UK share prices have (broadly speaking) enjoyed healthy gains in recent weeks. But years of underperformance mean that many top stocks continue to trade at rock-bottom prices.

Old Mutual Limited (LSE:OMU) and H&T Group (LSE:HAT) are two bargain stocks I think are worth serious consideration today.

As the table below shows, their current dividend yields soar above the market average. The average yield for both companies stands at an impressive 5.7%.

And they trade on rock-bottom price-to-earnings (P/E) ratios.

Here’s why I think they’re worth a close look today.

Old Mutual

Old Mutual has been selling financial products for 178 years. It has operations in 14 African countries, and sources the majority of its revenues from South Africa.

I believe it has considerable scope to increase profits as population sizes and wealth levels across its markets grow. With just 48% of African people currently using banking services, there’s plenty of business for the industry’s biggest players like this to win.

So why do I like Old Mutual specifically? Firstly, I like its exposure to multiple sectors like banking, life insurance and asset management. This gives it multiple opportunities to increase long-term earnings, while also reducing dependence on one product area.

I’m also a fan because of its incredible brand power. In 2023 it was deemed the world’s strongest insurance brand, according to Brand Finance.

Trading here is linked closely to the health of South Africa’s economy. This in turn leaves it vulnerable to changes in commodity prices.

But given its low earnings multiple, I think this risk is more than reflected in its current share price.

Old Mutual’s impressive value is further illustrated by its price-to-book (P/B) value. Any sub-1 reading indicates that a share is trading at a discount to the value of its assets.

H&T Group

H&T is the UK’s biggest pawnbroker, with 280 stores zig-zagging the UK. It also provides other services like foreign currency exchange, money transfer and precious metals dealing.

It’s doing a roaring trade at the moment, and in April 2024 demand for its pledge loans hit record levels. This is perhaps unsurprising given current economic conditions.

Naturally, revenues here could come under pressure if Britain’s economy bounces back. But from a long term perspective there’s a lot I still like about H&T shares.

I’m especially excited by its commitment to steady expansion. It opened 11 new stores in 2023, and plans to cut the ribbon on another eight to 12 this year.

With a strong balance sheet — its net debt to EBITDA ratio was just 0.9 as of December — H&T looks in good shape to continue expanding without compromising its progressive dividend policy.

Indeed, H&T has a terrific record of dividend growth, as the chart above shows. Shareholder payouts were slashed in the middle of the pandemic but have sharply rebounded from those levels.

Like Old Mutual, I think the company could be a great way to make a market-beating dividend income at low cost.

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Agronomics

The rate at which the lab-grown meat market is growing demands serious attention. According to Allied Market Research, the industry will be worth around $2.8bn by 2030. That’s a whopping lift from the $1.6m that it’s currently estimated to be worth. As a consequence I’m considering adding cultured meat specialist Agronomics (LSE: ANIC) to my shares portfolio. 

Agronomics is an investment company that provides the seed money for small companies to develop lab-grown products. Competition in the industry is likely to be cutthroat as people cut animals from their diets on ethical and environmental grounds and the market grows rapidly. But Agronomics has invested in more than a dozen companies to bolster its chances of success.

Some of the companies Agronomics has in its portfolio include cultivated fish maker BlueNalu, lab-grown beef specialist Mosa Meat and egg protein manufacturer Onego Bio. As the public becomes more attuned to animal-free diets, I think profits at this penny stock could soar.

Foresight Sustainable Forestry Company

I already have exposure to the building materials industry through my investment in brickmaker Ibstock. And I’m thinking of bulking up my position in this area by snapping up penny stock Foresight Sustainable Forestry Company (LSE: FSF).

Not only is this UK share also set to benefit from rising homebuilding rates over the next decade. It’s also set to exploit the growing use of timber frames in house construction. Rising concerns over sustainability are boosting demand for wood products over alternatives. Using timber also has other practical benefits for developers like reducing build times and cutting costs.

Foresight Sustainable Forestry Company owns 27 sites in total across Scotland, Wales, and England as of today. I think it will have an important part to play in the government’s quest to hit both its housebuilding and its net zero targets. I’d buy the business even though demand for its products could sink during future economic downturns.

Kropz

You might not have heard of Kropz (LSE: KRPZ) before. However, as a miner and processor of rock phosphate it will likely have a vital role to play in feeding a growing global population. The material it produces in Africa play a vital role in fertiliser manufacturing.

Kropz’s flagship project of Elandsfontein in South Africa is the country’s second-biggest phosphate deposit. Mining here started in October and first ore was delivered to the site in December. A steady ramping-up of operations is now set for the coming months. Kropz has also carried out feasibility studies at its Hinda project in the Republic of Congo, an asset the business has described as “one of the world’s largest undeveloped sedimentary-hosted phosphate reserves”.

Kropz is a mining stock whose world-class assets give it plenty of investment potential, then. I’d buy the business even though problems with getting Elandsfontein production firing nicely could derail earnings forecasts.

Likewise Group

The floor coverings and matting industry in the UK is highly fragmented and operators like Likewise Group (LSE: LIKE) have a lot of rowing to do to keep up. It is in particular danger from larger operators that enjoy significant economies of scale.

However, Likewise has been building its position in the market rapidly thanks to a series of acquisitions. And the company has wasted no time in sating its appetite for growth following its IPO last summer and acquired Valley Wholesale Carpets at the turn of 2022.

