As it turns out, it doesn’t look as if this accounting issue is such a big deal. According to the firm’s press release, Staffline has identified “potential underpayments” to staff on minimum wage at “a limited number of food production facilities.” The group, which has been working with HMRC on these issues, says the payment relates to “preparation time, which is generally the time spent donning workwear.” 

Staffline has already put aside a provision for possible underpayments. This includes £4.4m for the year ending 31 December 2018 as part of the £20m of exceptional costs announced in its January trading update. However, following advice, Staffline has now increased the value of the provision by £3.5m to £23.5m. This is “the only change against market expectations identified by the board.“

When the company’s auditors have finished reviewing Staffline’s accounts, the group will publish its final 2018 numbers. 

Time to buy? 

The fact that the accounting blunder isn’t more significant is good news for Staffline’s investors. Indeed, shares in the temporary staffing provider are dealing 34% higher after today’s announcement. However, I’m not a buyer of the stock because I’m worried about its business model. 

Staffline’s operating margin is only 2.8%, which is razor thin, and just a small rise in costs could cause profits to evaporate altogether. On top of this, net debt has been rising steadily over the past few years. So while the stock’s 3% dividend yield and forward P/E of 8 might look attractive, I think there are better buys out there, like Direct Line (LSE: DLG) for example. 

Fat profits 

As one of the largest personal insurance companies in the UK, Direct Line has a strong hold over the market, and it’s highly profitable. The group’s operating margin was 17% in fiscal 2018. 

Big profits mean big dividends for investors, and Direct Line doesn’t disappoint on this front. Management has a history of returning all excess cash to investors and, right now, City analysts have pencilled in a dividend yield of 8% for fiscal 2019. 

As well as a market-beating dividend yield, shares in Direct Line also trade at a relatively attractive valuation of just 12 times forward earnings. In my opinion, that’s a price worth paying for such a profitable business. 

Still, the one place where the company does fall down is on growth. City analysts are not expecting the business to report much in the way of earnings growth over the next two years, which might put some investors off. This is a concern. But when I look at the business, I see it more of an income play than growth investment. I think you should too. 

The post One 3% yielder I’d sell to buy this 8%-yielding FTSE 100 dividend champ 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.

Today, I’m looking at a FTSE 100 stock whose share price has risen by 120% over the last five years. That’s more than double the 47% gain delivered by the index over the same period.

The company concerned is Carnival (LSE: CCL), the world’s largest cruise ship operator. Alongside its flagship signature brand, the group operates other famous cruising brands such as Cunard, P&O Cruises, Princess Cruises, and Holland America. In 2018, it carried more than 12m passengers on 105 ships. This generated sales of $13.9bn and a net profit of $3.2bn. It’s a pretty big business.

Can growth be maintained?

You might think that Carnival must now be fully grown. I’m not so sure. In results released just before Christmas, the firm said that advance bookings for the 2019 year were already “considerably ahead” of 2018, with prices broadly unchanged.

Management expects adjusted earnings between $4.50 and $4.80 per share this year, compared to $4.26 last year. That’s an increase of 5-12%.

Another attraction for investors is the firm’s focus on shareholder returns. Since late 2015, Carnival has returned $4.6bn to shareholders through buybacks, in addition to its regular dividend.

The cruise ship sector appears to be booming. This may not continue forever. But Carnival has market-leading scale and some valuable brands. I’d expect it to be a long-term winner.

Last year’s market sell off has left the shares trading on about 11 times forecast earnings, with a 4.3% dividend yield. At this level, I think investors could enjoy smooth sailing.

A smaller choice

I believe Carnival can continue to grow. But I don’t expect the shares to double again over the next five years. If you’re looking for this kind of performance, then I think you may need to focus on companies at the smaller end of the market.

One such stock I own myself is staffing and training specialist Staffline Group (LSE: STAF). Shares in this firm have doubled over the last five years, while profits have risen by nearly 150%.

