Next, I’d consider how much risk I was willing to accept. The three investments I’ve chosen today cover a broad range, from a simple fund through to a high-risk turnaround.

An auto-pilot investment

If I wanted to play it safe, I’d probably put my £3,000 into a FTSE 100 index tracker fund. This would give me exposure to the 100 largest listed companies in the UK.

Many of the big businesses behind these UK shares earn make most of their money abroad. This means that investing in the FTSE 100 would give me a decent level of exposure to the global economy.

In terms of potential gains, the UK stock market has a long-term average historic growth rate of around 8%. If that stays true in the future, then I might be able to double my money in nine years — although this certainly isn’t guaranteed.

Of course, there are some risks. The FTSE 100 has lagged the US S&P 500 index in recent years. This is because the UK index is weighted to miners and big banks and doesn’t have much exposure to fast-growing technology stocks. I’m not sure how quickly that will change.

This UK share is a big tech player

I prefer to buy individual stocks rather than index funds, so I can shape my portfolio to focus on the sectors I like most.

One UK tech stock I’ve been buying in recent months is FTSE 100 software group Sage (LSE: SGE). Although I wouldn’t put my whole portfolio into any single stock, I think this business offers a decent mix of safety and long-term growth potential.

Sage is going through a period of investment at the moment, expanding its cloud-based accounting platform and moving older customers online.

Over the medium term, I think this should result in higher profit margins and steady growth. Right now, this situation is still a work in progress. Underlying profits fell by 11% during the six months to 31 March, and the shares are flat on one year ago.

I see this as an opportunity to buy into a quality business at a reasonable price. But I could be wrong — Sage might be left behind by smaller, more nimble competitors.

Double or quits?

If I wanted some excitement with my £3k and was prepared to lose money, then one UK share I’d buy is Avation (LSE: AVAP).

This £75m company is an aircraft leasing business. As you’d imagine, it was hit hard by the pandemic. Avation’s share price is still 65% below February 2020 levels. One of the company’s larger airline customers went into administration, while others have renegotiated leases, agreeing lower rates for future years.

A lot depends on whether air travel starts to return to normal during the second half of this year. If it does, then I think Avation could make a decent recovery. In that scenario, I could imagine the AVAP share price doubling.

However, Avation’s large debt burden means that I think there’s still a chance this business could fail. If that happened, shareholders would face a total loss.

Avation is a highly speculative situation, but I see it as a potential winner.

The post UK shares: 3 ways I’d invest £3k today appeared first on The Twelfth Magpie.

Re-rating of the share price

At the time of writing, Avation’s market capitalisation is around equal to the company’s last published net asset value (the book value) at around £188m. However, this net asset valuation related to the end of June last year. I’m convinced that the net asset value has increased since, paving the way for a re-rating of the share price.

Over the last four years, Avation’s net asset value has increased by an average of 17% per year, almost doubling from $128m in 2015, to $240m in 2019. What’s more, the company has already reported lease revenue growth of 12% in the first half of FY 2020, compared to the prior year. Based on its track record and proven operating model, I think it’s more than likely that this growth has also led to an increase in the company’s book value.

Intriguingly, Avation may also be conservative in its valuation of aircraft on its balance sheet. In fact, the company has repeatedly shown an ability to sell its aircraft at prices that are over 10% greater than book value.

The book value also fails to take into account profitability and the return that the company is able to generate from its assets, not to mention future growth. The shares have already risen by 10%, since the news that it’s up for sale became public last week. But considering all these factors, I believe that the shares are still undervalued by anything from 15% to 30% — showing just how undervalued they were before.

Takeover wars

Here at the Motley Fool, we take a long-term view of investing and I wouldn’t suggest buying a share just for a quick profit. Yes, I think this extra value would be reflected in the sale price of the company’s assets, through a higher transaction price, regardless of whether it’s a partial or complete sale. There’s even the possibility that a bidding war could ensue, potentially pushing the asking price higher.

But there’s also the possibility that there will be no sale, in which case, buyers of these shares will have acquired a top-quality company, that has an impressive track record of growing revenues, profits, net asset value and its dividend. I like companies like that, and sale or no sale, I reckon these shares are only going one way in the long term.

