Strong balance sheet

Today’s interim results show revenue broadly flat compared to a year ago and basic earnings per share coming in at 2.8p, which demonstrates a much better outcome than the 1.3p per share loss during the first half of 2016. One of the things I like about the company is its debt-free balance sheet, which shows a cash pile of £10m, although a year ago the firm had almost £15m in cash. I’m optimistic that a profit recovery will stem any further cash outflow from the firm’s coffers.

The firm sells its products under the brand names FireAngel, SONA and AngelEye, claiming that it owns a patented intellectual property in Europe, the US and other territories. Executive chairman Graham Whitworth reckons Sprue Aegis is “transforming into a lean, technology-driven safety products business in the high growth potential connected home safety products market.”  

Positive developments

The company aims to become an independent technology business with outsourced manufacturing, and the directors think a new manufacturing and supply agreement signed with a firm called Flex during March will drive strong progress in 2017 and 2018. A focus on product innovation and promotion of its FireAngel brand should help the firm exploit new and existing markets with a wider product range. The outlook is positive.

At today’s 212p share price, the forward price-to-earnings (P/E) ratio runs just under 18 for 2018 and the forward dividend yield is 4.7%. I don’t think the valuation is excessive for a firm with such decent-looking forward prospects.

Cyclical to the core

I’d rather take my chances with Sprue Aegis than with Lloyds Banking Group (LSE: LLOY). The banking giant’s share price has been moving sideways for almost four years and it seems unlikely that a sudden surge upwards will occur anytime soon. What would drive it? City analysts predict that earnings will advance almost 160% this year, but the stock market has taken that recovery in its stride. It looks like investors expected the rebound in earnings but the firm seems unlikely to repeat the feat. During 2018, the forecast is for earnings to slip back by 4%. Meanwhile, the share price put in its big rise for the current business recovery around four years ago. 

Today’s share price around 66p throws up a forward dividend yield just over 6.5% for 2018, but I wouldn’t buy the stock for that. Lloyds is an out-and-out cyclical business, which means that profits and the dividend could all disappear as fast as the share price could plummet if the UK economy takes a dive. Right now, I’d ditch Lloyds Banking Group because I think the downside risk outweighs the upside potential. Having sold out, I’d likely put the proceeds into a firm such as Sprue Aegis to capture its chunky dividend yield and growth prospects. 

The post Why I’d ditch Lloyds Banking Group plc to buy this dividend and growth stock appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking 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.

Positive update

Reporting on Thursday was Sprue (LSE: SPRP), one of Europe’s leading developers and suppliers of home safety products. It released an AGM statement which caused its share price to soar by around 10%, as investors became increasingly positive regarding its growth outlook.

Sprue has made a good start to the current year, with an expected strong return to profitability in the first half of the year. The business has seen an improvement in gross margin, as well as a reduction in overheads, which could position it for rising profitability over the medium term. This is set to be aided by the new manufacturing and distribution arrangements which were recently announced by the company. They should strengthen its position within key markets across Europe and enhance its product offering.

Looking ahead, Sprue is forecast to record a rise in its bottom line of 128% this year, followed by further growth of 32% next year. Even after a 21% share price rise since the start of the year, it continues to offer excellent value for money based on its forecasts. For example, it trades on a price-to-earnings growth (PEG) ratio of just 0.5, which suggests that now could be the perfect time to buy it.

Growth potential

Also offering strong growth prospects is specialist in the provision of testing systems to the global motor industry Ab Dynamics (LSE: ABDP). It is expected to report a rise in its bottom line of 22% next year, which comes after a period of strong growth for the business. For example, in the last three years it has been able to increase its bottom line at an annualised rate of around 22%. This shows that the business may offer a degree of consistency, which could mean it justifies a higher valuation.

In terms of its rating, Ab Dynamics appears to have significant upside potential. It currently trades on a price-to-earnings (P/E) ratio of 25. When combined with its forecast earnings growth rate, this equates to a PEG ratio of around 1.1. This indicates that more share price growth could lie ahead following its 40% rise over the last year.

In terms of a catalyst to push its share price higher, Ab Dynamics is expected to increase dividend payments by around 10% per annum during the next two years. Although this will still mean a lowly dividend yield of 0.6%, with shareholder payouts covered around seven times by profit, more dividend growth could be on the horizon.

The post These small-cap growth stocks look significantly undervalued appeared first on The Twelfth Magpie.

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Peter Stephens 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.

A new beginning?

Support services group Lakehouse (LSE: LAKE) has risen by 7% so far today, after the group announced a solid set of underlying financial results for the year ending 30 September.

