My latest investment trust buy

The latest addition to my Self-Invested Personal Pension is Montanaro European Smaller Companies Trust (LSE: MTE). Allow me to explain why.

If I’m to seriously grow my wealth, I arguably need to have some exposure to small-cap stocks. Minnows have the potential to grow at a faster clip than market giants, compounding my money at a fast rate. The best bit is that smaller companies aren’t heavily followed, regardless of their quality. That makes for a fertile hunting ground for managers like MTE’s George Cooke.  

The trust’s track record speaks for itself. MTE achieved a 32.8% return in 2021. Unsurprisingly, this thrashed the still-very-respectable 15% of its benchmark. Personally, I think this performance justifies the undeniably steep 1.2% ongoing charge. 

Unfortunately, this performance has reversed in 2022 so far. The share price has fallen 23% year-to-date as I type. That screams ‘opportunity’ to me. 

What’s in the fund?

MTE’s biggest holdings are circuit board producer NCAB, software provider Esker and business applications supplier Fortnox. Interestingly, the trust has almost a third of its assets invested in Swedish companies. German businesses represent 15% of the portfolio with France, Switzerland and Italy taking up roughly 10% each.

Another thing worth noting is just how many (or few) businesses make up the portfolio. Based on its most recent factsheet, MTE comprises just 57 holdings. That’s fairly concentrated for an investment trust that’s focused on the lower end of the market spectrum.

Worth the risk?

So, what might go wrong from here?

Obviously, there’s a possibility that the price of this investment trust may continue falling in 2022. A stuttering post-pandemic economic recovery or a dash to safety due to interest rate rises could shake out more investors. And the crisis on the Russia-Ukraine border won’t exactly attract capital to the region. Even if the markets do recover quickly from this year’s wobble, there’s no guarantee that European stocks will keep up with other parts of the world either. 

More generally, the Montanaro European Smaller Companies Trust may struggle to repeat its stellar returns going forward. Since smaller companies are inherently less liquid (harder to buy and sell), MTE’s share price could be more volatile too. 

Long term focus

To mitigate this risk, I’ve kept some powder dry with the intention of adding to my holding further down the line. Of course, there’s the potential for this to backfire if the MTE’s share price rises from here. However, it’s psychologically much easier for me to build a position in tranches rather than go all-in from the outset.  

Another thing I’ve done is to stay diversified. This includes staying invested in other funds, such as FTSE 100-listed Scottish Mortgage Investment Trust. There’s no overlap in holdings between this and the small-cap fund. 

Last, I’ve also been reminding myself that this is intended to be something I retain for years and possibly decades. Having this time horizon means there’s little point in me getting too worried about market moves of the kind we’re seeing right now.

The post 1 top investment trust I’m buying hand over fist in February appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares in Montanaro European Smaller Companies Trust and Scottish Mortgage Investment Trust. 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.

Today, the company announced yet another set of record numbers for the first half of its financial year. 

Profits jump!

Revenue increased 19% to a little over £737m in the six months to the end of September as the company “performed well in all sectors and major regions“. Adjusted for foreign exchange fluctuations, the growth rate comes in at 23%.

Halma’s bottom line was even better. Statutory pre-tax profit jumped a heady 74% to £167.5m, albeit boosted by the sale of its security systems business (Texecom) for £34m. 

As if this wasn’t good enough, the company also decided to leave its full-year guidance unchanged despite rising costs and “increased supply chain, logistics and labour market disruption”. Other FTSE 100 constituents can’t afford to be quite so optimistic.

This is not to say today’s statement was devoid of caution. For example, Halma noted that “more typical rates of revenue growth” were expected in the second half. This may help explain why the shares were off almost 2% this morning. 

FTSE 100 quality stock

Based on this update and the long-term performance of its share price, I’d buy a slice of Halma today. The company operates in a highly defensive sector that should continue growing, regardless of the wider economic environment. As a global business, earnings are nicely diversified and there’s little in the way of debt on the balance sheet.

