While some smaller companies have shown signs of recovery recently, many promising businesses are still trading well below their 2018 highs. As such, there are some attractive investment opportunities around at the moment for risk-tolerant investors. With that in mind, here’s a look at one smaller company that I believe offers serious outperformance potential right now.

Restore

£330m market-cap Restore (LSE: RST) provides services to offices and workplaces in the private and public sectors, specialising in document storage, document shredding, and workplace and IT relocation. Perhaps not the most exciting business model in the world, yet one that’s highly effective in generating consistent profits, nevertheless. The stock is a favourite of UK small-cap specialist Mark Slater – one of the best stock pickers in the business.

Restore shares have taken quite a hit over the last six months, falling around 40%. As a support services company, it appears investors have put the stock in the same basket as the likes of Carillion and Kier, which have struggled in the current economic environment. Yet looking at today’s full-year FY2018 results from Restore, I’m convinced the share price fall has been excessive. As such, I think a big rebound could be on the cards.

Strong growth

Indeed for the full year, revenue rose 14% and profit before tax climbed 20%. Earnings per share were up a healthy 12%, marking the ninth consecutive year of double-digit earnings growth. These are good numbers, considering the economic and political uncertainty the UK has experienced over the last year.

Furthermore, the company increased its dividend by a healthy 20% – which signals management is confident about the future. CEO Charles Skinner was upbeat about group’s outlook, commenting: “Restore remains well positioned to build upon the gains made in 2018, with the Group’s broad base of recurring revenues and strong cash generation providing a stable platform for continued growth.”

Important services

What I think the market is missing about Restore is just how important its services are. For example, shredding may not sound exciting but, in reality, it’s a fundamental service that the majority of companies need. With data regulation becoming more stringent (GDPR) and identity theft on the rise, companies cannot afford to be complacent here.

It’s also worth noting that Restore enjoys a high degree of recurring revenues. As Slater has pointed out, its document storage services essentially generate an annuity stream as boxes are typically stored for many years.

Valuation offers upside potential

Looking at Restore’s current valuation, I believe there’s potential for significant upside. For FY2019, analysts expect the group to generate earnings per share of 27.8p, which at the current share price places the stock on a forward P/E of just 10.1. For a company that has increased its earnings by 62% and lifted its dividend by 88% in the last three years alone, I think that valuation is way too low.

In my view, the stock deserves to trade on a P/E of at least 15, which means there could be nearly 50% upside. As such, I rate Restore as a ‘buy’ right now.

The post Have £1,000 to invest? I think this growth stock could smash the FTSE 100 over the next three years appeared first on The Twelfth Magpie.

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

Unfortunately, TP ICAP (LSE: TCAP) as the new business is called, has failed to live up to expectations.

Complex business

It was all going well until the beginning of 2018. Soon after shares in TP ICAP hit a new all-time high of around 550p, the company disappointed analysts by warning that higher than expected costs associated with investment in its business and complying with new regulations would hit profits for the full year.

Following the warning, analysts have revisited their numbers. They now expect earnings per share (EPS) to fall by 22% for 2018.

The market has reacted to this news badly. The stock has lost around half its value since peaking in January and now changes hands for just 8.2 times forward earnings.

However, I reckon this is an overreaction. Merging two businesses was always going to be a complex operation, and while earnings may suffer in the short term due to rising costs, over the long run, the group’s enlarged scale should more than make up for earnings volatility.

According to analysts, after falling this year, in 2019 EPS should stabilise. What’s more, TP ICAP’s low valuation gives a wide margin of safety for investors if growth stutters again and also offers plenty of upside potential for when the company finally returns to growth.

Indeed, right now the rest of the financial services sector trades at a forward P/E of just under 15, indicating a potential upside of more than 82% for when confidence in the company returns. And as well as the low earnings multiple, investors will also receive a 6.1% dividend yield, which looks to me to be extremely secure as it is covered twice by EPS.

Premium growth 

It has been a better year for document manager Restore (LSE: RST). Even though the company’s share price has drifted lower by around 15% since the beginning of the year, analysts are still forecasting EPS growth of 49% for 2018, followed by an increase of 13% for 2019.

It looks to me as if Restore is well on the way to meeting this goal. The company’s half-year results (published this morning) showed a 9% uplift in revenue year-on-year to £95m and 13% increase in profit before tax to £17.3m. 

For the rest of the year, the company’s bottom line is set to see a boost from the acquisition of TNT Business Solutions, which Restore completed in May. Like TP ICAP, Restore faces a challenge to integrate the bolt-on acquisition over the next few months, but when completed, the enlarged group should be well placed to produce positive returns for investors — as current City numbers show.

The one downside I can see is that Restore’s valuation doesn’t leave much room for mistakes. Trading at a forward P/E of 17.2 there’s already a lot of good news baked into the stock price. However, if the company can hit City growth targets, I think the multiple is justified.

