Shares such as KAZ Minerals (LSE: KAZ) and Warpaint London (LSE: W7L), though, are down much more than most stocks. Following a hugely challenging period, could they now offer wide margins of safety and strong recovery potential?

Challenging outlook

Supplier of colour cosmetics, Warpaint London, recorded a 40%+ share price fall on Monday following the release of a profit warning. Although trading in the US and the EU has remained robust, its performance in the UK has been disappointing. Retailers are reducing stock levels and Christmas orders, which is a significant problem for the business since the UK accounts for 44% of its total revenue.

The company now expects revenue for the 2018 financial year to be between £48m and £52m. Profit before tax is due to be between £8.5m and £10m, although these figures are clearly highly dependent upon the near-term performance of the company’s UK operations. Given that consumer confidence is expected to weaken over the short run, the prospects for the stock could be highly uncertain.

With Warpaint London now trading on a price-to-earnings (P/E) ratio of around 12.3 using last year’s earnings figure, I think it could offer good value for money. However, with the prospects for the UK retail sector being highly dependent upon the outcome of Brexit negotiations, I feel it may be worth waiting for further updates before buying the stock.

Low valuation

The performance of the KAZ Minerals share price in the last year has been hugely disappointing. It has declined by around 40%, with investors becoming increasingly concerned about the global growth outlook in recent months. With the prospect of further tariffs being placed on imports and the potential for a higher US interest rate, the resources sector has been hit relatively hard.

Despite this, the medium-term outlook for the copper and gold markets appears to me to be relatively sound. Demand growth is set to remain robust, while a lack of supply in the copper industry could lead to a buoyant price. This could be beneficial to KAZ Minerals, and may mean that its ramp-up in production helps it to deliver on its optimistic growth targets.

With the company now trading on a price-to-earnings growth (PEG) ratio of 0.5 following its share price fall, it could offer a margin of safety. Clearly, it is a relatively volatile stock that could experience further paper losses over the near term. But with what seems to be an improving financial position, as well as a 2.6% dividend yield that is due to be covered more than 10 times by profit in the current year, I think its long-term growth potential could be high.

The post Are the KAZ Minerals and Warpaint London share prices now bargains after 40%+ falls? appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• 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?

Peter Stephens 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.

Strong trading

I’m not worried about today’s full-year results though. Adjusted revenue came in 15.6% higher than the year before at just over £31m and adjusted earnings per share rose 8%. The all-important cash-flow figure was 73% up on last year’s, with the firm generating £5.2m from operating activities.

In November, Warpaint paid £18.2m to acquire Retra Holdings Ltd, a UK colour cosmetics business with a “significant focus on the gifting market.” Meanwhile, the core W7 brand achieved sales in the UK over 17% higher than the year before and almost 17% higher internationally. Chairman Clive Garston said: “We continue to focus heavily on building brand awareness, both in the UK and in overseas markets.”  Judging by the sales figures, the strategy is working.

City analysts following the firm expect robust earnings growth with an increase of 28% in 2018 and 23% in 2019. The current valuation looks undemanding for such growth. At a share price of 192p, the forward price-to-earnings (P/E) ratio for 2019 sits around 12 and the forward dividend yield just above 3.4%. Those predicted earnings should cover the payment around two-and-a-half times.

Good value and a positive outlook

The outlook is positive and there’s every chance that the firm will move forward with its national and international expansion in the years to come. The only small cloud I can see is the company’s vulnerability to cyclical influences in the wider macro-economy. That said, many cyclical firms are flying right now, so I’d seriously consider adding Warpaint London to my portfolio alongside a large dividend payer such as FTSE 100 firm Legal & General Group (LSE: LGEN).

Good trading in the firm’s life assurance, long-term savings, investment management and general insurance business has enabled the directors to push up the dividend by 65% or so over the last four years and that progress looks set to continue. Back in March, in the full-year results report, chief executive Nigel Wilson said: “We remain confident that our unique business model, strong management team, collaborative culture, and strategic focus can deliver further growth in 2018 and beyond.”

