A family-owned dynamo 

One classic share that fits many of his parameters is soft drinks maker Nichols (LSE: NCLS). The business is well over a century old but is still chaired by the founder’s grandson, whose presence and nearly £30m worth of personal holdings in the business provides a steady hand and long-term outlook that should comfort retail investors.

Then there is the group’s comfortable profitability that feeds a very hearty dividend. For the year to 31 December, the group’s operations produced 67.76p per share in pre-exceptional earnings that funded 33.5p in annual dividends, which at the current share price represents a 2.2% yield.

After rising 14% last year, there’s good scope for considerable dividend hikes to be repeated as the group continues to grow both its core soft drinks business, which is based around cult favourite Vimto, and its distribution business that serves pubs and restaurants.

In 2017, all main parts of the business grew well with UK Vimto sales up 9%, international sales up a whopping 20.4% and the domestic distribution business generating 11% organic growth and 21.5% top-line growth thanks to an acquisition. All told, revenues for the year were up 13.2% to £132.8m for 2017.

And although operating profits fell 5.3% to £28.7m, I’m not overly worried as this was due to the war in Yemen leading to the group’s shipments there being blockaded and industry-wide cost input pressures that I’m confident management can recover over time.

Nichols isn’t cheap at 23 times trailing earnings, but I’m confident this business can still deliver staggering rewards going forward, just as it has since Lee began a position in it back in 2002.

Founder-led growth in spades

Another Lee favourite I’ve got my eye on is event organiser Tarsus (LSE: TRS). The company’s business is a straightforward but hugely cash-generative one as it puts on events in rented exhibition centres and collects pre-paid ticket revenue from businesses up to a year in advance.

A portfolio of market-leading events in niche sectors such as adhesive labels has helped the group boost organic growth by at least 7% annually over the past three years. And acquisitions have also done their bit to boost revenue from £86.9m in 2015 to £117.7m in 2017. EBITDA rising to £44.9m last year helped boost dividends per share by 10% for the year, to 10p, which works out to a 3.33% yield at today’s share price.

While there are a few worries with Tarsus, namely its £84.8m in net debt racked up from acquisitions and its cyclical nature, I reckon the group’s founder-led management team, attractive industry dynamics that favour ever-larger organisers, and its bevy of name-brand events make it a great long-term pick trading at just 12.8 times trailing earnings.

The post Two top stock ideas from ISA millionaire John Lee appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Nichols and Tarsus 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.

The London-based business advised last week that trading during the traditionally-stronger second half of the fiscal year had been in line with expectations, “with key events performing well and buyers up 7%.”

Tarsus lauded the strong performances of Connect Expo and Labelexpo Europe in the period, two of the firm’s biggest events, and it still has key events such as the Dubai Airshow to come. And it said that, for 2017 as a whole, like-for-like bookings are up 8%, so far, on the previous year.

Chief executive Douglas Emslie commented: “Our busier second half of the year has been strong, as expected, with our largest shows continuing to make good progress.

“We are delighted by the performance of the more recent additions to the Group’s portfolio in the key markets of the Americas and China, where we are progressively scaling the business,” he added, underlining the “brilliant” long-term growth opportunities created by its ongoing expansion programme.

City brokers expect Tarsus to record a 75% earnings rise in 2017, although the bottom line is predicted to sink 32% next year.

However, I reckon today’s strong update could lead to hefty upgrades to next year’s anticipated numbers. And given the company’s ultra low valuations (it deals on a prospective P/E rating of just 11.5 times), this could provide the rocket fuel for Tarsus’s share price to head for the skies.

Warm greetings

I am also convinced that, with the pressure on Britons’ wallets likely to intensify in the months and years ahead, that splashing the cash on Card Factory (LSE: CARD) could be an extremely sage decision.

The greetings card giant saw its share price collapse late last month as a rising cost base forced profits to slump in the first fiscal half. Pre-tax profits clocked in at £23.2m between February and July, down 14.1% year-on-year, with the impact of adverse foreign exchange effects, the introduction of the national living wage, and the heavy investment the retailer is making in its store network and infrastructure all smacking the bottom line.

The City expects the aforementioned cost pressures to drive earnings 1% lower in the year to January 2018. But the steady revenues rise is expected to propel profits 4% higher in the following 12-month period.

Current projections leave Card Factory dealing on a forward P/E ratio of 16.1 times, which I consider to be pretty good value considering the retailer’s exciting growth strategy.

As I said, I expect the twin troubles of rising inflation and stagnant wages to keep revenues at the retailer bubbling higher (these increased 3.1% on a like-for-like basis during February-July). And the retailer is investing wisely to steal takings from its more expensive rivals on the high street.

Card Factory now operates around 900 stores – spanning the length and breadth of the country – and remains on course to open another 50 outlets in the current fiscal year alone. Moreover, its attack on the lucrative online market is also having great success, with sales at cardfactory.co.uk increasing 30% in the first half. I am convinced these steps should dole out solid profits growth in the coming years.

The post Two growth stocks I’d buy and hold for 10 years appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Tarsus 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.

Tarsus Group (LSE: TRS) provides business-to-business services — exhibitions, conferences, and that kind of stuff. And it’s provided investors with a 70% share price appreciation over five years, to 306p.