The post Too cheap to ignore? A FTSE 250 dividend stock yielding 6% appeared first on The Twelfth Magpie.

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Rupert Hargreaves does not own any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Over the past five years, it has gone from strength to strength as the demand for office services has risen. Today it reported revenue for 2017 up by 36% and profit before tax up by a similar amount thanks to increasing demand for its services overall, but also the significant office move by Bloomberg in London. This move helped grow revenue from relocation services by 25%. A large part of the growth also came from acquisitions. Organic revenue growth across the group was just 7%. Earnings per share increased 25% to 22.4p.

Boost from regulation 

As well as providing office services, Restore offers document management, a tedious but essential business for companies concerned about document security. 

This division is exposed to see a substantial benefit in 2018 from the introduction of the European Union’s GDPR data protection laws that give consumers more control over their data, giving them the right to ask firms to erase any records stored about them. Restore’s management believes that when this regulation comes into force in May, the company will “see more major projects for our records management operations…as more enterprises understand the need to ensure secure shredding of relevant documents, and also in scanning, driven by the need for enterprises to access their customer data more quickly.” 

And as the demand for Restore’s services grows, shareholders should be well rewarded. Today the company announced a 25% increase in its full-year dividend to 5p per share. 

This means a dividend yield of 1%, although it is not the current level of the yield that I’m interested in, it is the potential for further growth. Indeed, the 5p payout is covered five times by earnings per share, leaving plenty of room for growth. Over the past five years, the distribution has grown at a rate of 32% per annum, and if this continues, by 2023, the payout will have increased to 20p per share, for a yield of 4% based on the current stock price.

Cash-backed dividend 

Another company I like the look of is data business YouGov (LSE: YOU).  Demand for its surveying and data analytics offering has seen net profit increase at a rate of nearly 70% per annum on average over the past five years. City analysts are expecting a similar rate of growth in 2018 with earnings per share growth of 135% expected and an increase of 15% for 2019.

Unfortunately, the market has already priced the shares for perfection based on these projections. Right now the stock is trading at a forward P/E 32. However, once again it’s the dividend potential I’m interested in here. At the end of fiscal 2017, the company reported a net cash balance of £23m, enough to fund the current per share distribution of 2p for more than 10 years. The distribution itself is covered 4.6 times by earnings per share, leaving plenty of room for growth as revenues continue to expand. If the dividend continues to grow at its historical rate of 32% per annum, in five years, the shares will support a dividend yield of 2.3% based on the current stock price.

The post 2 dividend growth stocks I’m waiting to pounce on appeared first on The Twelfth Magpie.

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

Companies with such a competitive advantage make the best investments because they offer a specialist service customers cannot find elsewhere, giving them scope to charge whatever they please.

Hard to replicate 

Breedon (LSE: BREE) is an excellent example of a moat business. The company makes products for the construction industry, namely aggregate, asphalt and concrete. Its operations include approximately 60 quarries and over 30 asphalt plants These businesses are extremely capital intensive and starting a mine for these products is no easy task. For this reason, Breedon is almost one of a kind. Quarries and production facilities are difficult to replicate while the company’s size means it can achieve economies of scale peers cannot. These competitive advantages give Breedon a Buffett-style moat, which indicates that the group’s growth will not slow any time soon.

Over the past five years, Breedon’s pre-tax profit has surged from £5.8m to £47m, and in the year ending 31 December 2017, a pre-tax profit of £17.8m is expected. Earnings per share are projected to have grown by 470%. For 2017 and 2018 City analysts have pencilled-in earnings per share growth of 13% and 16% respectively.

Unfortunately, this kind of growth doesn’t come cheap. Shares in Breedon currently trade at a forward P/E of 18.7, but this is significantly below the company’s five-year average valuation multiple of 28.1. And if it can continue to grow earnings at a mid-teens rate it’s certainly worth paying a premium to buy into the growth.

Customers come first 

Like Breedon, Restore (LSE: RST) also has a unique competitive advantage. It is one of the leading UK records management companies providing document management, records storage and archive storage. This is a sensitive business where only the most reputable companies will attract customers, and it seems Restore has built a great rapport with its clients. Indeed, if the firm hits City estimates for growth this year, pre-tax profit will have risen at a compound annual rate of 65% over the past six years. Analysts have pencilled-in earnings per share growth of 17% for the calendar year 2017 followed by 13% for 2018.

Just like Breedon, shares in Restore do not come cheap, however. Based on current estimates, shares in the firm trade at a forward P/E of 18.6. Yet considering Restore’s historic growth rate, this premium valuation multiple actually seems cheap. If earnings per share continue to grow at their current rate, and the shares continued to trade at a multiple of 18.6 times earnings, by 2023 the stock could be worth 766p, up nearly 100% from current levels.

The post 2 unbeatable growth stocks to retire on appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.