Yet even with such strong trading and a positive outlook, it’s hard to make a case for the stock being expensive. The recent share price of 277p throws out a forward P/E rating for 2019 just below 10 and the forward dividend yield is almost 6.3%. Forward earnings should cover the payment around 1.6 times.

Legal & General is a big holding in well-known fund manager Neil Woodford’s equity income fund and the stock seems to be part of his bullish approach to cyclical outfits with big exposures to the UK market. I think the firm would sit well in a portfolio alongside Warpaint London, and both firms could go on to deliver useful total investment returns in the years to come.

The post One 6% FTSE 100 dividend stock and one growth stock I’d buy and hold right now appeared first on The Twelfth Magpie.

More reading

• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• How much would you need in a Stocks and Shares ISA to match the State Pension?
• Here’s a quick and easy way to start earning passive income this summer with a spare £1,000
• How much would I need to invest in these FTSE 100 dividend gems for a £29,061 ISA passive income?

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.

Bolt-on growth 

Retra makes gift sets for high street retailers such as Boots, Superdrug and Asda, with three major brands Technic, Body Collection and Man’s Stuff. As we move into the time of year when shoppers are particularly interested in these sorts of products, the announcement of the acquisition seems to be well-timed. 

To fund the deal, Warpaint is issuing £21.2m by way of a placing at 190p. Directors are contributing £670,000 of their cash to show their commitment to the deal and enlarged group. The cost of the acquisition itself is £18.2m. 

Retra made a profit of £2.3m on sales of £17.5m last year, so Warpaint is paying 1.04 times sales or 7.9 times profit. This might be a tad expensive for other buyers but considering Warpaint’s valuation of 5.1 times sales and price to earnings ratio of 17.8, it seems relatively low cost. The acquisition is expected to be immediately earnings enhancing. 

Fast, cheap growth 

Management’s decision to buy Retra makes a lot of sense. The business is growing rapidly with sales growth of 41.2% year-on-year reported for 2016. Operating profit for the period expanded by 204%. If the company can continue on this trajectory, a price of around one times sales might turn out to be a steal. 

Warpaint itself is also expanding rapidly. For the first half of 2017 revenue rose 4% overall but 19% in the US and 22% in the rest of the world excluding Europe and the UK. These latter two regions produced growth of less than 10%. 

Alongside its first-half numbers, Warpaint reported that it had received a record number of Christmas orders. Considering these figures, I believe that it could be on track to outperform City expectations for the rest of the year.  

Analysts are currently expecting the company to report earnings per share growth of 19% for 2017, rising to 28% for 2018. Based on these numbers the shares are trading at a 2018 P/E of 17.2 and PEG ratio of 0.6. The company also supports a dividend yield of 1.9%, and the payout is projected to expand 170% this year. 

Defensive income

PZ Cussons (LSE: PZC) is another company that I believe has enormous growth and income potential. 

PZ is a play on the growth of global consumer spending. Despite encountering headwinds over the past few years, over the long term, this global giant should produce enormous returns for investors as it has a history of steady growth and returning cash to investors.  

At the time of writing, its shares might not look cheap, trading at a forward P/E of 17.4, but this valuation is appropriate for a consumer goods business. Indeed, the industry median valuation is 18.1 times forward earnings, so it is trading at a discount to the rest of the industry. 

At the same time, it supports one of the highest dividend yields in this traditionally defensive sector. The shares yield 2.9% compared to the sector median of 2.5%. Considering these figures, it looks to me that if you’re looking for a defensive consumer goods buy, this could be the stock for you. 

The post 2 growth and dividend bargains that could help you make you a millionaire retiree appeared first on The Twelfth Magpie.

More reading

• After upgraded guidance, is PZ Cussons primed for a FTSE 250 comeback?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of PZ Cussons. 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 the wars

Holders of stock in £120m cap colour cosmetics firm Warpaint London (LSE: W7L) haven’t had it particularly easy of late. After double-bagging in price in just six months since listing, the stock’s honeymoon period came to an abrupt end in late June when an update revealed that sales in Europe had been nothing more than flat. No matter that overall trading had been “in line with expectations,” the market was in an unforgiving mood. Shares fell heavily on the day, beginning a downward trajectory that the stock has been struggling to reverse ever since.