It’s also worth mentioning the dividends. A forecast yield of 0.6% won’t attract income seekers. However, Halma has grown its annual payout by 5% or more for 42 consecutive years. That sort of trend is only seen in businesses of the highest quality. With a “healthy acquisition pipeline“, I can’t see it ending anytime soon. 

The only real concern I have rests on the valuation. A forecast P/E of almost 50 is extremely rich. As such, I wouldn’t be going ‘all in’ on this FTSE 100 stock now. Picking up bigger chunks of HLMA when markets are crashing would be the dream scenario.

From little acorns

Of course, Halma isn’t the only attractive ‘buy and hold’ option out there. Small-cap SDI (LSE: SDI) is another quality stock I’d snap up. The firm designs and manufactures digital imaging products for fields as diverse as life sciences, healthcare, astronomy and art conservation. And, right now, business is booming.

Earlier this month, the AIM-listed company said it expects to report “very strong sales and profits” for the first half of its current financial year. As a result, full-year revenue of £45m and adjusted pre-tax profit of £9.2m have been forecast. Encouragingly, both numbers were higher than what analysts had been predicting. 

On the downside, SDI shares aren’t cheap. A P/E of 30 suggests there’s little room for error. Especially as management already expects the heavy demand seen for its Atik cameras over the pandemic to reduce. Once again, supply chain pressures are a potential headwind.

Still, I’m confident this could become another multi-bagging stock by 2030 if recent progress is anything to go by. I regard SDI as a buy today. But I’d really get stuck in when markets next wobble.  

The post 1 FTSE 100 growth stock I’d buy and hold until 2030 appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma. 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.

As a committed Fool, I reckon passive income is best achieved via the stock market. The task dividend hunters face, of course, is identifying which stocks to buy.

For my part, I feel that smaller companies are often unfairly ignored in favour of established FTSE 100 plodders. Accordingly, here are two examples of the former I might consider.

Passive income provider

Miner Central Asia Metals (LSE: CAML) is first up. The diversified base metals producer operates a copper facility in central Kazakhstan. It also owns the Sasa zinc and lead mine in North Macedonia.

For those who believe that demand for metals (and particularly copper) is only going to rise in the years ahead, CAML’s outlook could be very positive indeed. This could/should lead to improving free cash flow and, as a consequence, steadily rising dividends for passive income seekers.

Central is currently predicted to return 14p per share this year. That’s a chunky yield of 5.7%. For perspective, the best Cash ISA pays out a ludicrously low 0.65%. What’s more, this handout looks likely to be covered over twice by profit, making it, in theory at least, very secure.

The investment case is further boosted when considering the valuation. A P/E of just under 8 looks seriously cheap, given CAML’s relatively low net debt and consistent operating margins of over 40%. 

Cheap market leader

Another small-cap option that’s grabbing my attention is collagen product manufacturer Devro (LSE: DVO).

Put simply, the £350m-cap provides the casing used in the production of sausages. That clearly doesn’t grab the attention in the same way as a glitzy tech stock. Then again, I’d probably prefer to own a global leader in a niche market rather than an unprofitable business in a highly competitive space.

Despite rising 33% in value over the last year, DVO shares trade on a little less than 13 times earnings. That looks good value to me. Returns on capital and operating margins have been improving in recent years. Debt has also been coming down.

As far as passive income is concerned, analysts have the company returning 9.27p per share for the current financial year. That’s a tasty yield of 4.4% at DVO’s current share price. Importantly, this payout is expected to be covered 1.8 times by profit. Like at CAML, that suggests dividends will actually be paid. To me, that’s far more preferable to firms promising too much and not delivering.

Never risk-free

Sure, no dividend stream is guaranteed. In fact, it can be one of the first things to be sacrificed when the going gets tough. It’s also worth highlighting other, more specific, drawbacks to investing here.