The post Why I’d still buy this UK stock despite shares rising on takeover talks appeared first on The Twelfth Magpie.

Since 2014, operating profit is up by 75%, and revenues have more than doubled to $109 million, with average yearly revenue growth of 20% over the last four years. Net asset value – a key metric for an aircraft lessor – has increased by 85% since 2014. In fact, Avation has shown consistent growth right across the board, and shows no signs of slowing down. In the first half of this year, revenues were 40% higher than at the same point the year before, whilst operating profit is up 60%.

The current market backdrop and outlook for the future also bodes well for Avation. Recent history has seen the demand for air travel roughly double every 15 years, with annual growth of over 4% predicted for the period 2017-2032. Aircraft lessors are also playing an increasingly more important role in the global aviation industry, where leased aircraft now make up 40% of the entire global commercial aircraft fleet.

To date, Avation’s execution of its strategy has been impressive. The company is focused on adding aircraft, diversifying aircraft type, diversifying the customer base, reducing aircraft age, lengthening lease terms, and reducing borrowing costs. The portfolio now consists of 48 aircraft, with 10 added in the last year alone. The customer base has increased to 17 airlines in 13 countries – up from 13 airlines last year – including the likes of easyJet, Air France and Virgin Australia. The average age of the fleet is kept young, by strategic disposals of older aircraft. This reduces the risk of technology obsolescence. Meanwhile, long lease lengths ensure revenue visibility.

The shares currently trade at around 10 times last year’s earnings, making them cheap, in my opinion. Furthermore, they are priced at a discount to the net asset value. The market is undervaluing the shares, presumably due its high debt load. But interest expenses are easily covered by operating profit, and the true value creation comes through the increase in net asset value. Crucially, AVAP doesn’t own a Boeing 737 Max, and so has managed to avoid any fallout from the ongoing grounding. There is also a progressive 2% dividend thrown in for good measure.

The management own over 20% of the company, and so their interests are aligned with those of the shareholders. Their focus is on unlocking shareholder value, which includes the strategic trading of aircraft. Avation has consistently shown an ability to sell aircraft at prices that are at a premium to their book value. This means that the reported net asset value is actually lower than the realisable net asset value. I also believe that Avation’s size, discounted share price and diversified portfolio makes it an attractive takeover target for larger lessors. Taking this into account, I think the shares are undervalued by as much as 20% and expect them to kick on from here.

The post 1 undervalued growth stock that I think could really take off… appeared first on The Twelfth Magpie.

Still, according to the company’s interim figures, which were published this morning, it looks as if Avation still has plenty of airspace to fly higher. 

Restructuring the portfolio 

According to today’s numbers, for the six months to the end of December, revenue increased 16% year-on-year as the value of the firm’s aircraft fleet rose 35% to just over $1bn. Unfortunately, earnings per share for the period declined 15% year-on-year, which management attributes to the sale of six ATR 72 aircraft in June 2017. These sales reportedly helped de-risk the portfolio by “lowering airline concentration” and unlocking funds for reinvestment into new planes.

Management’s actions to reposition the portfolio throughout the year mean that the average weighted age of the fleet has now decreased to 2.9 years (from 3.3 years) and the weighted average remaining lease term has increased to 7.9 years (from 7.5 years). The firm expects lease revenue to increase substantially in the second half thanks to these changes. So it seems that all in all, even though the sales of aircraft have dented profitability, the company is well positioned to continue to grow and reinvest in the years ahead. 

As I mentioned before, Avation’s main method of value creation is via book value growth. Over the past five years, the company’s book value per share has expanded at a rate of 16% per annum. Growth slowed to just 4% in the period under review, although book value now stands at $3.32 per share or 237p, so today the shares are trading just below book.

City analysts are expecting earnings per share for the year to 30 June to fall by 21% before rebounding 23% to 25p next year. On this basis, the shares are trading at a forward P/E of 9. 

Cash cow 

Another investment that I believe can continue to produce returns for investors year after year is Amino Technologies (LSE: AMO). It produces technology for the pay-TV market, including set-top boxes, a highly lucrative business. Indeed, over the past five years, net profit has surged from £2.8m to £11.1m for fiscal 2017. 