Uncertainty

Brexit uncertainty has hit this business, which supplies more than 60,000 blue collar staff each day to UK businesses. Many of these are EU nationals, so the outlook beyond Brexit isn’t clear.

The group’s training and education business is also in the middle of a period of change, which is expected to result in exceptional costs of £20m for 2018. As a result, net debt is expected to have risen by 70% to £63m since the end of June.

This is a little surprising, and the group’s shares are down by nearly 10% as I write. But it’s worth remembering that this firm does have a fairly good track record of delivering sustainable growth.

Strong management

Staffline’s dividend has risen by 1,300% since 2004, from 1.9p per share to 26.7p per share. During the same period, its share price has risen by 1,225% to 1,140p. Cash generation has been consistently good.

For now, I’m going to give management the benefit of the doubt. The underlying business is said to be performing well and costs should fall in 2019. With the shares trading on 10 times forecast earnings and offering a 2.3% yield, I continue to view this business as a buy for growth.

The post Got £2k to invest? One FTSE 100 dividend stock I’d buy today appeared first on The Twelfth Magpie.

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Roland Head owns shares of Staffline Group. The Motley Fool UK has recommended Carnival. 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.

However, it remains possible to obtain a higher yield in the long run. A number of stocks offer stronger dividend growth potential than the wider index, and could therefore become sound income plays over the coming years. And with investors likely to reward rapid dividend growth via a higher share price, they may also outperform the FTSE 100 when it comes to capital growth.

Growth potential

One stock which could offer superior income potential compared to the FTSE 100 is British American Tobacco (LSE: BATS). The company has experienced a challenging period, with its share price declining by 24% in the last year. Investors have become concerned about the prospects for the tobacco industry, with cigarette volumes continuing to fall. Although the company has been able to outperform many of its peers, cigarettes seem to becoming less popular among consumers.

However, growth potential could still be high in the long run. Many smokers are substituting cigarettes with next generation products, such as e-cigarettes. British American Tobacco expects to double revenue of those next-gen products to £1bn in the current year, and is investing heavily in the area as it anticipates impressive volume, sales and profit growth from the segment in future years.

With the stock having a dividend yield of 5.2%, while forecast to raise dividends per share by 7% next year, its income prospects appear to be sound. Moreover, a dividend that is covered 1.5 times by profit indicates that further dividend growth may beat market expectations in the long run.

Dividend increases

Also offering the potential for rapid dividend growth is recruitment and training specialist Staffline (LSE: STAF). The company released a positive trading update on Wednesday which showed that its recruitment division has performed well despite a tight labour market. Acquisitions made so far in the current year have improved its long-term growth outlook, while its training, skills and well-being services division has continued to transition away from the Work Programme contracts.

Looking ahead, Staffline may face a difficult future due to the UK economy’s uncertain outlook. However, with a price-to-earnings (P/E) ratio of 9, it appears as though the market has priced in potential difficulties for the stock.

Dividends have grown from 10p per share in 2013 to 26.7p in 2016, which puts the company on a yield of 2.7%. With dividend payouts being covered 4.2 times by profit, there could be further strong growth ahead – especially since the company is forecast to deliver positive earnings growth in each of the next two financial years.

The post 2 super dividend growth stocks I’d buy ahead of the FTSE 100 appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of British American Tobacco. 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.

In my opinion, this is an excellent buy for beginner investors because it is a relatively simple business. The group is an international recruitment firm that specialises in finding “the highest calibre professionals” to fill job positions required by its clients. And while recruitment is a cyclical business, in the boom times it is very profitable — as the company’s most recent figures show.

Booming profits 

Last year, Robert Walters reported earnings per share growth of 49.5%, following an increase of 35% in 2016. Off the back of this growth, the company hiked its dividend payout by 42%, and if City forecasts are to be believed, it is on track to report another outstanding performance for 2018. Analysts have pencilled in earnings per share growth of 15% for 2018, with the dividend set to grow by a similar amount.

Based on these City forecasts, shares in the company trade at a forward P/E of 15.3 and support a dividend yield of 2%.

