Instead of hiding behind the sofa, I’ve been looking for great UK shares to snap up. Here are three I’d be keen to buy if things get really scary. 

CVS Group

Many investors (including myself) are drawn to invest in glitzy themes such as electric cars and robotics. That said, I think there’s one fantastic part of the market that’s easy to overlook, namely pet care. This is why I’m following the movements of CVS Group (LSE: CVSG) very closely. 

CVS provides veterinary services and, based on Thursday’s trading update, is doing very well indeed. Trading over the second half of 2021 was “comfortably in line with full-year expectations” with revenue climbing 11.4% on the previous year.

The mid-cap was also bullish on its outlook, saying that demand remains buoyant due to “increased ownership” and “the humanisation of pets“. 

The shares have fallen almost 11% in 2022, at the time of writing, but still change hands for almost 24 times earnings. That’s a little more than I’d like to pay, hence why I’m keeping my powder dry for now. If the sell-off continues however, I’ll be buying the stock quicker than a cockapoo chases a squirrel.

Bytes Technology

Another UK growth stock I’d have no issue in taking a nibble at eventually is Bytes Technology (LSE: BYIT).

Last year proved to be a hugely successful one for the software, security, and cloud services specialist. Back in October, it revealed increases of 13.7% and 19% in revenue and operating profit respectively in the six months to the end of August. 

As more corporate clients recognise the importance of updating their IT systems, I don’t think this kind of momentum is in danger of reversing soon.   

Stock in Bytes has declined 21% in value so far this year. Like CVS Group however, they still aren’t cheap enough to get me buying just yet (31 times earnings).

Then again, this is not the sort of business that will likely trade on a ‘cheap’ valuation. Returns on capital employed — what a company gets back for the money it puts in — are some of the highest I’ve been able to find.

I think shares will only fall so far before they rebound strongly.

Treatt

A final growth stock that takes my fancy is ingredients supplier Treatt (LSE: TET). This is another company enjoying robust trading. On Friday, it reported making “a good start” to its new financial year.

Notwithstanding this, it did caution investors that pre-tax profit would likely revert to being more weighted to the second half. This is due to the seasonality of drinks consumption in the Northern Hemisphere. 

Since any business needs to keep moving and raising its game, I’m encouraged by Treatt’s ongoing R&D spend. New headquarters are also expected to give the company “substantial extra capacity” to continue growing in the years ahead. As a Foolish investor, that’s the sort of long-term focus I’m drawn to.

Unfortunately, the valuation — an eye-watering 38 times earnings — is still too rich for me.  So while Treatt’s shares are already down 14% this year, I’d prefer to snap up this growth stock when/if markets really start to panic.

The post Stock market crash: 3 UK growth shares I’d buy hand over fist if the selling continues 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 Treatt. 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.

XP Power

Critical power control components supplier XP Power (LSE: XPP) released its latest trading statement this morning. Due primarily to ongoing demand in the Semiconductor Manufacturing Equipment sector, orders rose to £97.2m in the three months to the end of September. That’s growth of 73% on the same quarter in 2020 (or 87% once foreign exchange fluctuations are taken into account).

All this brings year-to-date revenue of £181.4m, up 4% on the previous year. Based on this, XPP said its expectations on full-year performance remained in line with those of the market.

Considering potential headwinds, I’m not surprised we didn’t see an increase in guidance. A possible resurgence in Covid-19 infection levels could interrupt trading momentum, as could global supply chain disruption and rising costs.

All this needs to be borne in mind, considering the valuation. A forecast P/E of 26 times earnings before markets opened isn’t excessive but it’s certainly not cheap. 

Nonetheless, XPP continues to be a classy business, in my eyes. Customers in this space rarely change suppliers once on board, providing a good degree of earnings visibility. This, combined with consistently solid returns on capital, great free cash flow and limited debt (£25.2m), makes me wonder whether it’s time to begin re-building a position in the Singapore-based business.

At the very least, XP Power will remain on my watchlist.

Treatt

Ingredients manufacturer Treatt (LSE: TET) also reported on trading this morning. Like XP Power, the mid-cap company occupies a great position in a niche market. 

Full-year revenue of roughly £124m is now expected. This is largely thanks to a solid performance in its ‘healthier living’ categories (such as tea) and supported by the reopening of the on-trade market. That would represent growth of around 14% on that achieved last year. Treatt also expects FY21 profit, before tax and one-off costs, to hit management expectations.