I think this represents a great opportunity to climb on board, particularly as this month’s interim numbers  — while hardly explosive — do suggest a rebound in the share price might come sooner than later.

In the six months to the end of June, overall sales rose 3.7% to £13.3m. Growth in its W7 brand was a highlight, climbing 8.3% and showing year-on-year improvements in all regions in which the company operates. In addition to this, Warpaint stated that its e-commerce strategy for the UK was now “exceeding expectations.” A net cash position of £2.5m at the end of the reporting period can’t be bad either.

The outlook for the remainder of 2017 looks positive with the company making reference to “strong Christmas orders” already being “significantly ahead” of those from 2016. This, combined with the launch of its Very Vegan range and the fact that Warpaint should begin to feel the benefits of growing its online presence in the US and, eventually, China should go some way towards helping it hit a recent analyst target of 300p.

Top stock for tough times

Another small-cap worth considering is business recovery, financial advisory and property services consultant Begbies Traynor (LSE: BEG). After barely moving for ages, the company’s stock has charged ahead in recent months, rising 35% since July. With the impact of Brexit still to be fully felt and consumers continuing to migrate online, I think the UK’s only listed insolvency specialist could be an interesting choice for those who think many businesses will struggle over the next few years.

Although last week’s trading update contained few surprises (Q1 trading has been in line with expectations), Executive Chairman Ric Traynor reflected that the company was continuing to “broaden its service offerings” by expanding its property valuation team. And, through its acquisition of Pugh & Co last year, he said it had become the largest regional firm of commercial property auctioneers.

Perhaps most interestingly, the update made reference to recent Government statistics showing a 2% increase in the number of corporate insolvency appointments over the first half of 2017 compared to the same period in 2016 — the first like-for-like increase since 2009.

With a 190% leap in earnings per share expected in this financial year and further acquisitions likely, I suspect the company won’t be flying under radars for much longer.  

The post 2 ‘under the radar’ growth stocks I’d consider buying appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• 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?

Paul Summers 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.

Today’s interim report from supermarket chain WM Morrison Supermarkets (LSE: MRW) sent the shares down and they are more than 5% lower as I write.

At first glance, the figures look quite good. Like-for-like sales excluding fuel notched up 3% compared to a year ago, underlying earnings per share jumped almost 15% higher, and the net debt figure declined by 22% to £932m. The directors signalled their optimism with a 5.1% hike in the dividend.

Turning around?

Chief executive David Potts has it that “a new Morrisons is beginning to take shape,” and says the firm is making “strong headway” with its plans to Fix, Rebuild and Grow. However, I reckon the very fact that a turnaround strategy was required in the first place speaks volumes about the challenges facing the supermarket industry from the continuing onslaught being delivered by fast-rising discounters such as Aldi, Lidl, B&M European Value Retail and others.

Looking at Morrisons’ valuation, I’d say that the market’s turnaround expectations are ahead of reality, which could account for the share-price weakness today. At 232p, the stock trades on a forward price-to-earnings (P/E) ratio of more than 17 for the year to January 2019 and the forward dividend yield runs at almost 3%. Considering City analysts following the firm expect earnings to grow 14% to January 2018 and just 9% the year after that, I think the valuation is rich.

Rates of growth are important

Supermarkets are not fast-growing beasts, especially when they are operating in what I see as a market that is being disrupted by a new breed of food retailers. I’d be happier if Morrisons’ P/E rating was closer to 10 than it is and with a dividend yield starting at five or above.

Meanwhile, Warpaint London (LSE: W7L) delivered interim results today and the shares are down more than 14% as I write – ouch! The supplier of colour cosmetics and owner of the W7 brand aspires to fast growth but the financial figures are a little disappointing. Compared to a year ago, revenue inched 3.7% higher and underlying profit before tax ticked up 1.3%, but cash from operations fell off a cliff at £0.04m compared to an inflow of £1.46m the year before.