Management has returned the vast majority of this income to investors. The board has hiked Amino’s dividend per share by an average of 17.3% per annum over the past five years, leaving the shares yielding 3.7% today. This might not seem like much, but over the next five years, assuming the payout continues to expand at a rate of 10%, by 2023 the stock will yield just under 6%. 

I have every confidence that the firm can keep up this rate of dividend growth. For the year to 30 November 2017, the distribution was covered 2.2 times by earnings per share and Amino’s balance sheet is stuffed full of cash with a cash balance per share of 13p reported at the end of fiscal 2017. On a valuation basis, the shares trade at a relatively modest forward P/E of 13.2 or 12.5 on a cash-adjusted basis. 

The post Buying these 2 growth stocks today could help you retire with a million appeared first on The Twelfth Magpie.

Avation, which leases commercial aircraft to some of the world’s biggest airlines including easyJet and Air France, is thriving in an environment of improving lease yields. As a result, it reported record revenues and pre-tax profits last year, the latter up 18% year-on-year in the 12 months to June 2017 to $21.4m.

And the Singapore-based firm is spending a fortune on building its fleet to capitalise on these favourable metrics. It now has around 40 aeroplanes on its books and, critically, it’s mixing up the types of aircraft it leases out maximise business opportunities. The acquisition of a number of large twin-aisle aircraft more recently marks the latest step in this journey.

Stunning dividend growth

With Avation also enjoying booming operating cash flows, up 20% last year, the business has also continued to light a fire under dividends. For example, the leasing giant hiked the dividend by an astonishing 85% last year to 6 US cents per share.

Even though City analysts expect earnings to slip 21% in the year ending June 2018, the flying ace’s solid long-term profits outlook should still keep dividends shooting skywards. An 8.4-cent payout is forecast by the number crunchers, resulting in a chunky 2.7% yield.

The good news doesn’t stop here either. Supported by a predicted 22% earnings rebound in fiscal 2019, the dividend is expected to rise to 11.2 cents. Thus the yield for next year jumps to 3.5%.

What’s more, the stratospheric dividend growth being predicted doesn’t come at the expense of solid protection either. Added to Avation’s brilliant cash flows, investors can also sleep soundly in the knowledge that predicted dividends are covered between 3.2 times and 3.4 times by estimated earnings through to the close of next year. That’s some distance inside the accepted safety watermark of 2 times or above.

All told, I reckon Avation is a brilliant, bargain growth and income share with the firm dealing on a forward P/E ratio of just 11 times.

The 6%+ yielder

Jupiter Fund Management (LSE: JUP) is another white-hot dividend share worthy of a seriously close look today.

The company’s brilliant growth record has also enabled it to lift shareholder rewards at a brisk pace in recent years. And with profits anticipated to keep on swelling — rises of 8% and 9% are forecasted for 2018 and 2019, respectively — dividends are expected to also trek higher.

So the anticipated 30.2p per share payment for 2017 is expected to rise to 32.5p in the present year and to increase to 35.6p in 2019. Consequently, the fund giant carries monster yields of 6% and 6.6% for this year and next.

Like Avation, Jupiter has also fallen out of favour with share pickers since hitting record tops in early  January, even though it has since announced business has continued to boom. A £5.5bn improvement in net inflows in 2017 drove total assets under management 24% higher year-on-year, to £50.2bn.

Given its terrific trading momentum, I reckon Jupiter’s forward P/E ratio of 14.4 times makes it a steal right now.

The post 2 dirt-cheap dividend shares I’d buy today appeared first on The Twelfth Magpie.

With this in mind, I’ve picked out Microgen (LSE: MCGN) and Avation (LSE: AVAP) as two stocks that I believe could generate enormous returns for investors in the years ahead. 

Increasing shareholder returns

Avation leases planes to airlines, a business which has grown tremendously in recent years. 

Leasing companies like this can achieve a lower cost of financing than larger carriers, and their size means that they can buy planes at lower prices from manufacturers. Because airlines sign multi-year leases, income is stable and predictable. Meanwhile, cash generated from operations can be used to grow the business, as well as being returned to investors. 