Perhaps most importantly for investors, the AIM-listed firm said global supply chain headwinds had “not materially impacted” trading. Again, there’s no guarantee this won’t change in the future. However, the fact that the company has maintained levels of inventory in anticipation of problems should provide some comfort for holders.

Treatt is also financially sound. Net debt stood at just £6m by the end of the financial year. That’s despite the company shelling out for a new UK facility that should triple UK production capacity once built. Throw in a bursting order book and the possibility of further growth in China and the US and everything looks very promising indeed.

However, my issue with Treatt is the price of its stock. I don’t mind paying up for quality. However, a (pre-market open) P/E of 37 is beyond what I’m prepared to shell out. Such a price tag demands perfect execution from a business.

Regardless of whether this happens, a wobble in the general market could see investors quickly jettison any highly-valued growth stock. This being the case, I’d much rather load up when everyone is losing their heads.

Treatt remains a superb company, in my opinion. It’s just not one I’d buy right now.

The post 2 top UK growth stocks I’m watching 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 Treatt and XP Power. 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 incredible recovery seen since the March 2020 market crash makes that meltdown something of a blip. This is why I already have a list of stocks to buy when share prices (inevitably) head south again.

Having looked at the FTSE 100 and FTSE 250 in previous articles, today I’m focusing on three stocks from the small-cap (non-AIM) space.

Treatt

Ingredients manufacturer Treatt (LSE: TRT) supports the global flavour, fragrance and consumer goods markets. That may not sound particularly racy compared to a glitzy tech share. However, the returns generated over the last year and five years (+63% and +405% respectively) speak for themselves.

On top of this, the gradual reopening of hospitality venues across the world should be a great tailwind for the company which remains a leader in its field. 

Of course, there are still potential headwinds ahead. A resurgence in Covid-19 cases and the subsequent re-introduction of certain restrictions could put the brakes on this momentum. As solid a business as this is, a P/E of 36 for the current financial year (ending 30 September) doesn’t give me much of a margin of safety either.

Personally, I’d much prefer to snap up this stock when investors are throwing the baby out with the bathwater. 

Bloomsbury

Harry Potter publisher Bloomsbury (LSE: BMY) is another small-cap star I’d buy in a general market crash.

A huge beneficiary of multiple UK lockdowns, revenue and profit soared in 2020 as many people opted to lose themselves in a novel or seven to pass the time.  And, consequently, his has boosted the share price considerably ( up 75% over the last 12 months alone).

Quite whether this momentum can be sustained is another thing. While indulging in a book will hardly break the bank, I wonder if a lot of casual readers will now focus on more active pursuits. Should this be the case, it’s surely inevitable that earnings will moderate.

It’s also worth remembering that publishing — like the movie, music and gaming industries — can be unpredictable. There’s no guarantee a particular title will sell as many copies as hoped.

Sure, BMY’s current valuation is hardly excessive, at 19 times forecast earnings. There’s a nice dividend stream too. Even so, I’d be inclined to really pile into this stock when the company’s purple patch has ended.

Motorpoint 

Car seller Motorpoint (LSE: MOTR) is a third small-cap stock I’d potentially buy if/when we experience another market crash.

Thanks to the shortage of semiconductors for new vehicles, MOTR has seen strong demand for second-hand cars as the UK emerges from lockdown. Accordingly, the company reported “record sales” in the first two months of its new financial year back in July.

Importantly, these sales were also “significantly ahead” of numbers logged in the year before Covid-19 began wreaking havoc. Add in a commitment to becoming an e-commerce-led business and I think the future looks bright for the £330m-cap.  

Then again, MOTR arguably involves the most risk of the three companies mentioned here. After all, few people think about buying a car when troubled times arrive. This is also a low-margin business in a competitive industry, making the forward P/E of 23 appear a bit expensive. 

Having climbed almost 33% in value in the last 12 months, I’m not sure that now’s the best time for me to buy. 

The post 3 small-cap stocks I’d buy in the next market crash appeared first on The Twelfth Magpie.

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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bloomsbury Publishing, Motorpoint, and Treatt. 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.

On song

Last Friday’s trading update from music software specialist Focusrite (LSE: TUNE) was more good news for existing holders. 