As far as CAML is concerned, the company clearly has no control over a volatile copper price. Moreover, mining is a notoriously tough sector, both in a physical and financial sense. The possibility of operations being interrupted by rising Covid-19 cases can’t be dismissed either.

Pandemic aside, DVO arguably doesn’t share these risks. However, it’s worth noting that the company hasn’t hiked its dividend by much over the years. Ideally, I’d want a payout to be increasing in order to outpace inflation. It’s not a killer blow, but it’s something to consider.

So, while I do rate both stocks as being cheap sources of passive income, the importance of staying suitably diversified shouldn’t be overlooked.

The post 2 bargain small-cap dividend stocks I’d buy for a passive income appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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

Hotel Chocolat

High street and online retailer Hotel Chocolat (LSE: HOTC) should be releasing its delayed set of full-year results on 5 October. Normally, a postponement would be taken negatively by shareholders but HOTC’s share price has held up well. In fact, it’s up almost 9% over the last month.

This isn’t completely irrational. Back in July, HOTC said revenue in its last financial year hit £165m. That’s 24% higher than in FY19 — the year before Covid-19 struck. So trading’s clearly far from terrible. 

On the flip side, I’m conscious that only a relatively small percentage of stock is actively traded (CEO Angus Thirlwell still owns over 25% of the company). Such a small free float does mean it’s share price is theoretically more susceptible to violent moves, both up and down.

This matters considering the valuation. A P/E of 42 looks very expensive and HOTC simply can’t afford to rest on its laurels if recent momentum is to continue. Should it disappoint in any way (perhaps in relation to rising costs), I might actually get the entry price I’ve been looking for. 

Tristel

Another steeply-valued small-cap UK growth stock reporting next month is contamination control product manufacturer Tristel (LSE: TSTL). It reveals full-year figures on 18 October. 

Like Hotel Chocolat, Tristel is a stock I’ve long admired but never pulled the trigger on. It’s a high-quality, financially-sound company operating in a niche area. Let’s not forget that Covid-19 has cemented the need to do everything possible to reduce infection in healthcare settings. This should provide the company with a springboard for further sales growth. 

However, I just can’t get away from that valuation. A P/E of 60’s eye-watering, even if Tristel has hinted that a rise in (non-pandemic-related) hospital admissions towards the end of its financial year has increased demand for its disinfectant products.

Regardless of it doing everything right from here, a more general stock market wobble could really hammer the price as investors dash to cash. That makes for an unattractive risk/reward trade-off, in my view. As a result, Tristel remains stuck on my watchlist, for now.

Totally

Penny stock Totally (LSE: TLY) is a final small-cap UK growth stock I’ll be following next month. A Q3 trading update from the healthcare solutions provider is scheduled for 28 October.

Of the three discussed today, TLY shares have performed the best over the last year, almost doubling in value. Based purely on valuation, Totally also looks a lot more palatable than both HOTC and TSTL. Its shares currently command a forward P/E of 22. The balance sheet looks fairly solid and there’s an experienced management team at the helm.

Naturally, there are things to be wary of. The fact that Totally is only trading around the breakeven level right now is the key drawback for me. This is also a low-margin business. And while recent demand from the NHS has clearly been good, it’s worth questioning what happens when the Covid-19 storm finally passes. 

Another interesting UK growth stock then, but not one I’d feel comfortable buying before next month’s update.

The post 3 UK growth stocks I’m watching in October appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Hotel Chocolat. 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.

FTSE 250 bound?

The BlackRock Throgmorton Trust (LSE: THRG) is the fund in question. Its aim is simple. To provide investors with capital growth by putting the vast majority of assets to work in small- and mid-cap UK companies. There’s some exposure to overseas markets such as the US, France and Australia in there, but this is primarily a play on the British economy. 

According to its latest factsheet, the trust owns some of the best-performing stocks on the London market over the last year. Luxury timepiece retailer Watches of Switzerland is among the 10 biggest holdings, as are data analytics firm YouGov and Impax Asset Management. Lockdown winner Pets at Home and veterinary services provider CVS Group also feature. 

