (to £8m), respectively. That said, the pawnbroking arm continues to tick along nicely with revenue here rising 14% to £7m. Precious metals revenue rose by a single percentage point to just under £11m.

The most interesting number to catch my eye, however, was the 242% increase in online jewellery sales over the reporting period. This, combined with the 117% rise in its Click & Collect currency exchange service, is further evidence that Ramsden’s focus on building its IT infrastructure and digital presence is really starting to reap benefits.

Speaking of which, underlying pre-tax profit soared by 60% to £6.5m, compared to the £4m achieved in the previous financial year.

Based on the 16.3p earnings per share achieved in 2017/18, Ramsdens is currently trading on a trailing price-to-earnings (P/E) ratio of just under 12. That still looks very reasonable considering the company also had a net cash position of £12.7m at the end of March, compared to £9.5m in the previous year. Aside from the value on offer, income hunters should also be encouraged by the 400%+ rise in the (easily covered) dividend from 1.3p to 6.6p.

Ramsdens might not shoot the lights out in terms of share price performance but, as a gentle grower in a market where many companies continue to over-promise and under-deliver, I believe it remains an excellent candidate for small-cap-focused portfolios.

Gathering speed

Of course, Ramsdens isn’t the only small business that could be a great buy at the current time. For those willing to take on a little more risk, eye-tracking technology specialist Seeing Machines (LSE: SEE) might fit the bill.

While there’s been lots of progress since I last covered the company back in 2016, things have really kicked into gear over the last few weeks, for two reasons.

First, there was news that the EU is to mandate Driver Monitoring Systems (DMS) — technology designed to monitor attentiveness/distraction — by 2020. Given its industry-leading status, this is clearly an excellent development for the Canberra-based business.

More recently, the £230m-cap announced a programme design win with a “global US-headquartered automotive OEM” (Original Equipment Manufacturer) to employ its FOVIO chip “into multiple vehicle platforms for mass production from 2020“. Although the name of the latter hasn’t been revealed, there are strong indications that it’s none other than Ford.

With other OEMs likely to begin/continue knocking on its door and confirmation that Euro NCAP — the vehicle safety advisory body — will favour camera-based systems as the preferred DMS option looking likely, it feels like Seeing Machines has hit something of a purple patch. 

Having climbed well over 100% in value since the beginning of May, a degree of profit-taking in the near future wouldn’t surprise. For those (like me) willing to continue holding, however, I think the biggest gains — and possibly a takeover bid, or two — are still to come.

The post These small-cap growth stocks still feel like the market’s best kept secrets. But for how long? appeared first on The Twelfth Magpie.

More reading

• The London Stock Exchange just lost a hidden gem
• Profits up 173%! Is this surging FTSE small-cap still worth a look?
• Ramsdens Holdings: a sub-£5 stock offering growth and passive income

Paul Summers owns shares in Ramsdens Holdings and Seeing Machines. 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.

Although there’s a risk that you’ll be swayed by a strong sales pitch from an expert communicator — most CEOs fit this description — you can also learn a lot. Certainly when I attended a presentation given by Tracsis (LSE: TRCS) chief executive John McArthur last year, I came away impressed.

Mr McArthur’s firm specialises in providing software-based systems for the rail industry. Applications include traffic monitoring and data capture, operational planning tools and predictive maintenance systems.

The stock has risen by 10% this morning, thanks to a strong half-year trading update. Revenue rose by 15% to “in excess of £18m” during the six months to 31 January, while earnings before interest, tax, depreciation and amortisation (EBITDA) climbed 22% to £4.3m.

Cash generation remained strong and the group ended the period with net cash of about £18.5m, which is about 12% of the share price. Several new contracts got underway during the six-month period in the UK. The group also secured new work in the US, a potentially transformative growth market.

Why I’d buy

Tracsis sells a portfolio of software systems that it’s developed and acquired. They vary widely but they’re all carefully chosen and are usually very ‘sticky’ — once a client starts using it, they’re unlikely to change.