A trusted brand among amateurs and professionals, Focusrite’s products continue to fly out of warehouses. Trading has been so good that revenue, profits and cash are ahead of where management predicted they would be at this stage of the financial year. As a result, the £600m cap suspects it will exceed current market expectations. It also confirmed it has cleared all bank debt.

Naturally, this good news hasn’t gone unnoticed. The valuation is now 28 times forecast earnings. That’s punchy given the global shortage of semiconductors (of which it uses a lot) and the impact this could have on trading. Another thing to consider is whether Focusrite’s existing holders will begin banking profits as restrictions are lifted. So I’m watching from the sidelines for now.  

Purple patch

It’s hard to talk about quality stocks and not mention Games Workshop (LSE: GAW). After all, the FTSE 250 member has been one of the best performing UK growth shares over the last five years. 

Based on recent trading, it looks like this purple patch can continue. January’s half-year report revealed a 26% rise in revenue and 56% increase in pre-tax profit compared to the same period in the previous year. 

I feel GAW possesses many of the hallmarks of a stonking business. It generates high margins and returns on capital. It’s also cash-rich and the clear leader in a niche market. Once again, however, the valuation is far from cheap at 29 times forecast earnings. Like Focusrite, there’s also a chance trading could normalise once restrictions are lifted. In such circumstances, one might expect food and beverage firms, holiday companies and airlines to make the biggest gains. Fantasy figurine makers? Perhaps not.

Again, I’m not inclined to buy right now but I will be backing up the truck in the event of a sustained fall in the wider market.

Outperforming

The last of the UK growth shares I’d be interested in buying would be ingredients provider Treatt (LSE: TET). Similar to Focusrite and Games Workshop, its shares have been on a tear since the market crash. They’re up 200% in just eleven months.

There’s no shortage of reasons for staying bullish either. Trading in FY21 to date has been “significantly better than expected” and supported by new business wins in the fast-growing global alcoholic seltzer category. This has, in turn, led Treatt’s management to predict that pre-tax profit is now likely to “materially exceed” the £15.1m currently pencilled in by analysts. 

Even so, none of this can be guaranteed. After all, parts of Treatt’s portfolio continue to be affected by the ongoing closure of hospitality venues around the world. A valuation of 38 times forecast earnings also suggests a lot of good news is already priced in. 

It stays on the watchlist for now but if UK growth shares see their prices falling, I’ll jump in.

The post Top UK growth shares to buy if this market bubble bursts 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 Games Workshop. The Motley Fool UK has recommended Focusrite and Treatt. 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.

With this in mind, here are three examples from the small-cap space that have been doing the business for those already invested.

Trading strongly

EKF Diagnostics (LSE: EKF) specialises in manufacturing point-of-care (POCT) devices and tests. These are used in hospitals, clinics and doctors’ surgeries to provide measure hemoglobin, glucose and lactate levels. As you might expect, increased demand since the emergence of Covid-19 hasn’t done business any harm at all. 

In a short-but-encouraging update, the firm stated that “strong trading” last month and a packed order book for the remainder of the year would likely lead it to exceed market expectations on its full-year performance. It’s worth noting that analysts had already adjusted their expectations several times in 2020. 

EKF’s share price is up almost 300% since March’s market crash. That said, I think it’s far more likely to hold on to these gains compared to your typical ‘pop and drop’ penny stock. A valuation of 36 times earnings for FY21 is high but unsurprising.

Blooming sales

Everyone knows Harry Potter. Ask who prints the boy wizard’s tales, however, and many people will draw a blank. Just in case you’re one of them, it’s Bloomsbury Publishing (LSE: BMY). Based on recent trading, it’s a name worth remembering.

A beneficiary of the first lockdown and the move to remote learning, Bloomsbury recently reported record earnings for the six months to the end of August.

All told, revenues climbed by 10% to £78.3m. Year-on-year profits grew 60% to £4m, exceeding even management’s expectations. The shares have understandably rallied.

Will this momentum fall once we’re released from lockdown round 2? It’s possible. Then again, true investors rarely concern themselves with short-term fluctuations. It’s the underlying business that matters, and Bloomsbury looks sound. So sound, in fact, management has reinstated its dividend policy.

Shares currently trade at 23 times forecast earnings. That’s not cheap, but a bulletproof balance sheet (£44.1m in net cash at the end of August) helps justify this valuation. 