It reported an underlying pre-tax profit of £9.9m and underlying revenue of £305.8m for last year. This equates to underlying earnings per share of 5.2p, which puts the stock on a trailing P/E of about 7.

The group’s dividend has been cut as I expected, but not abandoned. Lakehouse will pay a final dividend of 0.5p per share, giving a total payout of 1.5p and a trailing yield of 4.1%.

The group’s order book currently stands at £543m, down by around 10% from £595m at this point last year. However, forward visibility of revenue for the current year was 87% in November, above last year’s like-for-like comparison of 77%.

Before today’s announcement, the firm’s house broker was forecasting adjusted earnings of 8.7p per share for the 2016/17 financial year, with a dividend of 3.1p per share.

These forecasts may change after today’s results, but if they’re correct then Lakehouse trades on a forecast P/E of 4.2 with a prospective yield of 8.5%. If the company can deliver on these forecasts, then I’d expect the shares to double.

However, significant uncertainty remains, and debt has risen as a result of recent acquisitions. I’d want to do further research before deciding whether to invest.

A smoking recovery?

Smoke alarm manufacturer Sprue Aegis (LSE: SPRP) had a grim 2016, with the shares losing half their value after a series of problems and profit warnings.

Things seem to be getting back on track. In a trading update today, the company said it expects to report full-year sales of £57.1m for 2016, in line with consensus forecasts of £58m.

Adjusted operating profit is expected to be £2.1m, which looks about right to me, against forecasts for adjusted (post-tax) earnings of £1.12m.

Sprue’s recovery appears to have been driven by the German market, where new rules have triggered a surge in demand for smoke alarms. The firm said that German sales rose by 52% last year after a new range of products — which had been delayed — went on sale. Sprue expects Germany to remain a significant growth market over the coming years.

However, the company did warn that costs have risen significantly since the EU referendum, as a result of sterling’s weakness against the dollar. Most of the group’s manufacturing costs are in dollars.

Sprue ended last year with net cash of £14.3m and no debt. This suggests to me that the group’s dividend of 8p per share will be maintained, giving the stock a forecast yield of 4.6%.

However, at 173p, the shares look expensive when measured against 2016 forecast earnings of 4.2p per share. In my opinion, the company’s investment appeal depends on whether it can hit broker forecasts for earnings of 11p per share in 2017. For now, I rate Sprue as a hold.

The post 2 small caps that could double in 2017 appeared first on The Twelfth Magpie.

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

Inland says the cause of the problem is that a contractor employed on four of its housing sites went into administration during the year. This forced Inland to take over the completion of the sites itself. This delayed progress and completion of 23 properties has been pushed back into the current year.

However, today’s update also shows that Inland only sold 147 homes and 425 plots in the year to 30 June. This is a reduction from 248 homes and 440 plots during the previous year.

Although the number of homes sold in 2015 was distorted by a bulk sale of 59 units, these figures still suggest to me that the firm’s market in London and the south east may be slowing.

Inland does have a valuable land bank. The firm’s shares trade at a 25% discount to the last reported EPRA net asset value of 84.4p per share. But this discount is erased by the group’s net debt, which was £54m at the end of 2015. 

I’d rate the shares as a hold until Inland’s next set of accounts are published.

Good progress towards a recovery?

A major profit warning in April caused smoke alarm firm Sprue Aegis (LSE: SPRP) to lose nearly half its value. The shares are still down by 48% so far this year.

But today’s update suggests Sprue’s recovery is going better than expected. Strong trading in June means the group now expects to report a first-half adjusted operating loss of £0.9m. This is significantly lower than the £1.9m operating loss that was forecast in April.

Shareholders will also be pleased that last year’s interim dividend of 2.5p per share will be left unchanged.

The company says that full-year sales are now expected to be £59m, slightly above current forecasts for £55m. Full-year operating profit is expected to be £1.9m. The firm’s recovery has been helped by a strong net cash balance. And while net cash has fallen from £22m at the end of last year to £14.7m, this buffer has enabled the firm to deal with exceptional costs without having to borrow money.

Overall, my view is that the current share price of 180p is about right.

Could currency profits soar?

Shares in currency manager Record (LSE: REC) edged lower this morning after the firm said that its assets under management equivalents (AUME) fell from $53.7bn to $53bn during the firm’s first quarter.

Although the performance of the firm’s investment strategies was mixed during the quarter, Record managed to increase the number of clients on its books from 58 to 61. AUME withdrawals by clients also slowed from $1.5bn during the previous quarter to just $0.1bn.

The growth outlook for Record appears slightly uncertain. But the company has an attractive 32% operating margin and generates a lot of cash. Based on the latest accounts, net cash accounts for around 15p of the current 25p share price.