THRG’s sector allocation is rather contrarian too. It’s heavily exposed to industrial, consumer discretionary and financial shares. By contrast to, say, FTSE 100 member Scottish Mortgage Investment Trust, the number of technology-focused stocks is low at just 8%. For me, this makes Throgmorton’s gains all the more impressive.

So just how well has it done?

In the last year, the trust’s share price has climbed an impressive 61%. Out of interest, the FTSE 250 index that Throgmorton might end up joining achieved 33% over the same period. The latter is clearly far from a bad result, considering the impact of Covid-19 on businesses up and down the UK. Even so, this huge difference does show the value that experienced stock pickers can bring. 

Over a longer timeline, THRG’s outperformance is even more noticeable. The investment trust returned has delivered a staggering annualised return of 27.9% over the last five years. The Morningstar IT UK Smaller Companies benchmark has managed ‘just’ 14.6%. 

Things to remember…

As superb as the performance of this investment trust has been in recent years, I must bear a few things in mind. 

First, there’s no guarantee that recent gains will be repeated. In fact, a slowdown in the UK recovery might lead to a reversal in Throgmorton’s performance. The portfolio does include quite a few highly-rated stocks. These are often some of the first to be jettisoned when sentiment turns.

Second, investment trust share prices — especially those with a small-cap focus — can still be volatile. Minnows may possess the potential to generate better returns than top-tier blue-chips over the long term. Unfortunately, the journey to riches tends to be bumpier due to their relative illiquidity. That said, THRG does possess the ability to ‘short’ companies. So perhaps the downside might be more contained than at other similar trusts?

Third, it should never be forgotten that investment trusts levy fees. Throgmorton’s ongoing charge is currently 0.6%. Yes, the payment of a dividend does help to offset this. However, this is clearly a more expensive option than simply buying a set of promising stocks and sitting back. 

Cautious buy

Notwithstanding the above, I do think this investment trust could still occupy a space in my risk-tolerant portfolio. Also bear in mind that funds tracking the FTSE 250 will have to buy once its value breaches the FTSE 250 threshold. This should provide further support to the THRG share price and make it more appealing to me.

The post Time to buy this FTSE 250-bound investment trust? appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares in Scottish Mortgage Investment Trust. 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.

Tasty profit

First up is fresh-cream-but-egg-free cake maker/retailer Cake Box (LSE: CBOX). Back in June, the company reported revenue and pre-tax profit had climbed 16.9% and 11.8% respectively over the 12 months to the end of March. That’s really something when you consider its stores had to temporarily close during 2020.

Thankfully, online sales took the strain. These rose 84%, supported by the development of its own delivery platform. In addition to this, CBOX has also been introducing new products that cater to vegans and those on gluten-free diets.

Based on its rapidly expanding estate, I think the future looks pretty sweet for the company. Operating a franchise model, it had 157 stores by the end of the financial year. A further nine franchise stores have since been added with the company targeting 18-24 in total over FY22.

Factor in many people wanting to celebrate important events they previously couldn’t and I think it unlikely trading will suddenly reverse. I’m also encouraged by CEO Sukh Chamdal still owning 32% of the company. If I’m to back a small business, I want to know those running it have a significant amount of their own cash at stake.

Hot market

Another stock that could prove to be one of the best shares to buy in the small-cap space right now is Property Franchise Group (LSE: TPFG). Now the largest property franchisor in the UK, the firm also manages the second largest estate agency network and a portfolio of lettings properties in the UK.

In its recent trading update, the company reported like for like revenue and management service fees were “significantly up” over the first half of 2021, compared to the same six months in 2020. While that might be inevitable considering the impact of Covid-19, this result also beat numbers from 2019.