A small-cap treat

Last on my list of top small-cap buys would be global ingredients specialist Treatt (LSE: TET). In its most recent trading update, the £375m-cap reported that FY20 pre-tax profits were likely to be “in line with pre-Covid-19 expectations” of around £14m, despite a slight dip in revenue.

Clearly, the outlook remains foggy due to the coronavirus. According to CEO Daemmon Reeve, however, Treatt is “strongly positioned to benefit from key consumer trends including the preference for natural products, a growing interest in health and wellness, and premiumisation.” 

A price-to-earnings ratio of 31 for FY21 is, again, undeniably punchy. Even so, I’d argue that a company with a market-leading position like Treatt is worth paying more for.

Like EKF and Bloomsbury, its finances are in good order. At the end of FY20, the business had £1m in net cash (excluding lease liabilities) in its coffers.

It’s also still paying out dividends. You won’t find many penny stocks doing that!

The post Forget penny stocks. I’d buy these top UK small-cap shares for my ISA instead appeared first on The Twelfth Magpie.

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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bloomsbury Publishing and Treatt. 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.

It seems as if investors have been encouraged by the company’s operating performance and the £500m deal to offload SSE’s retail energy business to challenger Ovo.

SSE has been trying to unload this tricky business for some time, but it has struggled to find a buyer. Management had been considering an IPO next year, following the collapse of a previous agreement to merge it with German-owned Npower, but Ovo stepped in with an offer just in time.

Re-focusing the business

SSE decided to sell its retail division as part of management’s strategy to focus on its power generation business and regulated energy networks. This will streamline the enterprise and take it out of the highly competitive retail supply market.

The fact that it took so long to offload this business really speaks volumes about how difficult it has become for energy suppliers in the current market. So, it looks as if SSE’s decision to sell was a good one. 

However, the sale isn’t a reason to buy the stock, in my opinion. While the sale of the retail business is good news, the group still has some severe structural issues to contend with. These include high levels of debt and stagnating levels of profitability.

On top of these issues, SSE is having to deal with increasingly sceptical regulators and politicians who are trying to control profit margins in the regulated utility industry. 

So, while SSE might look attractive as an income play, I’m wary about its long-term prospects. Indeed, I would rather buy ingredients manufacturer Treatt (LSE: TET) based on its growth prospects and track record of creating value for shareholders. 

Growth market

Unlike SSE, which has seen its revenues slump from £31bn in 2014 to £27bn for 2018, a decline of 13%, Treatt’s revenues jumped 51% over the same time frame. The group’s net profit surged 240% over this period. 

And it looks as if this trend is going to continue. According to a trading update for the year ended 30 September 2019 published today, management is forecasting revenue for the year to be approximately £112.7m, an increase of 1%. 

Substantial falls in raw materials prices will also help the company’s bottom line. According to the update, the cost of orange oil, which represents approximately 33% of group revenue, has fallen more than 50% over the past 12 months. 

The company is also in the process of doubling its US capacity, which should help improve growth in the years ahead. Management expects to see initial benefits over the next financial year from this Capex project. With more than £15m of cash on the balance sheet as well, Treatt has plenty of capital to pursue its growth plans and return a percentage of profits to shareholders. 

It is already doing this. The stock currently supports a dividend yield of 1.3%, and the payout is covered 3.4 times by earnings per share. 

So that’s why I’d sell SSE to buy Treatt today.

The post I’d sell this FTSE 100 dividend stock immediately and buy this growth stock instead appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Treatt. 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 the stock has been on a downtrend for a prolonged period of time, it may offer a wide margin of safety. This could mean that it is able to deliver a successful turnaround over the long run. It could, therefore, offer investment appeal – unlike a rather overpriced stock which released a trading update on Friday.

High price

The company in question is innovative ingredient solutions business Treatt (LSE: TET). It has continued to perform well in the first half of its current financial year, with revenue rising by around 7% compared to the same period of the previous year. It has been able to achieve this level of growth despite a market backdrop of price weakness in some key raw materials for its largest product category, citrus.

Looking ahead, the company expects continued price weakness in the citrus product category, although it remains encouraged by its order book. It will continue to invest in its capacity and scientific capabilities in order to deliver sustainable long-term growth.