Mr McArthur’s clear and direct presentational style is matched by the group’s accounts, which are always pleasingly clean and easy to understand. The focus on cash generation and controlled growth works well for me.

After today’s gain, these shares look quite pricey on 22 time forecast earnings. I’d be tempted to wait for the next dip before buying, but I strongly believe that this is a business that should continue to grow steadily for many more years.

A more affordable option

They say you get what you pay for. Tracsis should be fairly safe in recessions, when trading could become trickier for my next stock, Ramsdens Holdings (LSE: RFX).

Best known as a pawnbroker, this group is really a mini financial firm. It has growing profits from foreign currency exchange and personal loans, alongside more traditional pawn broking and jewellery sales activities.

Foreign exchange is a particularly big earner and generated £7.5m of gross profit during the first half of the year, out of a total of £16.1m. This seems to be a business where companies that offer competitive rates have an opportunity to take market share from more complacent rivals.

So far, so good

Ramsdens floated on the stock market one year ago, so it doesn’t yet have a very long record as a public firm. But the story so far is encouraging. Pre-tax profit rose by 63% to £5.2m during the first half of the current year, which ends on 31 March.

The group’s shares have doubled during their first year of trading but their valuation still looks reasonable to me, on 12 times forecast earnings. The balance sheet carried £13m of net cash at the end of September, providing good support for a forecast dividend yield of 3.3%.

A recession could make trading conditions more difficult for Ramsdens, but on the evidence so far, I’d suggest this could be a good dividend growth stock.

The post 2 super dividend-growth stocks you might regret not buying appeared first on The Twelfth Magpie.

More reading

• The London Stock Exchange just lost a hidden gem
• Profits up 173%! Is this surging FTSE small-cap still worth a look?
• Ramsdens Holdings: a sub-£5 stock offering growth and passive income

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

According to the recent trading statement (covering the period from the start of July to mid-October), progress on the company’s recovery plan for its battered household credit division is consistent with the guidance issued by Provident back in August. A pre-exceptional loss somewhere in the range of £80m to £120m for the full year is still expected.

Elsewhere, Provident’s other businesses — Satsuma, Moneybarn and Vanquis Bank — appear to be performing reasonably well, even if the last of these is still the subject of an investigation by the Financial Conduct Authority over its Repayment Option Plan.

While stating that management still had a lot of work to do to restore the market’s faith in the company, star fund manager Neil Woodford — a significant holder of Provident’s stock — appears reassured, telling investors in his Equity Income Fund that he remains “supportive” of the new management team’s strategy.  Indeed, Woodford added to his position in October. Should investors follow his lead?

I’m still to be convinced. Following the resignation of Peter Crook, the company is still to find and appoint a new CEO. Moreover, the sudden death of Executive Chairman Manjit Wolstenholme last week is another significant blow for the £1.3bn cap, particularly as she spearheaded the fixing of Provident’s computer system that had caused issues with the timely collection of payments earlier in the year.

Changing hands for just nine times forecast 2018 earnings, Provident’s shares certainly look cheap. Factor in the ongoing issues and a lack of payouts to shareholders, however, and I think investors could do a lot better. Speaking of which…

Value, growth and income

Back in July, I outlined five reasons why I’d added pawnbroker, retail jeweller and foreign exchange operator Ramsdens Holdings (LSE: RFX) to my portfolio. Rather satisfyingly, Monday’s interim numbers appear to justify my confidence in the market minnow.

As a result of “continued strong growth” in its various divisions, revenue climbed 18% to £21.8m in the six months to the end of September.  A beneficiary of the “higher than anticipated” sterling gold price, Ramsden’s pre-tax profit rose a stonking 63% to £5.2m over the reporting period.

As intended, Ramsdens has seen excellent growth at its currency business with the amount exchanged rising 22% to £324m and the number of customers increasing by 15% to 511,000. The more traditional pawnbroking business also performed well over H1 with its loan book growing 18% to £6m. Retail revenue soared by 40% to £3.5m thanks to investment in stock and “improved window displays“. Although starting from a low base, the company’s online offering is beginning to yield results with gross jewellery sales up an impressive 331%.