However, I believe that these growth targets are a conservative estimate. A trading update from the company, published this morning, showed 17% year-on-year growth in net fee income for the three months to the end of March. All of the regions Robert Walters operates in reported strong growth, particularly in Europe where net fee income jumped 32% on a constant currency basis. Even uncertainty about the UK’s economic outlook did not hold back growth. Net fee income for UK hiring expanded 6% in constant currency year-on-year for the first quarter.

As well as Robert Walters’ growth, the other desirable quality this business has is its cash generation. At the end of March, the balance sheet was stuffed with £34m of net cash, up 156% on last year and comprising 6.5% of the firm’s market capitalisation.

Buy and build 

Another fast-growing undervalued business I think would be a good pick for beginners’ portfolios is staffing solutions company Staffline (LSE: STAF). 

For 2018, City analysts are expecting the company to report earnings per share growth of 50%, a rate of growth that, in my opinion, is not reflected in Staffline’s lowly valuation of 8.3 times forward earnings. 

As my Foolish colleague Roland Head pointed out at the end of January, Staffline’s earnings per share have grown by an average of 18% per annum since 2011, as the company has augmented organic growth with acquisitions. These deals have helped to offset weakness at the firm’s PeoplePlus division, which provides staff for mainly public sector clients. Profits here fell 10% last year as the group continued to wind down its Work Programme scheme.

Still, Staffline has plenty of other growth avenues available to it. For example, last month the group acquired blue collar recruitment business Endeavour Group Limited, and in February, two other smaller deals were completed, contributing a total of £88m to Staffline’s top line.

With net gearing of just 17% at the end of 2017, it looks to me as if Staffline can continue with this strategy of consolidation for many years to come, and as long as there is not a severe economic depression in the UK, demand for its services should continue.

The post Are these the best growth stocks for beginners? 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.

Earnings have risen by an average of 18% per year since 2011 at recruitment firm Staffline Group (LSE: STAF). And the firm’s momentum — helped by acquisitions — seems to remain strong.

Staffline published its full-year results this morning, revealing a 28% increase in pre-tax profit to £24.1m. Revenue climbed by 8.5% to £957.8m, highlighting the improvement in the firm’s pre-tax profit margin, which rose from 2.1% to 2.5%.

A tale of two halves

Staffline has two main divisions. The recruitment division specialises in providing workers for sectors such as transport, agriculture, retail and manufacturing. In 2017, Staffline’s operations provided 52,000 workers per day to more than 1,500 clients.

The other part of the company is PeoplePlus, which runs training and employment programmes, mainly for public sector clients. One risk is that the main contributor in this sector, the Work Programme scheme, is currently winding down. Underlying profits from PeoplePlus fell by 10% last year.

However, the company is involved in a number of other such public sector schemes and says that the new Apprenticeship Levy “has created a huge new market” which represents “an excellent growth opportunity” for the firm.

Impressive track record

Falling profits from Work Programmes may mean that Staffline’s overall profits flatline for a while. Earnings per share growth is expected to be just 2.7% this year. However, the company has an impressive track record of growth and a strong balance sheet. With the stock trading on a forecast P/E of 8.6 with a prospective yield of 2.9%, I think this could provide a decent long-term opportunity for investors.

A super City dividend

Stockbroker Numis Corporation (LSE: NUM) makes most of its money by helping companies raise funds on the stock market and assisting with other corporate transactions. It’s a cyclical business and when times are good, it’s extremely profitable.

The group’s last set of results show that Numis generated an operating margin of 29% on revenue of £139.1m in 2016/17. Costs are fairly low, as the company only has around 200 staff and some office accommodation to pay for. As a result, Numis generated £39.9m of free cash flow last year, after using a further £3.3m of cash to purchase shares for employee bonuses.

This is a useful reminder that the value of this business lies in key staff members, who are usually well rewarded. But unlike some small financial firms, Numis does seem to focus on shareholder returns as well as staff remuneration. The company paid out £13.5m in dividends last year and spent almost £20m on share buybacks.