With Treatt forecast to post a rise in net profit of 4% in the current year, it seems to be performing well. However, a price-to-earnings (P/E) ratio of 23 suggests that it may lack a margin of safety. Therefore, now may be the right time to avoid the company when there are other better value options available elsewhere.

Recovery potential

Among them is Vodafone, which now has a dividend yield of over 9% following a seemingly endless share price decline over the last couple of years. Although a number of other FTSE 100 shares have become increasingly popular among investors in 2019, the stock has continued its decline as investors have retained a cautious attitude as it seeks to deliver on its ambitious growth plans.

They include the €19bn acquisition of Liberty Global’s European assets. Although the acquisition may put it in a stronger position in a number of key markets, there may be greater pressure on its balance sheet as a result. With ambitious capital spending plans and a generous dividend to pay for, many investors fear that the company’s dividend prospects could be challenging.

As part of its growth strategy, Vodafone is seeking to put in place a simpler business model. Under a new CEO, the company is entering into a greater number of partnerships which could strengthen its position in a number of growth markets. And while M&A activity may prove to be costly, it could catalyse the company’s long-term growth rate across a number of key markets.

Since the stock appears to offer good value for money due to its dividend yield being more than twice that of the FTSE 100, it could offer recovery potential over the long run. While it has disappointed in the past, its risk/reward ratio looks like it is becoming increasingly favourable.

The post Why I think the Vodafone share price is primed to beat the FTSE 100 appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Vodafone. The Motley Fool UK has recommended Treatt. 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 outline why I believe these two stocks deserve a place in your portfolio. 

Explosive growth 

When it comes to earnings growth, Treatt is in a world of its own. Over the past five years, the ingredients manufacturer to the flavour, fragrance and consumer goods markets has reported earnings per share (EPS) growth of 21% per annum. Net profit has grown from £3.1m to £9.6m for 2017. 

And today the company announced yet another positive performance for the year ended 30 September. Adjusted operating profit for the period grew 8.1% year-on-year to £12.6m, and adjusted EPS jumped 9.8%, or by 14.1% on a constant currency basis. 

What’s more, according to management, the company has already made a strong start to the new financial year. CEO Daemmon Reeve said the firm has “had a steady start to the new financial year” and sees a “number of attractive opportunities in our pipeline of projects with both existing and new customers.” Treatt’s CEO goes on to confirm that the business is trading in line with current market expectations for the full year. 

While the company’s current financial year has only just started, considering its track record of growth I’m confident that the business can hit analyst targets for the next fiscal year. Current figures suggest the group will report EPS growth of around 4% for next year. Even though the stock might look expensive, trading at a forward P/E of 24.6, I reckon this is a price worth paying for such an impressive track record of earnings growth. 

Income champion 

LSL’s growth track record isn’t as impressive as Treatt’s, but when it comes to income, this property services business is by far the better buy. Right now, the stock supports a dividend yield of 4.2%, and the payout is covered 2.5 times by EPS. 

There’s been some concern recently that LSL will have to reduce its distribution due to the cooling housing market. But a trading update issued by the company today seems to alleviate these concerns.

Unlike other property-focused businesses, which are struggling with declining numbers of transactions and falling home prices, LSL’s diversified business model helped the company grow revenues for the 10 months ended 31 October by 3.7%. Unfortunately, net debt has increased marginally over the year as the group has splashed out on acquisitions to expand its presence in the market for property financial services. However, I think the diversification seems sensible, considering the uncertain outlook for housing in the UK over the next few years. 

As well as the market-beating dividend yield, shares in LSL also look relatively cheap, changing hands for just 9.4 times forward earnings. In my mind, when coupled with the attractive income distribution, I think this is a price worth paying for a well-diversified property business.

The post Have £5,000 to invest? Two income and growth stocks I’d add to my portfolio appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Treatt. 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.

Within the UK’s main index, Aviva (LSE: AV) seems to offer excellent value for money. The company has a low valuation, high yield and a clear growth strategy. As such, it could be worth buying right now for the long term. In comparison to other shares, such as a smaller stock which reported on Tuesday, it appears to be dirt cheap.

High valuation

Releasing a trading update on Tuesday for the year to 30 September 2018 was Treatt (LSE: TET). It manufactures and supplies innovative ingredient solutions for the flavour, fragrance, beverage and consumer product industries. The company performed well in the second half of the year, with its revenue and profit figures expected to be in line with previous guidance.