According to a pre-AGM statement published by Avation today, at the end of 2017, the group’s fleet will contain 37 aircraft worth over $1bn. The average aircraft age is 2.9 years and the average weighted lease duration is 7.9 years. For the 2017 financial year, management is forecasting total lease revenue growth of 32% to $94.2m and pre-tax profit growth of 18% to $21.4m.

Over the past five years, reinvestment of lease income into its operations has seen its book value per share grow at a rate of 16% per annum. Over the same period, the shares have continually traded at a discount to book, but the discount has closed in recent months. 

If the firm can continue to reinvest at this rate, and the shares continue to trade at a price-to-book ratio of 0.9, the shares could return 16% or more per annum going forward. Add in the company’s 2.1% dividend yield, and you get a total return of 18% per annum. At this rate, you could double your money every four years. 

Specialist provider 

Microgen provides financial management software applications, which is a highly lucrative business. As more regulations are placed on the financial services industry, companies that can help enterprises to make sense of all the requirements, are seeing sales boom. 

Indeed, for 2015 and 2016 Microgen’s earnings exploded by 28% and 34% respectively and City analysts are expecting growth of 24% for 2017, followed by 20% for 2018. 

If the company can hit these targets, I believe that there could be further gains ahead for the stock. While the shares might seem expensive, trading at a forward P/E of 30, this value does not seem to be too demanding considering the growth on offer here. What’s more, due to the specialist nature of the service Microgen provides, clients tend to be sticky, so the likelihood that sales will vanish overnight is low. 

And just like Avation, to help complement growth, Microgen is reinvesting earnings into the business. Bolt-on acquisitions are helping the firm expand its existing offering and expand into new areas. The latest deal was the £10m acquisition of US-based RevStream, a provider of revenue management enterprise software.

The post 2 opportunities to make a million which won’t last for long appeared first on The Twelfth Magpie.

Indeed, there are many studies which show that value investing has outperformed all other methods for decades and following a value strategy has helped billionaire Warren Buffett build the reputation and fortune he has today.

While I can’t give you the secret to guaranteeing riches like Warren Buffett, here are three attractive looking value stocks that may help put you on the path to investing success. 

Pipes and plumbing

Norcros (LSE: NXR) is, in my opinion, one of London’s most undervalued stocks. The company manufactures and sells bathroom products such as showers, taps and tiling equipment and has ambitious growth plans. 

However, for some reason, the market doesn’t trust management to hit growth targets or even hit annual profitability targets. Nonetheless, management has continually proved the market wrong. 

Net profit has grown at an average compounded rate of 14.2% since 2011. Analysts are expecting a slight fall in earnings per share for the year ending 31 March thanks to high costs from the integration of a new acquisition. Still, even though earnings per share are expected to fall 7%, the shares trade at a forward P/E of only 6.7 and support a dividend yield of 4.2%, a valuation that seems too hard to pass up for a business that’s achieved such an impressive historic growth record.

Oil troubles 

Gulf Marine Services (LSE: GMS) is one of the many companies that has suffered from the decline in oil prices over the past few years. The company is expected to report a net profit of only £33.5m for 2017, more than 50% below its 2014 peak of £75m.

Gulf Marine operates self-propelled and self-elevating support vessels, which are used by the oil and gas industry to maintain and service offshore oil platforms. Other companies that operate offshore platforms also use the company’s services, so Gulf Marine has customers outside the oil and gas sector. 

Even though the company has sailed into stormy waters recently, it’s likely that over the long term the demand for support vessels will return to normal levels and when it does, Gulf Marine’s profit should go back to 2014 levels. 

The shares currently trade at a forward P/E ratio of 9.3 and a price-to-book ratio of 0.6. If you have the patience to wait for demand to pick up, Gulf Marine could be an attractive long-term investment. 

Come fly with me

Aircraft leasing firm Avation (LSE: AVAP) has seen the value of its shares rise by around 50% since August of last year, but even after these recent gains, the shares still look cheap. Indeed, at the time of writing shares in Avation trade at a forward P/E of 7.2 and a price-to-tangible book ratio of 0.8. City analysts expect the company’s earnings per share to grow by 5.7% this year. 