Looking ahead

Although the direction of the market is largely unpredictable, comments made with December’s results suggest to me that management are reasonably confident about the year ahead.

The group has certainly taken advantage of strong trading in recent years to strengthen its balance sheet. Net cash was £133m at the end of September, equivalent to four years’ after-tax profits.

The firm’s unbroken dividend track record suggests that the payout would be maintained, even in the event of a market correction. With this in mind, the stock’s forecast P/E of 12 and 3.6% yield looks fairly attractive to me.

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

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Roland Head 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.

Investment appeal

However, Vodafone (LSE: VOD) is one stock that seems to offer the best of both. Its dividend yield is 5.7% and yet it also offers double-digit earnings growth in 2018 and in 2019. In fact, in the current financial year it is expected to report a rise in its bottom line of 21%, followed by further growth of 12% next year. This could not only be a clear catalyst to push its share price higher, but may also make its income prospects more sustainable.

Sound strategy

Of course, the company has pursued what appears to be a sound strategy in recent years. It has sought to invest in its customer proposition in order to maintain a strong competitive position versus rivals. This has been a sensible move to make at a time when the quad-play market is becoming more competitive and customers are demanding more from their media providers. As such, a broader range of products is a logical step for the business to take.

In addition, Vodafone has been able to pursue an acquisition strategy that has strengthened its overall structure. Its purchase of companies such as Kabel Deutschland and Spain’s Ono at what appeared to be discounts to intrinsic value could boost the company’s profitability in the long run.

Income prospects

With inflation already standing at 3.1% and having the potential to move higher, the company’s dividend yield has significant appeal at the present time. It could cause demand for the stock to increase over the course of 2018, which means that now may be the right time to buy it.

As well as Vodafone, there are other stocks that offer impressive yields and growing profitability. One such company is recruitment specialist Staffline (LSE: STAF). It released a positive trading update on Wednesday which showed that it expects to deliver full-year results for 2017 that are in line with market expectations. Encouragingly, demand in its Staffing business has remained strong throughout the second half of the year.

Looking ahead, Staffline has the potential to increase dividends at a rapid rate. Its current payout is covered 4.1 times by profit, and this suggests that it could treble shareholder payouts without hurting the company’s financial sustainability. As such, its 2.9% dividend yield could rise rapidly and make the stock a strong dividend play for the long term. And with the company being well-placed to benefit from a potential improvement in the UK’s economic performance as Brexit talks continue, it could offer a potent mix of capital growth and income potential.

The post Why Vodafone Group plc is my top dividend stock for 2018 appeared first on The Twelfth Magpie.

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

Although it’s obviously too soon to say what will happen when we eventually pull the plug on our relationship with the EU, what is clear is that trading conditions are currently quite stable.

Today’s figures from Staffline Group (LSE: STAF) are a good example. This recruitment group is focused on providing temporary staff for industrial customers, and runs welfare-to-work programmes for the government.

First-half revenues rose by 3% to £427.8m, while underlying pre-tax profit was 5% higher at £16.1m. The group said it opened 31 new OnSite locations, taking its total to 388. This is Staffline’s main recruitment business. It involves the company basing staff on client sites to manage the supply of temporary workers.  

Reassuringly, the group’s cash generation remains good. Net debt rose in 2015 as a result of the firm’s PeoplePlus acquisition. But borrowings are falling fast. Net debt fell from £63.1m to £36.7m in 2016. The company said today that it expects to end 2017 with a net cash position.

In this morning’s statement, chief executive Andy Hogarth confirmed that the board has “every confidence” that full-year results will meet market expectations for 2017.

If Mr Hogarth is right, then Staffline stock currently trades on a forecast P/E of 10.2 with a prospective yield of 2.4%. This yield may seem low, but the firm’s payout has risen by an average of 29% per year since 2011.

The modest valuation and steady growth suggest to me that the stock could be worth buying at current levels.

Not too late to profit

Housebuilders have enjoyed a strong run in recent years. But the ongoing stability of the UK economy has left companies such as Bellway (LSE: BWY) looking very affordable, in my view.