Cash flow funds growth

The cash flow deterioration seems to be due to a big increase in trade and other receivables and an increase in inventories. That could be a sign of a growing business serving more customers or it could be a sign that the firm is having trouble getting paid for stock it has supplied to customers. The company points to payments for inventory before the end of the half year to support increased Christmas gifting business during 2017 and says management continues “to monitor trade receivables and stock levels as the business continues to grow.”

One of the things I like about Warpaint London is that the firm carries no borrowings. Another is its international reach with sales going to the major markets of the UK, Europe, the US and Australia. The firm reckons strong Christmas orders are ahead of last year and I’m inclined to give the firm the benefit of the doubt on growth and see today’s share-price dip as an opportunity to buy the stock cheaper. 

The post 1 FTSE 100 giant I’d dump for this growing small-cap stock appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• 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?

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.

Well, so far the problems that some columnists have found in the sector, such as loan repayments eating up an outsized portion of borrowers’ incomes, haven’t found their way through to S&U’s books. In the company’s latest trading update covering 18 May to 31 July, it increased the volume of new loans by 20% year-on-year (y/y). And it doesn’t appear that its customers are finding the loans burdensome as monthly collections rose 27% y/y and hit a record £10m in June and July.

Strong collections performance and the increasing benefits of scale certainly appear to be setting the stage for an 18^th consecutive year of record pre-tax profits. Indeed, investors responded to this morning’s trading update by sending the company’s share price up over 2%, suggesting some are finding analysts’ consensus forecast for a 19% increase in earnings this year to be a bit low.

Now, this doesn’t mean problems in the sector won’t eventually affect the company. Would-be investors should closely follow the company’s impairment rate, which acts as a decent bellwether for the quality of loans S&U is advancing. Last year the impairment rate did rise to slightly over 20% but is still within respectable limits. Furthermore, management blamed increased competition to attract higher-quality customers for the increase in impairments and this argument makes sense as we saw the much larger sub-prime lender Provident Financial attempt to push its way into the sector.

Investing in S&U isn’t without its risks, but the company has a stellar history of shareholder returns, its loan book still looks pretty healthy and even if the economy heads into reverse, the fact that its loans are secured should provide some peace of mind. Given these positives, a high dividend yield, operating margins of 41% last year and an attractive valuation, S&U is certainly on my watch list.

Painting a pretty picture 

Another growth share that I reckon could turn into a very nice income share over the long term is value make-up company Warpaint London (LSE: W7L). As you could probably guess by its name, the company prefers brash designs, colours and names for its products.

The company’s strategy is to figure out the latest trend in make-up, quickly get the factories in China and Europe it sources from to churn out the product and then distribute it to its retail and distributor clients. In 2016, its first as a public company, the ability of its founder-led management team to successfully execute this strategy was on display. Sales rose 21.1% y/y to £27m as it began direct-to-consumer online sales and signed on 49 new clients to take its total to 319.

The beauty of its business model is that by not having to run expensive high street stores the company is very profitable with operating margins around 25%. It’s still early days and the company is highly valued at 17 times earnings but I see plenty of reason to closely follow Warpaint London.

The post Is this fast-growing, 5% yielder too cheap to pass up? appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• 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?

Ian Pierce 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.

Cosmetics firm Warpaint London (LSE: W7L) released a trading update this morning ahead of its AGM. Despite saying it continues to trade in line with expectations, the shares are currently 11% down at 215p, valuing the business at £139m.

The company listed on AIM as recently as November last year but is an established, profitable and highly cash generative business. I think the shares got a ahead of themselves when they reached over 300p last month — from an IPO price of 97p — but are now looking a more attractive proposition.

Excellent value for money

Warpaint’s flagship W7 brand, which offers quality at affordable prices and focuses on the 16-30 age range, has grown organically every year since its inception in 2002. The range is sold into high street retailers and independent beauty shops across the UK, Europe, Australia and the US.

In today’s update, the company said it had seen double-digit sales growth in the US and encouraging growth elsewhere, with the exception of Europe where sales were flat. It added that its e-commerce strategy is on track and is becoming a growing contributor.

The company is forecast to post revenue of £32m this year, followed by more than £38m next year, with net profit increasing 27% from £6m to £7.6m. This gives a price-to-earnings growth (PEG) ratio of just 0.7, which indicates excellent value for money.