Over the past five years, the company has grown earnings per share at a steady rate of 13.1% per annum on average. With a high single-digit P/E it looks as if the market is ignoring Aviation’s impressive growth record.

The post 3 small-cap value stocks set for big things in 2017 appeared first on The Twelfth Magpie.

Significant progress

Sales fell by 24.7% to £67.6m at Monitise in the latest year, in line with guidance. But the group’s EBITDA loss was reduced by more than half to £19.6m, and Monitise reported an EBITDA profit of £0.6m for the second half.

Performance improved significantly during that half as cash from operations turned positive, rising to £400,000. However, the business remained heavily lossmaking, reporting a pre-tax loss of £32.6m for the period.

Net cash fell from £88.8m to £42.1m during the year, but cash consumption was reduced to £11.9m during the second half, from £36.4m in the first half. As Monitise is lossmaking, this is a key metric for investors. A lower rate of cash burn will give the group more time to become profitable.

Monitise hopes that its FINKit digital services solution will replace many of its legacy licence-based contracts. But persuading clients to agree new long-term contracts is “taking longer than we had anticipated” according to chief executive Lee Cameron, who says that Monitise “remains a business in transition.”

I was initially encouraged by today’s figures, but the group’s outlook statement has left me uncertain about the future. Group revenue is expected to decline and no mention was made of EBITDA guidance for the current year. This suggests to me that Monitise may not maintain the EBITDA profitability seen over the last six months.

Record profits boost dividend

Avation reported revenue of $71.2m last year, a 25% increase on the previous year. Operating profit rose by 35.6% to $45.6m, lifting the group’s operating margin from 59% to 64%.

Earnings per share rose by 42.5% to 34.2 US cents and the dividend rose by 8.3% to 3.25 cents. This gives the shares a trailing P/E of 6.2 and a dividend yield of 1.5%. The stock’s valuation looks cheap relative to earnings, even though the yield is low.

The main reason for this is Avation carries quite a lot of debt. When its aircraft are all leased at profitable rates, this isn’t a problem. However, in the event of a sector downturn, debt repayments could become problematic.

Avation added nine new aircraft to its fleet last year, causing net debt to rise to $567.5m at the end of June, up from $319.5m one year earlier. The group’s loan-to-value (LTV) ratio remained almost unchanged at 74%, up by just 1% from last year.

This stability is reassuring, but I think that 74% is quite high. I’d rather see LTV closer to 50%. This would reduce financing risks in a downturn and enable Avation to return more cash to shareholders — Avation paid $26m in interest payment last year, but just $1.6m in dividends.

In fairness, Avation appears to be executing well. The shares have risen by 25% so far this year. Growth is expected to continue and the shares could deliver further gains if market conditions remain favourable.

The post Two small-caps that could double after today’s results? appeared first on The Twelfth Magpie.

Sales beat forecasts

Rail and traffic management software firm Tracsis (LSE: TRCS) says it expects to report sales of more than £32m for the year ending 31 July. That’s significantly above City forecasts of £27.6m.

Tracsis says it has had a strong year.  The group’s core divisions have made good progress and acquisitions have boosted growth elsewhere. Net cash was £11m at the end of the year, despite a £7m net outflow of cash spent on acquisitions.

Earnings are expected to be in line with forecasts of 19.9p per share for last year. Forecasts suggest they will rise by 10% to 22p during the current year.

This puts the stock on a 2016/17 forecast P/E of 23. This may seem expensive, but Tracsis shares rose by 20% last week, after the group announced a breakthrough contract in the US.

If Tracsis can become a major player in the US market, then today’s share price could look cheap within a few years.

These shares could fly

Aircraft leasing specialist Avation (LSE: AVAP) has leased a new Airbus A321-200 to Vietnamese carrier Vietjet. It’s the latest in a series of deals that has seen the group’s profits rise from $0.098 per share in 2010 to $0.24 per share last year.

However, while Avation’s earnings per share have risen by 145% since 2010, the firm’s share price has risen by just 88% since its flotation in October 2010. This means that Avation now trades on a trailing P/E of just 7.3.