On that basis, Record’s forecast P/E of 11.4 and prospective dividend of 6.2% could be a good buy for value investors.

The post Should you buy these small-caps after today’s news? appeared first on The Twelfth Magpie.

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

2015 profits hammered by claims

Sprue Aegis says that a quality issue has been found with the batteries fitted to some of its alarms. It seems that these batteries won’t last as long as they should. Most modern smoke alarms are sealed with a guaranteed lifespan. As a result, Sprue expects a surge of warranty claims triggered by low battery alarms sounding within the warranty period.

The firm said today that it’s increasing its provision for 2015 warranty claims by £5.5m to £6.8m, up from just £0.9m in 2014. As a result, the firm’s adjusted operating profit for 2015 is expected to be £7.3m, down from previous guidance of £12.1m.

My estimates suggest that this could result in 2015 earnings of about 13p per share, down from previous forecasts of 22.6p per share. If I’m right, then today’s fall leaves Sprue trading on a 2015 forecast P/E of about 11.

If 2016 trading was going well, then this might have been a good buying opportunity. Unfortunately, 2016 is shaping up to be a bad year for Sprue Aegis.

2016 looks grim

Although it hand’t yet published its 2015 results, today’s trading statement covered the first quarter of 2016. Sales have fallen significantly below expectations in France and Germany. French sales surged last year, after a change to the law required all homes to have at least one smoke alarm. However, French retailers now appear to have been left with surplus stock they can’t shift.

In Germany, the firm says that “product certification delays” on new models are responsible for weaker sales and these two factors are expected to result in Sprue Aegis reporting an operating loss of £1.9m for the first half of 2016.

Although the group expects to return to profit during the second half of this year, full-year sales are now expected to be just £55m, down by 22% from previous broker forecasts of £70m. Full-year operating profit is expected to be just £1.9m, down from £7.3m in 2015.

Is Sprue a recovery buy?

Sprue Aegis said today that it still plans to pay a final dividend for the year ending 2015. However, the dividend outlook for 2016 seems very uncertain to me. I suspect the payout will be cut or cancelled.

Despite this gloomy outlook, it’s worth remembering that Sprue ended 2015 with net cash of £22.4m. It has historically been a well-run company and two of the firm’s directors — Chairman Graham Whitworth and Managing Director Nicholas Rutter — are major shareholders, with a combined 13.8% of the shares.

Sprue doesn’t seem to be in any danger of financial distress. Most of the problems announced today sound to me like one-off issues that should be resolved within 12 months. I think Sprue could be a good recovery buy at some point, but I think it would be wise to wait and see if things really do improve later this year before deciding whether to invest.

The post This Is Why Sprue Aegis PLC Crashed By 45% Today appeared first on The Twelfth Magpie.

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

The volatility that began last year shows no signs of abating with the FTSE 100 swinging from highs to lows within a range of 5,500 to around 6,000 points. It’s worrying though that the lows seem to be getting lower, which could spell trouble.

Scratching beneath the surface

While all of the news is about under-pressure blue-chips, there are plenty of cash-rich profitable companies that are worth a look and I’ve selected three to review today:

Photo-Me International (LSE: PHTM) is a UK-based company engaged in operating photo booths and coin operated products including washing machines and car washes.

Sprue Aegis (LSE: SPRP) is in the business of the design, sale and marketing of smoke and carbon monoxide (CO) detectors and accessories.

And PayPoint (LSE: PAY), through its subsidiaries, provides clients with specialist consumer payment and other services and products, transaction processing and settlement services.

Beating expectations

True, these companies aren’t the most exciting, but all are profitable and boast plenty of net cash on the balance sheet so aren’t beholden to banks should the economy and trading conditions take a turn for the worse.

However, this isn’t the case currently, especially where Photo-Me is concerned. This morning the company released news that the strong trading that the company had witnessed in Japan as the My Number programme is introduced had continued into the third quarter. It saw a better than expected performance here, coupled with the year-to-date performance of the rest of the business where the recent laundry roll-out is also producing promising results. This led management to believe that pre-tax profits for the full year would be in excess of £40m. However, if trading in Japan continues to be this strong, this figure would again need to be upgraded.

Current forecasts for the company put the shares on a rather punchy 21 times forecast earnings according to data from Stockopedia. However I suspect that this will start to recede as analysts again have to revise up their earnings target.

This bodes well for shareholders as the board revised the dividend policy recently to include a special dividend taken from excess cash over £50m on the balance sheet. Given that there’s currently £66m, I’m expecting a bumper payout in November.