Indeed, noted income fund manager Neil Woodford has taken large positions in several housebuilding stocks in recent months. Mr Woodford believes the outlook for the UK economy is better than many expect.

I’ve chosen Bellway as I think its modest valuation and focus on quality could help deliver stable ongoing growth. The company is one of only two national housebuilders with a five star rating from the Home Builders’ Federation Customer Satisfaction Survey, which I hope means that the risk of reputational problems is low.

Recent sales performance has certainly been strong. Reservations were 13% higher during the three months to 4 June than during the same period last year. House completions are expected to be 10% higher this year than last year, while full-year operating margin is expected to remains stable at 22%.

These figures place Bellway among the top performers in the housebuilding sector. The group’s outlook has also improved more rapidly than some of its rivals. Forecasts for 2017 earnings per share have risen by 25% over the last year, compared to 17% for Barratt Developments and 10% for Taylor Wimpey.

In my opinion, Bellway’s performance is likely to improve further over the next year. On that basis, I think the stock looks attractively valued at current levels.

The post Why Staffline Group plc and Bellway plc could be today’s top dividend growth buys 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.

Quality-driven success

Staffline has been around since 1986 and operates in the UK recruitment market specialising in the areas of logistics, e-tail, manufacturing, driving, food processing and white-collar recruitment. As well as supplying and managing workforces, the firm reckons it uses training and business improvement techniques to drive increased levels of efficiency so that client organisations gain commercial advantage.

Such quality control seems to have been a hit with customers judging by the company’s record on earnings per share (EPS), which have shot up more than 200% over the past four years. Looking forward, City analysts following the firm expect EPS to lift 3% this year and 4% during 2018.

Attractive-looking valuation

Meanwhile, we can pick up the shares on a forward price-to-earnings (P/E) ratio of just under 11 for 2018 at the current share price around 1,315p. The forward dividend yield runs at 2.3% with the payout covered a comfortable-looking four times by anticipated earnings. The valuation seems undemanding and the directors’ cautious approach to dividend payments strikes me as a good thing. After all, the staff recruitment business is notoriously cyclical and a downturn in the economy could pull the rug from under Staffline’s profitability and cash flow down the line.

That said, there is no denying the firm’s attractive metrics for the time being, and directors reckon demand for the firm’s services remains robust despite the Brexit vote. We’ll get a further update on 26 July with the interim results.

Trading well

Back in May, Eurocell (LSE: ECEL) updated the market on trading for the first four months of the year. The firm makes and recycles PVC window, door and roofline products and enjoyed a positive start to 2017 with trading in line with expectations. City analysts following it predict growth in EPS of 10% for 2017 and 8% for 2018. It seems the company is firing on all cylinders, which could be one reason that well-known fund manager Neil Woodford’s fund is listed as a major shareholder, a position consistent with his recent bullishness on UK-facing cyclicals.

Eurocell is facing raw material price pressure, particularly for resin, and the directors’ solution is to push up selling prices. But I don’t think such a move is likely to hold sales down because inflation is expected by most people these days. Indeed, the firm is rolling out its offering and had opened 10 new sites by the time of the May update, with 30 new branches planned for the whole of 2017.

We’ll get a further update with the half-year results around 2 August, but in the meantime, you can pick up some of the shares on a forward P/E rating just under 11 for 2018 and collect a forward dividend yield running at almost 4%.

The post 2 hot value shares that could help you retire early appeared first on The Twelfth Magpie.

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Kevin Godbold 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.

While value traps can cause disappointing investment performance, there are still some stocks which could offer a potent mix of growth potential and low valuations. Here are two companies that could fall into that category.

Improving performance

Housing support services company Mears (LSE: MER) reported a trading update on Tuesday. It showed that the company is making solid progress in both of its core divisions. In Housing, it continues to perform well and this is good news for the company’s investors, since it accounts for 83% of its revenue. It has achieved 96% visibility of consensus revenue forecast for 2017, while operating margins are currently in line with previous expectations.

