We’ve endured a stomach-churning ride with the share price over the last couple of years due mainly to the push-pull relationship between the firm’s largest divisions. The housebuilding division, Linden Homes, has been wonderfully profitable, but the firm has found it hard to keep the construction operation in the black and today’s results reflect the internal battle.

One-off charge

Compared to a year ago, revenue is up 9% but earnings declined 55% due to the “profit impact of the one-off charge of £98.3m announced in May.”  In other words, Linden Homes made lots of profit but losses in the construction division took half of it away.

However, the directors assure us that forward contracts in the construction division are under control and the firm is treating the hit to profits as an exceptional item. I hope they are right because the company puts a lot of effort into its construction operation, which accounted for around 55% of revenue during the period.

Looking at the figures after ignoring the exceptional charge to profits, underlying earnings per share lifted 10%. The firm also moved from a net debt position of £8.7m to a net cash position of £7.2m. The directors made an implied statement about their confidence in Galliford Try’s forward prospects by pushing up the full-year dividend by 17%.

High dividend

And the dividend looks attractive. At today’s 1,373p share price, the forward yield for the year to June 2018 runs at 7% and City analysts following the firm expect earnings to advance 16% and cover the payout almost 1.8 times. As long as the UK economy and the housing market are not about to plunge into recession, I think Galliford Try looks interesting from here.

Meanwhile, London-listed German company SQS Software Quality Systems AG (LSE: SQS) reported its interim results today and they look good, with revenue at constant currency rates up just over 1% and adjusted earnings per share lifting a little over 18%.

The firm provides quality assurance services for digital business processes and reckons it delivers solutions for all aspects of quality throughout the whole software product lifecycle, driven by a standardised methodology, industrialised automation processes and deep domain knowledge in various industries. According to the directors, more than 52% of total revenue comes from digital engagements where the firm executes a digital strategy or “transformation to open up new business models”

Positive outlook

The outlook comments in today’s report are upbeat and chief executive Diederik Vos said: “We are seeing healthy demand for our service offering, with continued good performance across all our verticals.” City analysts following the company expect earnings to decline 1% this year and to advance by 5% during 2018, which throws up a forward price-to-earnings ratio at today’s 552p share price of 12.5.

The forward dividend yield runs at a little over 2.9% and those forward earnings should cover the payout a comfortable 2.7 times. I’m tempted by SQS and think it looks set to make a decent defensive dividend play from here.

The post 2 little-known dividend stocks I’d buy today 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 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.

The German firm’s shares trade hands at an attractive 13.6 times forward earnings, despite seven straight years of sales growth and management nearly doubling earnings over the last four years to €0.47 per share by 2016.

The key has been steadily increasing demand for the company’s quality assurance testing, alongside accelerating growth from its consulting arm. Looking ahead, the future appears bright for overall global demand for SQS’s services as more and more software is designed to operate everything from cars to household appliances and industrial machinery.

On top of sales growth, the company’s management team is also focusing on margin improvements by shifting focus to higher-margin consulting work. In the short term this is causing some jittery nerves among investors as it involves managing the steady decline in sales from low margin, short-term contracts in its professional services division that still accounts for 29% of sales.

However over the long term, this shift should be encouraged as it fits into management’s plan to increase EBIT margins to 9%. Good progress is already being made toward this target with H1 2017 EBIT margins rising from 6.9% to 7.5% year-on-year. As SQS expands its offering and solidifies its market-leading position, there is considerable room to improve margins, cash flow and sales through cross-selling higher margin consulting work.

Together with overall market growth, a growing 2.4% dividend yield and a very reasonable valuation, I reckon SQS is worth a closer look from growth-hungry investors this month.

A safer way to cash in on tech stocks?

If you’re looking for exposure to the tech industry but prefer a more diversified approach, you may be keen on Polar Capital Technology Trust (LSE: PCT). At the end of June, the fund owned the shares of 121 global tech firms with the top 15 accounting for roughly half of the portfolio’s value.

As is common with investment trusts, the fund trades at a slight 2.2% discount to its net asset value (NAV). This reflects ongoing annual management fees of 1% on assets up to £800m and performance charges of 15% when returns exceed that of the benchmark Dow Jones World Technology Index.

For investors who aren’t put off by paying these ongoing fees, the fund does offer an easy way to hold a basket of predominately foreign tech shares as UK stocks account for only 1.4% of the portfolio. Unsurprisingly, North American stocks are the most represented with Alphabet, Apple, Microsoft and Facebook alone accounting for 25.6% of the fund’s assets.

The post Two bargain basement growth stocks to consider in July appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (C shares), Apple, and Facebook. 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 I’m going to take a look at two, including one of Lord Lee’s current holdings. I believe both firm have the potential to outperform the market over the coming years.

Rising profit margins

Software testing specialist SQS Software Quality Systems (LSE: SQS) gained 13% this morning, after revealing a sharp increase in profit margins during the first half of the current year. In its half-year trading update, it said increasing automation of its services had lifted the group’s adjusted operating margin to 7.5%, up from 6.9% for the same period last year.