The reason? A white-hot UK housing market has generated huge sales growth. Increasing prices have also allowed the company to collect a larger average fee. Since this shows no signs of slowing down just yet, TPFG now is confident of “a very strong trading performance for the full financial year“. The recent purchase of Hunters estate agents will no doubt help as well.  As such, I think the shares could go higher from here.

Know the risks

Before buying either (or any) small-cap stock, investors need to be aware that their share prices have the potential to be highly volatile. Part of the reason is that minnows tend to have small ‘free floats’. This refers to the proportion of a company’s shares trading on the market. In practice, a small float means it only takes a bit of selling or buying to produce big swings.

There are more specific things to consider. Based on current earnings estimates, CBOX shares change hands for 25 times earnings. That’s not excessive, but nor is it a bargain either. A P/E of 14 makes Property Franchise far cheaper. However, it’s naturally exposed to a slowdown in the property market — although this may be some way off.

As always, it’s vital to keep expectations in check. 

The post 2 of the best small-cap shares to buy now appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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

Small-cap stocks tend to be under-researched by professional investors. This makes them a potential source of great returns for private investors like me who can buy before they catch on more widely. With this in mind, here are two that I’d be willing to begin building a position in today.

SDI

SDI (LSE: SDI) designs and manufactures scientific and technology products for use in digital imaging and sensing and control applications. Like FTSE 100 health and safety giant Halma, it’s actually a collection of businesses that all contribute to the bottom line. The shares are up over 300% in the last 12 months! That’s despite the business being impacted by Covid-19-related shutdowns.  

Full-year (FY21) numbers are due in mid-July. Based on what the company had to say in May, I don’t think those already invested need to worry. 

In its most recent update, SDI said that revenue and adjusted pre-tax profit of roughly £35.3m and £7.4m, respectively, would likely be reported next month. Importantly, these were improved estimates from those given in February thanks to “robust” sales in March and April. This is impressive considering the company had reported that it would already exceed analyst predictions two months earlier.

Any drawbacks? Well, the shares don’t scream value. A forecast price-to-earnings (P/E) figure of just under 30 means that SDI has its work cut out to keep impressing the market. Then again, I do wonder if management’s decision to not change its expectations on FY22 despite recent momentum could see it surprising on the upside next month. After all, the lifting of restrictions will surely allow the company to pick up even more business in the months ahead.

Regardless, an investor like me shouldn’t let a single report on trading dictate whether I buy or not. As such, I’d be happy to start buying this small-cap stock today. 

Agronomics

Alternative food companies are hot right now. In the US, stocks such as Beyond Meat have grabbed investors’ attention, as has the recent (successful) listing of Oatly.

As a UK investor, I’m not exactly spoilt for choice in this area. However, one option I like is Agronomics (LSE: ANIC). It’s focused on owning companies that specialise in cultivated meat. This is grown in a lab from cells rather than taken from slaughtered animals.

In addition to addressing concerns about animal welfare, this process is far more environmentally friendly. As things stand, almost 50% of the water used in the US goes on raising animals for food. They also consume 80% of all antibiotics due to being kept in less-than-ideal conditions.

Agronomics believes its companies (including Blue Nalu and Mosa Meat) will help disrupt the $7.3trn global meat, poultry and seafood market. That’s a bold claim and I suspect getting people to eat ‘clean’ won’t be a smooth process. The fact that it’s a small-cap stock also means the share price could be volatile. It’s already down over a third in value since hitting a high of 37p only last month.

Notwithstanding this, I do find the investment case pretty compelling. The fact that Richard Read (founder of Innocent drinks) and entrepreneur Jim Mellon are on the board is particularly encouraging.

Like SDI, I’m not sure I’d go ‘all in’ right now. However, I’d have no trouble taking a small stake in Agronomics today. 

The post 2 small-cap shares to buy today appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Beyond Meat, Inc. The Motley Fool UK has recommended Halma. 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.