In the company’s Care business, market conditions have remained challenging. Despite this, underlying trading has shown improvement month-on-month through the first half of the year, with management expecting this trajectory to continue. Although the Care division is expected to report a loss in the first half of the year, it is forecast to move into profitability in the second half.

Looking ahead, Mears is expected to report a rise in earnings of 18% this year, followed by further growth of 12% next year. Despite this strong growth outlook, it trades on a price-to-earnings growth (PEG) ratio of just one, which suggests that it offers a wide margin of safety. Certainly, its Care business has disappointed recently, but an improving outlook could make the stock a sound buy for the long term.

Uncertain outlook

Also offering a wide margin of safety is recruitment specialist Staffline (LSE: STAF). It has reported five consecutive years of rising profitability, with more growth expected over the next two years. Despite this, the company trades on a price-to-earnings (P/E) ratio of just 11.2. This indicates that the company’s shares could be worth considerably more than their current level even after their 56% rise since the start of the year.

Clearly, Staffline faces a highly uncertain future. The outlook for the UK is difficult to predict and could be negatively impacted by the start of Brexit talks, as well as the minority government, which has now been confirmed. These factors may cause investors to become more risk-off over the medium term, which could lead to valuations which are perhaps slightly lower than they normally would be.

However, with a solid strategy and a sound track record of growth, Staffline appears to have a significant amount of capital growth potential. Although relatively risky, its wide margin of safety suggests that now could be the right time to buy it for the long run.

The post 2 forgotten value stocks with upside potential 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.

Companies that can compound wealth year after year have been dubbed ‘compounders’ by investing gurus such as Warren Buffett and they can generate huge returns for investors over time. Warren Buffett’s Berkshire Hathaway is considered to be the world’s best compounder, having grown book value per share at a mid-teens percentage rate every year since inception.

But Berkshire isn’t the only company in the world that has been able to produce an enormous amount of wealth for investors by compounding.

A mission for returns 

Motor dealer Cambria Automobiles (LSE: CAMB) is on a mission to generate returns for investors. Since 2011 the company has compounded book value at a rate of 16.7% per annum as its low investment, high return model has allowed management to pay down debt and reinvest cash generated from operations into expansion.

Today the company reported interim results for the six months ended 28 February, which show a continuation of its historical performance. Rolling 12 month return on equity remains high at 22% and at the end of the period the company had net cash of £3.3m. A strong balance sheet has given management confidence to hike Cambria’s interim dividend by 25%.

However, despite these impressive performance figures, shares in Cambria trade at a discount valuation. At the time of writing, Cambria trades at a forward P/E of 8.3 and an EV/EBITDA ratio of 4.9, which is around half of the industry average. This valuation seems unwarranted because Cambria is one of the most productive public companies trading in the UK today. Only 10% of all the public companies in Britain currently produce a return on equity of more than 22%.

All in all, Cambria is one of the most profitable businesses in this country, and it also seems one of the most undervalued.

Brexit worries

Like Cambria, Staffline (LSE: STAF) has also been able to compound shareholder equity at a steady, attractive rate over the past five years, thanks to a market-leading return on equity. 

Since 2011, Staffline’s book value per share has grown at 14.5% per annum and last year the group achieved a return on equity of 19.1%. Nonetheless, despite these impressive metrics, shares in Staffline are trading at a discount valuation, a forward P/E of 10.1. 

It seems investors are worried about Staffline’s reliance on European workers and how the company will deal with this exposure during and after Brexit. Analysts appear concerned as well as, after the firm growing earnings per share by 200% during the past five years, the City is predicting earnings growth of only 1% for this year followed by 5% for 2018. 

Still, even if these forecasts prove true and growth slows to a crawl, Staffline shouldn’t lose its ability to be able to compound shareholder wealth as return on equity will remain elevated.

The post 2 top ‘compounders’ trading at discount valuations appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares of Cambria Automobiles. The Motley Fool UK owns shares of Cambria Automobiles. 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.