One concern among investors is that the group’s net debt of $409.5m is quite high relative to the $518m valuation of the firm’s aircraft fleet.

A second risk is that airline growth may be starting to slow. A fall in fleet utilisation or a rise in interest costs could cause problems for Avation.

City analysts have trimmed their forecasts recently, but still expect earnings per share to rise by 39% to $0.32 this year. This puts Avation on a forecast P/E of just 5.6. If you remain confident about the outlook for air travel, these shares could be worth a closer look.

Rapid sales growth?

Information management group Idox (LSE: IDOX) reported its second acquisition in two months this morning. The firm spent £2m on a digital marketing agency called Rippleffect Studio, whose customers include JD Wetherspoon and Liverpool Football Club.

Idox is hoping to increase annual revenues from £62.6m to £100m over the next few years. Progress so far has been good. Revenue rose by 27% to £37.2m during the first half of this year, while pre-tax profits climbed 110%, to £6.5m.

However, while Rippleffect generated £6.3m of revenue last year, its net profit was just £34,934. Private companies usually try to minimise profits for tax reasons, but Idox shareholders need to make sure their company isn’t boosting sales figures while diluting the group’s profit margins.

Idox shares currently trade on about 19 times 2016 forecast earnings. I’d say that’s about right for now, and would rate the shares as a hold.

The post 3 top small-cap growth buys for today? appeared first on The Twelfth Magpie.

Is takeaway ordering service Just Eat (LSE: JE) the new Rightmove? Shares in the tech firm are down by 16% this year but have climbed 8% today, after management increased earnings guidance for this year from £98-100m to £102-104m.

Just Eat said that like-for-like sales rose by 41% during the first quarter, while total sales were 57% higher than during the same period last year.

The firm also said that it had increased the commission rate it charges UK takeaways by 1% in April. At the same time, the company increased the frequency with which it pays restaurants the money they are owed from twice monthly to weekly. The firm says “the initial response to these changes has been positive”.

These changes suggest to me that Just Eat’s customers (takeaway restaurants) depend on Just Eat for an increasing share of their business. They now have no choice but to accept commission rate increases without much complaint.

Just Eat now trades on about 40 times 2016 forecast earnings. This isn’t cheap, but with a PEG ratio of less than 1, Just Eat could still be a profitable growth buy.

Too late for this gold miner?

Egypt-based gold miner Centamin (LSE: CEY) has climbed by 94% so far this year, thanks to a 21% rise in the price of gold.

Centamin’s share price edged 3% higher today after it said that gold production rose by 6% to 125,268 ounces during the first quarter of the year. All-in sustaining cash costs, the most complete measure of the total cost of mining and producing, are expected to be $900 per ounce this year.

With gold currently trading at $1,296 an counce, Centamin should deliver strong profits this year. The firm has no debt and does not hedge any of its gold production, so the rising gold price will feed straight through to Centamin’s profits.

The only problem is that Centamin shares are starting to look quite pricey. This stock now trades on 17 times 2016 forecast earnings and 20 times 2017 forecast earnings. This year’s gains also mean that the expected dividend yield is just 1.6%.

In my view, the shares remain a hold, but it may be too late to buy.

Is the tide turning?

German airline Lufthansa said this morning that it will scale back its plans for capacity growth. In its Q1 results last week, British Airways owner International Consolidated Airlines Group said it too would moderate its growth plans.

If the airline industry has reached the end of its long-running growth cycle and is heading into a slowdown, then then outlook for airplane leasing firm Avation (LSE: AVAP) could become uncertain.

Avation issued a brief update today confirming that its fleet utilisation is currently 100%, with an average remaining lease term of 6.4 years. Avation has experienced management but has not won over the City — Avation shares trade on just 8.8 times forecast earnings, falling to 5.7 for 2017.

One reason for this is probably Avation’s net debt of $409m. Although this is covered by the value of its fleet and other fixed assets, any reduction in fleet utilisation could make it hard for Avation to generate a profit after debt costs.

In my view, the balance between risk and potential reward isn’t very attractive, so I’m staying clear for now.

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