Inspecs

Since covering the company in September, eyewear frames designer, manufacturer and distributor Inspecs (LSE: SPEC) has performed well. Its share price has climbed 45%. Over the last year, it’s up 59%.

That may seem strange considering today’s full-year numbers. Revenue fell 22.5% to $47.4m in 2020. A pre-tax loss of $8.9m was also revealed.

Of course, the usual suspect — Covid-19 — was to blame. Early on in the pandemic, Inspecs’s production site in China was impacted. Lockdowns globally then forced clients to shut stores and distribution depots closed. This was never going to be an easy ride for the £350m cap. 

On a more positive note, Inspecs revealed today that trading had significantly improved in the second half of last year. This, coupled with the emergence of effective vaccines, goes some way to explaining why the share price has remained resilient.

Whether the valuation continues increasing over the rest of 2021 is hard to say. Like most businesses, Inspecs’ near-term outlook will depend on whether we really are coming to the end of the pandemic. Although trading has recovered, it would be brave (or foolish) to assume no risk remains.

Even so, I remain bullish from a longer-term perspective. As part of its growth strategy, 2020 saw Inspecs acquiring other businesses, increasing its manufacturing capacity and adding more brands to its portfolio. A new facility in Vietnam is now up and running and the AIM-listed company’s order books are “higher than at the same time in 2020 on a like for like basis”.

Taking all this into account, I’d still be happy to buy this growth stock at its current price.

CVS Group

Since I wrote about it at the same time, it makes sense to return to look at how shares in veterinary services firm CVS Group (LSE: CVSG) have performed too.

Thanks to the huge growth in pet ownership seen over the multiple UK lockdowns, it’s no surprise to see that the shares have pretty much doubled in value. In the last year, the price is up 131%!

Encouragingly, the company reported in April that the trading momentum seen earlier in 2021 had continued. Sales remained “strong“, helped by the Royal College of Veterinary Surgeons’ decision to permit non-essential services.

As a result, CVS now expects revenue for FY21 to be better than previous expectations. Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) will also be “comfortably ahead“.  This is exactly what investors want to hear from companies they own.

So, is it time to take profit? I’m not so sure. Since spending on pets is non-discretionary (owners consider them members of the family), I actually think there’s more upside ahead. This is exactly why top UK fund managers such as Terry Smith love this part of the market. 

CVS Group has had a great run, reflected in its rich valuation of 31 times forecast earnings. However, I’d be far more comfortable buying a slice of this company today over a similarly priced but cyclical growth stock. 

The post 2 hot UK growth stocks I’d buy today appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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

Premier Miton

AIM-listed asset manager Premier Miton (LSE: PMI) is first up.

Thanks to some great performances from its funds, the firm has been attracting more investors. By the end of March, Premier had £12.6bn in assets under management. This compares favourably to the £9.1bn by this point in 2020. At £6.2m, pre-tax profit over the last interim period came in 17% higher. 

On dividends, Premier didn’t disappoint either. It recently hiked the interim payout by 48% to 3.7p per share. Such a jump is indicative of a very confident board. Right now, the small-cap’s shares have a chunky forecast yield of 5.2%. This payout is also safely covered 1.5 times by expected profits.

Although there can be no guarantees in the stock market (and Premier’s fortunes will be dictated by some things beyond its control), I think all this makes the company a good dividend pick. Taking into account its strong financial position, the shares are reasonably priced at 13 times earnings.

Gateley

Legal services firm Gateley (LSE: GTLY) looks to be another decent income stock from the small-cap world, in my opinion. 

In last week’s trading update, the business stated that trading had “continued to improve” over H2. It’s now predicting that full-year revenue will be at least £120m — up 9.3% on the previous year. Pre-tax profits will also be up at least 8.1% to £16m.

Analysts have the company returning 7.98p per share in dividends. That becomes a yield of 4% based on last Friday’s closing share price. Again, the payout looks likely to be sufficiently covered by profits (1.6 times). Like Premier, Gately has a reassuringly large net cash position (£20m). 