But dividends are what drew me to Tarsus, with their progressive nature. Yields are around 3.5%, a bit ahead of the FTSE 100 average, but the annual cash has grown from 6.8p in 2012 to 9.1p in 2016 — a 34% rise in four years, and way ahead of inflation.

Forecast hikes would take it to 10.3p by 2018. And if you’d bought Tarsus shares at the start of 2012, the forecast 2018 dividend would yield an effective 7.4% on your purchase price — and that’s what progressive dividends are all about.

In a trading update Thursday, Tarsus told us its busier second half was doing well, with strong performances at major events and buyers up 7%. Like-for-like bookings for the full year are up 8%, “promising another strong year.” And with the Dubai Airshow still to come, I can see full-year figures being in line with current forecasts.

Lumpy

That would suggest a 75% rise in earnings per share (EPS), which would drop the P/E multiple to under 11, which I think is pretty undemanding — but I do see a clear reason for the low valuation.

The thing is, the nature of Tarsus’s business, relying heavily on large trade shows and major exhibitions, means its profits are erratic. We’ve seen up years alternating with down years, and the same looks set to come — 2018 should see EPS dropping by 32%.

But the long-term earnings trend is steadily upwards, and those very well-covered dividends make me think the current share price is well worth paying.

Investment cash

Another progressive dividend stock I like is Brewin Dolphin Holdings (LSE: BRW), whose payment hikes have been easily beating inflation. Between 2012 and 2016, the dividend was raised from 7.15p to 13p, for an 80% uplift — and City analysts have rises to 16.2p pencilled in by 2018.

Cover by earnings has admittedly dropped in that period, with a figure of around 1.3 times on the cards for 2018, but that doesn’t unduly worry me at this stage.

At Q3 time, the investment manager told us that total funds had risen in the quarter by 3.7%, to £39.2bn. It also enjoyed record income of £77.3m (up 8.4% on the same period last year), with fee income up 16% to £55m, though commission income fell 11% to £16.7m.

Brewin Dolphin acquired Duncan Lawrie Asset Management in May, and chief executive David Nicol reckons the integration is going well. Mr Nicol also spoke of “delivering against our long-term growth strategy,” saying that “confidence in the future is underpinned by our robust financial position.“

What value?

On the fundamental valuation front, a forward P/E of 18.5 (against a predicted EPS rise of 8%) might look a bit high to some, but further growth of 15% indicated for 2018 would drop that to around 16.

Some may also fear that the firm’s recent strong performance has been on the back of the weakness of sterling which has added apparent strength to the stock market (that is essentially valued in US dollars), but I see more than that.

Brewin Dolphin looks to me like a very well managed company with a long-term view, and companies of that nature deserve to command an above-average valuation.

At 353p, I see the shares as a good long-term income prospect.

The post 2 bargain small-cap dividend stocks I’d buy today appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Tarsus 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.

Still, according to a trading update published by the company today, ITE is back on the part to growth. For the three months to 30 June, the company produced revenue of £58m, up from £46m in the year-ago period, and like-for-like revenue growth of 9%. A recovery in the group’s key Russian market was responsible for most of this increase. For the nine months to 30 June revenue is 4% ahead on a like-for-like basis. A healthy cash flow from operations has also helped the company reduce net debt to £54m, down from £64m in the year-ago period. For the full year, management is expecting revenue growth of 4%.

Expensive recovery 

This steady growth shows that the company is recovering from some of its problems, but despite the improvement, the shares still do not look attractive to me. Specifically, at the time of writing shares in ITE look overvalued, especially when compared to the firm’s shrinking earnings. Even though revenue is rising steadily, City analysts expect ITE’s earnings per share to contract by 24% for the fiscal year ending 30 September, following declines of 30% for the last fiscal year and 24% for the year ending 30 September 2015. 

And after three consecutive years of earnings contraction, shares in the group trade at a forward P/E of 19.3, a high multiple that seems unwarranted considering the company’s current position. The shares offer a dividend yield of 2.7% although this is hardly enough to compensate investors.

A better buy? 

A better buy might be Tarsus Group (LSE: TRS). Over the past year its shares have produced a return of 11%, and over the previous five years, the shares are up by almost 80% excluding dividends. Media group Tarsus has clearly gone from strength to strength over the period, unlike its peer. Earnings per share have expanded rapidly from 12.2p for 2012 to 27.1p for 2017. Meanwhile, revenue has more than doubled from £51.5m to £125m, and pre-tax profit has surged from £8.4m to £40.7m. Despite this rapid growth, the shares still trade at a relatively attractive valuation. 

Indeed, even though City analysts expect the company to report earnings per share growth of 78% for this year, the shares only trade at a forward P/E of 10.3. Why? The firm’s earnings are lumpy and are expected to decline by 32% for 2018. But even considering this decline, the shares still look more attractive than those of its peer above as they trade as at a 2018 P/E of 15.5. Tarsus also beats its peer on yield with a dividend yield of 3.4% covered nearly three times by earnings per share.

Overall, growth stock Tarsus looks to me to be a better buy than turnaround ITE.

The post Why I’d sell this turnaround stock to buy this hot growth stock appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended ITE Group and Tarsus 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.