Its US expansion is progressing as planned, with building work being on time and on budget. This will provide additional manufacturing capacity, as well as enhance its scientific capabilities in the US. Plans for the relocation of the company’s UK site are progressing as planned.

Looking ahead, Treatt has ambitious expansion plans over the coming years. This could provide greater growth opportunities further down the line, but with a relatively high valuation its investment appeal seems to be limited. It has a price-to-earnings (P/E) ratio of around 31. Since earnings growth of 4% is expected in the current financial year, its potential to deliver improving share price returns may be low.

Return potential

In contrast, the Aviva share price continues to offer a wide margin of safety. The company has a P/E ratio of around 9, despite an impressive earnings growth outlook. It is expected to report a rise in earnings of 9% in the next financial year, with an ambitious growth strategy set to deliver further growth in future years. The company is investing heavily in fast-growth markets which, in the long run, have the potential to contribute significantly to its overall profitability.

With Aviva in the process of reducing leverage and engaging in M&A activity as it seeks to deploy excess capital, its financial position appears to be sound. The restructurings of previous years have created an efficient and highly-profitable business which looks set to perform well in the long run.

With a dividend yield of 6.1% that is covered twice by profit, Aviva’s income potential appears to be high. Therefore, it would be unsurprising for it to outperform the FTSE 100 over the long run. And since it offers diversity, a low valuation and the potential for a high income return, it could be a better performer than a buy-to-let property over the coming years.

The post Thinking of investing in buy-to-let? Buying FTSE 100-member Aviva may be a better idea appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Aviva. The Motley Fool UK has recommended Treatt. 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.

Treatt has been a terrific performer for investors, its shares having five-bagged over the last five years and 10-bagged over the last 10. At a current price of 483p, this FTSE SmallCap firm is valued at around £280m.

Ambitious plans

Management has ambitious plans to drive further growth by accelerating US expansion, continuing to focus on higher-growth business categories and continuing to move from lower-margin commoditised sales to higher-margin value-added products.

To this end, Treatt raised £21.6m at 410p a share in November and today announced an £11m cash sale of its non-core Earthoil Plantations business. This will help fund a £46m capital investment programme to expand the group’s US operations (already well under way and completion due by the end of 2018) and a UK site relocation, due to be completed by late 2019.

Valuation too high?

The dilution from the fundraising was already in analysts’ earnings-per-share (EPS) forecasts for Treatt’s financial year ending 30 September. The loss of earnings from Earthoil Plantations wasn’t, but on the other hand, it looks like the benefit of lower US tax rates is better than analysts were expecting.

Ahead of today’s results, a Reuters consensus of two analysts was for full-year EPS of 17.1p, giving a high price-to-earnings (P/E) ratio of 28.2. However, the company did earn 8.58p from continuing operations in the first-half, so perhaps company-paid researcher Edison’s full-year 19.2p forecast will be nearer the mark. If so, the P/E would still be a premium 25.2.

Furthermore, looking ahead to fiscal 2019, Edison is forecasting EPS growth of just 7.8% to 20.7p. While this reduces the P/E a little further (to 23.3) the price-to-earnings growth (PEG) ratio of three is way above the PEG fair value benchmark of one. Much as I like the business, I believe the valuation is simply too high — even with the possibility of a better than expected trading performance — and I rate the stock a ‘sell’.

Cash position?

AIM-listed UK Oil & Gas (LSE: UKOG) is also on my ‘sell’ list, despite the shares at 1.55p now being at a huge discount to their 52-week high of 8.97p. Shareholder dilution here has been significant, partly due to this cash-burning company having to raise £10m last year in a so-called ‘death spiral financing’, which has still to fully play out.

A protracted and ultimately unsuccessful flow-testing programme at what management had previously referred to as its ‘flagship’ Broadford Bridge asset will have been costly. And I see it as ominous that the company released its annual results for its financial year ended 30 September 2017 at the last possible date of 29 March and declined to update shareholders on its current cash position.

UKOG is currently awaiting Oil and Gas Authority permission to return to its Horse Hill asset for extended flow testing, this asset having previously flowed 1,688 barrels of oil per day but over periods of only a few hours. In the circumstances, I believe UKOG is significantly overvalued at its current market cap of close to £60m.

The post Why I believe the UKOG share price and this other small-cap offer poor value appeared first on The Twelfth Magpie.

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G A Chester 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.