The company said that it expects second-half revenue to be higher than for H1, thanks to “a number of known business wins starting later in the year”. Management says it has a “stronger pipeline” of sales opportunities than in 2016 and expects to benefit from “a range of emerging growth opportunities”.

In the medium term, SQS expects to be able to deliver an adjusted operating margin of 9% and a corresponding improvement in cash flow. This sounds appealing to me, especially given the stock’s modest valuation.

Investor confidence in the firm was shaken in March and the shares fell from more than 600p to less than 500p. Investors were alarmed by a drop in revenue in the Managed Services division that had showed up in last year’s results.

However, today’s update suggests to me that the steps taken to address these changing business conditions are working well. Evan after today’s gains, the shares are still trading on a modest forecast P/E of 12.7 with a prospective yield of 3.1%. That looks cheap enough to me.

A ‘sticky’ specialist

One of the stock holdings listed by Lord Lee in his parliamentary register of interests is electronics group Concurrent Technologies (LSE: CNC).

This is a specialist business that makes computer boards for critical applications, such as use in harsh environments. Many of the firm’s customers are in the defence sector, but Concurrent products are also used in other markets, including aerospace, telecoms, transportation and industry.

The shares have risen by about 30% since March, when the company reported a 6.2% increase in pre-tax profits and hiked the dividend by 10.5% to 2.1p per share, giving a yield of 2.6%.

The shares now trade on about 17 times trailing earnings, so they aren’t obviously cheap. Despite this, I think Concurrent could remain a smart long-term buy.

The group’s profits have been variable in recent years, perhaps due to the lumpiness of new product introductions and major customer orders. However, the trend in earnings has been upwards and dividend growth has been very consistent, averaging 6% per year since 2011. Net cash rose by 32% to £7.8m at the end of last year, accounting for more than 10% of the company’s £60m market cap.

I believe this business offers good long-term growth opportunities and appears to have a capable and prudent management team. In my view, the shares are definitely worth a closer look.

The post 2 small-cap growth stocks for successful investors 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. 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.

Anything to do with software technology can scare away more conservative investors, but it’s an area where margins are often high, and where great growth candidates can be found. Here are two that impress me.

Language support

Shares in language translation software and services specialist SDL (LSE: SDL) have doubled since September 2013, rising to 501p at the time of 2016 results day.

A “new strategy, structure and branding” has been happening, including the disposal of non-core businesses, and that’s almost done now, with just the tail-end still ongoing.

With resulting one-off items of £13.1m, SDL recorded a pre-tax loss of £15.8m. That’s better than the £25.2m loss a year previously, and continuing operations swung to a pre-tax profit of £11m (with an adjusted PBTA figure of £27m).

Adjusted EPS from continuing operations climbed from 21.17p in 2015 to 26.58p, and the total dividend was doubled to 6.2p per share, with the firm announcing a new progressive policy. On today’s share price that’s a yield of only 1.2%. But chief executive Adolfo Hernandez said the board “remains confident of another year of profitable growth which is reflected in the proposed realignment of our dividend,” and the City will need to upgrade its forecasts now.

There are a few things that impress me about SDL, including the firm’s improving margins and the fact that its software and services are used by a very wide range of clients — we heard that no single customer accounts for more than 5% of total revenue, and that customer acquisition among leading international brands is progressing well.

Forecasts suggest a P/E of 16.5 by 2018, and while that’s high enough to suggest confidence is growing in the firm, it’s low enough for me to think it’s still good value. If EPS growth is maintained over the next few years, I can see the well-covered dividend ramping up attractively. I reckon there’s a good future here.

Software quality

You might not be too familiar with SQS Software Quality Systems (LSE: SQS) — it’s a Cologne-based “specialist in end-to-end software and business process quality solutions” with a listing on AIM.

The big question is why did its shares plunge by 12% on Tuesday? The reason must be down to full-year results for 2016 just released, even though they look good, with chief executive Diederik Vos speaking of “another strong year” and telling us “we enter 2017 with confidence.“

Perhaps Herr Vos’s suggestion that he expects “growth of the overall US market to be relatively subdued following recent policy changes such as on health insurance” dented confidence. But he did enthuse that “we expect to see growth particularly in the German speaking countries, the UK, Ireland and Italy.” Maybe there’s some Brexit fear, too.

But a 17.2% rise in adjusted pre-tax profit and a 19.7% gain in adjusted EPS make me feel that the company’s enviable track record of growth is set to continue. And strong operating cash flow suggests the dividend, with a currently modest 2% yield but progressive, will continue to strengthen.

Net debt rose due to acquisition, though it’s been dropping nicely since the halfway stage and I see no cause for concern.

What really encourages me about SQS is that its shares have consistently offered low PEG ratings, and two more years on 0.8 and 0.9, respectively, make me think there’s more to come for a good few years yet.

The post FY results reveal 2 small caps with hidden growth potential appeared first on The Twelfth Magpie.

More reading

• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• 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

Alan Oscroft 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.