Not to be outdone, Sprue Aegis recently announced it had over £22m, or nearly 20% of its market cap, in cash. This was despite investing in additional stock to avoid any disruption to its supply chain as the Chinese factory that builds most of its products relocated to another site.

PayPoint also reported that the group maintained a strong balance sheet, with cash of £56m, up £10m from 30 September. Although the cash balance includes amounts held to settle short-term client obligations of £28.3m, the cash that belongs to the company equates to around 6% of the market cap and it’s none too shabby.

Dividend appeal

As well as the cash on the books, theese companies are also set to pay dividends in excess of the market as a whole with 4% at Sprue Aegis, 5% at Photo-Me and over 6% at PayPoint – what’s not to like?

The post Photo-Me International plc Beating Expectations, Cashed-Up Sprue Aegis plc and PayPoint plc Yielding Over 6% appeared first on The Twelfth Magpie.

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Dave Sullivan owns shares of Photo-me and PayPoint. The Motley Fool UK owns shares of PayPoint. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The key reason for today’s gain is that Sprue Aegis expects to post a first-half sales figure that’s more than twice that of the previous year, with revenue set to reach £56.5m, up from £23.8m in the first half of last year. Furthermore, operating profit for the period is due to be over three times that of the first half of 2014, with it expected to hit £9m, way ahead of the £2.7m in the same period last year.

Strong performance

And that’s despite significant currency headwinds, with sterling strengthening against both the Euro and the US dollar. In fact, Sprue Aegis estimates that under constant currency conditions its operating profit would have been as much as 68% higher than its expected reported level, which shows just how strong its performance in the first half of the year has been.

Of course, Sprue Aegis operates within Europe and, with the Eurozone continuing to offer little in the way of growth potential, this exposure could put many investors off investing in the company’s shares. However, a key reason for its recent growth was strength in the French market, driven by new legislation that requires all rental properties in the country to install at least one smoke alarm by the end of 2015.

Hugely positive

Looking ahead, Sprue Aegis expects orders in France to soften, as landlords comply with the new legislation. However, it continues to have excellent order visibility and, while its new mains-powered range of products called SONA have been subject to production set-up delays, it expects them to drive UK trade sales. That’s especially the case since the company has received very positive feedback from customers on the new products.

Clearly, today’s update is hugely positive and Sprue Aegis now expects full-year results to be well-ahead of expectations. As such, it seems likely that the company’s share price will continue to push upwards, since there has been a major step-change in investor sentiment that could last for the short to medium term. And, with dividends being increased by 25% in the interim results, Sprue Aegis’s dividend yield of 3% is likely to move considerably higher as a trebling of profit should allow what was already a well-covered dividend to grow.

Excellent value

So, while it trades on an historic price to earnings (P/E) ratio of 18.7, which is relatively high, Sprue Aegis’s excellent growth potential means that its shares appear to offer excellent value for money. As such, and with the company continuing to invest in product innovation and technology to expand and improve its range, it appears to be worth buying at the present time.

The post Sprue Aegis PLC Surges Over 10% As Profit Set To Treble! appeared first on The Twelfth Magpie.

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

The sharp fall comes despite Sprue reporting a record performance for 2014, with a 36% surge in revenue, up to £65.6m, and record reported operating profit, which was up 88%, at £9.6m. And at like-for-like exchange rates with 2013, group profit for 2015 would have been approximately £1.7m higher.

Basic earnings per share (EPS) rose 62%, to 18.8p, and the board is recommending a final dividend of 6p per share. Conbined with Sprue’s maiden interim dividend of 2p per share, that would represens a 33% increase in the total dividend, taking it to 8p per share.

Operational highlights from 2014 include move from ICAP Securities & Derivatives Exchange (ISDX) to AIM on 30 April 2014 and raiing £8m from a placing of new shares, securing  exclusive European distribution rights over BRK Brands’ products and brands on improved terms until at least 31 March 2018, and the company’s French market” significantly out-performing management expectations”.

Commenting on the results Graham Whitworth said:

“Sprue’s mission remains to protect, save and improve our customers’ lives by making innovative, leading edge technology simple and accessible. It is a simple philosophy. At the same time, we remain focussed on driving shareholder returns and will continue to invest in our product base and technology and with Nick Rutter [a co-founder] devoting more time to drive this initiative, we will continue to enhance our market leadership position in each of the markets in which we operate.”

Despite this morning’s fall, at 290.5p, Sprue’s share price is up 35% on this time last year, during which time the AIM All-Share index has fallen 8%.

The post Sprue Aegis PLC Reveals Record Results, But Drops On Profit Warning appeared first on The Twelfth Magpie.

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• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
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Jon Wallis has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.