Commenting on results, CEO Peter Kenyon reflected that the Middlesbrough-based business had enjoyed a “strong first half of the financial year” and that management remain “confident of delivering further progress” as Ramsdens enters the key festive period.

Taking into account its sound growth strategy, strong balance sheet (£13.4m net cash), decent 3.5% yield and the likelihood of its services becoming increasingly popular in the event of an economic downturn, I continue to think this small cap looks a steal at its current valuation of 12 times forecast earnings. 

The post Why I’d buy more of this small-cap stock over Provident Financial plc appeared first on The Twelfth Magpie.

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• The London Stock Exchange just lost a hidden gem
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• Ramsdens Holdings: a sub-£5 stock offering growth and passive income

Paul Summers owns shares in Ramsdens Holdings. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I liked what I saw — so much so that I’ve added the company to my portfolio. Here’s why.

Forecast-beating results

Let’s start by looking at the company’s most recent set of annual results.

In the year to the end of March, group revenue rose 15% to £34.5m. Excluding costs related to its recent IPO, EBITDA came in 27% higher at £6m, with pre-tax profits jumping 73% to £4m. These numbers beat market expectations.

Broken down, Ramsdens saw growth in all parts of its business. Revenue from its foreign exchange segment climbed 18% to £9m, matched by growth in Precious Metals (up 17% to £10.8m). But the star of the show was the company’s retail jewellery division with revenue rising 23% to just under £6m. While not as high, a 7% rise in revenue (to £6.1m) in its pawnbroking segment was also positive.

Over the last financial year, Ramsdens served over 730,000 people with customer growth of 8% and 14% noted in its foreign exchange and pawnbroking segments respectively. 

Heralding a “transformational year” for the company, CEO Peter Kenyon stated that Ramsdens had made a “strong start” to the current year and was “confident of making further progress” as it entered the important summer period.

From an investment perspective, so far, so good.

There’s more…

Buying a company’s shares based solely on recent results is risky, of course. So here are five more reasons why I’m bullish on Ramsdens.

Let’s start by looking at the valuation. Right now — and despite rising 50% since joining the market — shares in the company still trade at 12 times forecast earnings, based on predicted growth of 17% this year. At a time when many other companies are looking fully valued, Ramsdens looks cheap.

In addition to looking reasonably priced, Ramsden’s stock also boasts the added attraction of a predicted 4.3% dividend yield for 2018, fully covered by profits. With interest rates still punishingly low, that’s got to be appealing to those willing to embrace a degree of risk to generate more income.

Third, management at Ramsdens appear to have sufficient ‘skin in the game’ — something I’ve become increasingly more concerned with as an investor over the last few years. The aforementioned CEO, for example, owns 5% of the company. The fact that he’s significantly invested — with a holding valued at well over £2.3m — gives me confidence that he will be just as concerned about performance as I will be. Never discount the value of investing in companies with owner operators. 

Fourth, Ramsdens’ balance sheet appears sufficiently robust with a net cash position approaching £10m at the end of March. With economic uncertainty likely to remain rife, that’s no bad thing. 

Finally — and on a related note — there is a strong possibility of profits racing ahead over the next couple of years as people grow increasingly concerned about the impact of Brexit. Pawnbrokers have traditionally done well during economic downturns and I’m encouraged by the company’s plans to continue growing market share in what remains a fragmented industry while continuing to offer a diversified (but complementary) range of services.

The post 5 reasons why I’ve added this promising small-cap stock to my portfolio appeared first on The Twelfth Magpie.

More reading

• The London Stock Exchange just lost a hidden gem
• Profits up 173%! Is this surging FTSE small-cap still worth a look?
• Ramsdens Holdings: a sub-£5 stock offering growth and passive income

Paul Summers owns shares in Ramsdens Holdings. 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.