This is an easy-to-understand business, the cosmetics market tends to be resilient through economic cycles (the so-called ‘lipstick effect’) and the founder directors are industry veterans who retain a significant stake in the company. These positives and the attractive valuation make this a growth stock I’d consider buying at the current price.

Major acquisition

Also releasing news this morning was AIM-listed firm Michelmersh Brick (LSE: MBH). Its shares are currently trading 11% higher at 80p, valuing the business at £65m.

The company announced it has acquired Carlton Main Brickworks Limited for a net consideration of just over £31m. So this is a major acquisition given Michelmersh’s market cap. The deal is being financed through new loan facilities, existing cash resources and the issue of shares, which will dilute existing shareholders by less than 6%.

It looks a good acquisition, adding significant scale, broadening Michelmersh’s markets and providing cross sales opportunities and product synergies. More immediately, it’s also “expected to be significantly earnings enhancing in the current financial year.”

Galvanising growth

Ahead of today’s news, Michelmersh was forecast to deliver a pre-tax profit of £4.4m for 2017, while Carlton arrives having done £2.6m in its last financial year. Of course, Michelmersh will now have borrowing costs (it was previously debt-free) but management said the increased operational cash flow of the group will assist in servicing and repaying the debt, as well as supporting further investment and dividends.

I estimate Michelmersh is trading on a mid-teens P/E but with the Carlton acquisition set to galvanise earnings growth, this is another stock I’d consider buying today.

The post 2 growth stocks I’d consider buying today appeared first on The Twelfth Magpie.

More reading

• Could these high-risk/high-reward penny stocks triple their value in the next decade?
• £500 buys 643 shares in this penny stock, expected to grow earnings 75% this year!

G A Chester 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.

Targeting accelerated international expansion

Such is the case with Warpaint London (LSE: W7L), the specialist supplier of colour cosmetics and owner of the W7 brand, which issued its full-year results this morning after joining the FTSE AIM market at the end of November 2016.

I think this firm’s plans to accelerate international expansion and the current modest valuation could propel the shares higher – perhaps much higher – during 2017 and beyond.

Warpaint emerged from its IPO debt-free and has around £3.5m cash sitting on its balance sheet. The company reckons that admission to AIM provided the investment to accelerate growth and is already enhancing the profile of the business and its key brand, W7, because of increased public awareness.

As well as talking the talk, the firm is putting the muscle behind its growth ambitions, recruiting an export manager during May 2016 tasked with opening up new territories overseas, a strategy bearing fruit already with the opening of “a number of new accounts.” New brand managers also joined the team to develop the company’s brand portfolio, which as well as W7 includes names such as Outdoor Girl, CopyCat, Smooch and Taxi.

Good progress

The firm is aiming for an internationally recognised brand in W7 and to help that ambition plans to launch new US and China focused e-commerce sites with the ability to transact in local currencies.

Today’s results reveal that the company is already penetrating international markets. During 2016, around 13% of revenue came from the US and 35% or so from the rest of the world, meaning that 48% of the firm’s business originated outside the UK. If things go as planned, I reckon Warpaint London is poised to drive an acceleration in foreign takings from here.

Meanwhile, 2016 was a good trading year for the firm. Revenue grew more than 21% compared to the year before, adjusted earnings per share shot up almost 25% and the operating margin came in at a healthy looking 25%.

A positive outlook

Needless to say, the outlook is positive and City analysts following the firm predict an earnings uplift of 19% this year and 24% during 2018. These are good growth figures, but I think the market may be undervaluing the growth potential on offer here.

In a market where growth shares seem to be popular, as we are seeing now, Warpaint London’s forward valuation for 2018 looks modest. At a share price near 210p, the rating comes in just below 18 and there is a forward dividend on offer yielding just over 1.8%.

To me, Warpaint London looks as if it might still be flying under the radar with many private investors, but there’s a decent showing of director and institutional shareholdings on the register, suggesting that those shareholders think they are onto a good thing. Time will tell whether that’s the case or not, but I think the company is well worth your research now.

The post This high-growth stock looks set to explode abroad appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• 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?

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.