As far as drawbacks go, I do need to remember that Covid-19 could continue impacting companies offering professional services. It’s also worth mentioning that the free float (the number of shares available to buy on the market) is relatively low, making it a fairly illiquid stock. This can potentially lead to big increases in the share price. Sadly, the reverse is also possible. 

H&T

Pawnbroker, gold purchaser and jewellery retailer H&T (LSE: HAT) may not be everyone’s cup of tea, but I think it has good dividend credentials.

While only a prediction, analysts have it returning 7.46p per share in FY21. That gives the lowest yield of the three income stocks discussed here (2.7%). However, H&T also has the highest amount of dividend cover (2.6 times profits). Of course, the payout could end up being better if trading goes well over the rest of the year.

Clearly, H&T’s outlook is also dependent to some extent on what happens regarding Covid. Even though the firm provides “essential financial services” and has an online presence, it really needs high streets to remain open. Based on the success of the vaccination programme so far, I’m optimistic. Even so, Boris Johnson may still end up changing his road map in June. 

On a more positive note, a strong balance sheet suggests H&T is capable of weathering further storms. A rebounding gold price won’t do any harm either.  

The post 3 secret income stocks to buy in June appeared first on The Twelfth Magpie.

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

Boring but beautiful

Yes, I know — JHD’s line of work will never quicken the pulse in the same way as a blue-sky tech stock might. Then again, I find many of the best long-term investments tend to be those that never make the headlines. Despite shares up roughly 2,000% over the last 20 years, James Halstead has managed to remain a low-key operator.

Today’s interim results show the mid-cap firm is continuing to do all the right things. At £130.5m for the six months to the end of last December, revenue was pretty much identical to that achieved last year. However, it’s worth pointing this level of sales was a record for the company. That’s some feat considering how disruptive the pandemic has been. At £26m, pre-tax profit was 3.3% higher than over the same period in 2019. This was another record result.

As an investment, James Halstead ticks a lot of my boxes. It operates in many markets around the world, serving customers in many industries (retail, hospitality, healthcare). It also generates great returns on capital — a key metric for star fund managers such as Nick Train and Terry Smith. On top of this, JHD has a bulletproof balance sheet and consistently increases its dividends.

All this aside, there are a few drawbacks to investing now. For one, the shares are expensive to acquire, trading as they do on 29 times forecast earnings. While performance over the very long term has been fantastic, some may be put off by the fact that the company is now worth over £1bn. As such, big share price gains are less likely going forward. 

On balance though, I’d be happy to add a stake to my Stocks and Shares ISA today.

Under-the-radar winner

Another quality AIM-listed stock, in my opinion, is Mortgage Advice Bureau (LSE: MAB1). Like James Halstead, the stock has shown itself to be an excellent long-term investment. Since listing in 2014, the share price has climbed over 600%.

Last week’s full-year results for 2020 suggests there’s more to come. Despite gross new mortgage lending falling 9% in the market as a whole, MAB’s revenue rose by 3% to a little over £148m.

Mortgage completions were up by 5% to £17.6bn and the firm grew its market share of new mortgage lending to 6.3%. Quickly establishing itself as an excellent source of dividends, the mid-cap also raised its total payout by 46%!

In terms of risk, MAB is clearly exposed to a any downturn in the housing market. While the Stamp Duty holiday extension and the growing availability of 95% mortgages are reasons to be optimistic about demand, we still don’t know the full economic impact of the pandemic.

Secondly, the shares are even more expensive to buy than those of James Halstead. MAB has a forecast P/E of 31.

Of course, it isn’t necessary to invest in MAB directly to get exposure. The company makes up almost 4% of CFP SDL Free Spirit — a fund I hold within my own Stocks and Shares ISA.

The post 2 high-quality AIM shares I’d buy for my Stocks and Shares ISA appeared first on The Twelfth Magpie.

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Paul Summers owns shares of CFP SDL Free Spirit. 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.