I believe this penny stock could prove a lucrative stock to own as construction activity picks up following Covid-19. Likewise supplies flooring products for commercial, industrial, and residential spaces. And I’m particularly excited by the possibility of soaring sales to homebuilders as build rates of residential properties heat up.

Old Mutual

A number of shares in my portfolio give me access to fast-growing emerging markets. But I feel my exposure to Africa and its soaring populations could be lacking. The number of people living in Sub-Saharan Africa has been growing by around 2.7% a year in the past decade, for example. This is much higher than the growth rates in Asia and Latin America.

I’d aim to capitalise on this trend by investing in Old Mutual (LSE: OML). Wealth levels are also rising rapidly in Africa and as a consequence so is demand for financial services, an area in which product penetration remains extremely low. Old Mutual’s main market is South Africa but it also trades in other major continental economies like Nigeria, Kenya, and Ghana.

Now competition in these fast-growing markets is expanding rapidly. And this could take a huge bite out of Old Mutual’s profits. However, I think the company’s strong brand name and history (it’s been trading since 1845) could help limit the damage.

Atlantic Lithium

Buying mining shares usually involves a large degree of risk and in this respect Atlantic Lithium (LSE: ALL) is no exception. A host of disappointments during the exploration, development, and production stages can occur. These can hit profits hard and send a share’s price sinking. And in this case there’s a long way to go before Atlantic Lithium gets production firing at its Ewoyaa project in Ghana.

Still, it’s my opinion that the potential rewards of owning this penny stock makes it very exciting today. Lithium is a critical component in electric vehicles, so consumption of the metal is tipped to take off in the years ahead. Statista analysts, for example, think lithium demand will soar almost 280% between now and 2030.

Drilling work at Ewoyaa reveals massive mining potential and Atlantic Lithium recently hiked its resource estimates for the project to a huge 21.3m tonnes. I think the business could be a great way to capitalise on the green transport revolution.

The post 6 penny stocks I’d buy for my Stocks and Shares ISA! appeared first on The Twelfth Magpie.

History shows that penny stock investors can end up making big returns by identifying the growth heroes of tomorrow. But Lloyds isn’t a low-cost UK share I’m thinking of buying today. It has things in its favour like a trusted brand name, an improving digital banking operation and considerable exposure to Britain’s strong housing market.

However, as a long-term investor I worry about the prospect of prolonged economic weakness in Britain and the damage this could cause to cyclical shares like UK banks. I also think the Bank of England will keep interest rates well below historical norms, hitting profits at the likes of Lloyds even further.

Why I’m avoiding Lloyds today

It’s true that the Lloyds share price looks mighty cheap right now. The penny stock trades on a P/E ratio of just 8.6 times for 2022. It also boasts a meaty 4.8% dividend yield.

But why should I take a chance with Lloyds when there are many other dirt-cheap penny stocks for me to choose from today? Here are two such shares I’d much rather buy today.

7.1% dividend yields

Financial services giant Old Mutual (LSE: OMU) is a stock that shares some qualities with Prudential, a FTSE 100 equity I already own. Both companies have built strong brand recognition over many generations (Old Mutual was founded just three years before The Pru, in 1845). These two businesses have also put emerging markets at the centre of their growth strategies. Prudential is building around Asia while Old Mutual’s centred on fast-growing African economies.

You might not be surprised to hear that Old Mutual’s a UK share I’d also happily buy for 2022, then. The financial products market in South Africa and other sub-Saharan nations is massively underpenetrated. This leaves plenty of room for sales growth as booming wealth levels drive demand for savings, investment and protection products.

At 65.7p per share Old Mutual trades on a forward P/E ratio of just 8.5 times. The penny stock also carries a mighty 7.1% dividend yield. I’d buy the company even though intensifying competition is a threat I’d need to keep an eye on.

Another superior penny stock

I also think Triple Point Social Housing REIT’s a more attractive penny stock than Lloyds right now. I think it’s in better shape to deliver long-term profits growth as demand for specialist social housing rapidly grows. This UK share provides accommodation for individuals with special living requirements. And it continues to build its property portfolio to boost its growth opportunities. In late December it acquired five properties for its nationwide portfolio for a total cost of £9.4m.

Triple Point trades on a forward P/E ratio of 9 times at current prices of 96.4p. It boasts a huge 5.8% dividend yield too. I’d buy it even though a lack of viable acquisitions could hit its growth plans.

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A penny stock for the EV revolution

It’s obvious by now that electric vehicle (or EV) sales are set to explode over the next decade. Major carmakers are doubling down on the production of low-emission vehicles, a trend that bodes well for suppliers of key EV materials. This is why I’d buy Rainbow Rare Earths (LSE: RBW) for my shares portfolio.

This stock owns the high-grade Gakara neodymium and praseodymium project in Burundi, East Africa. These elements are then used to make the magnets that propel EVs along. To give an indication of the size of the market, the International Energy Agency (IEA) thinks electric car sales will surge to 15m in 2025 and 25m in 2030. This compares with the 3m low-carbon vehicles that rolled out of showrooms last year.

Buying mining shares like Rainbow Rare Earths can be risky business. Unexpected production problems can be commonplace, driving costs higher and hitting revenues hard. Still, it’s my opinion that the potential rewards on offer at this particular miner offset the dangers.

Golden oldie

The Old Mutual (LSE: OMU) share price fared particularly badly in November. It’s fallen a meaty 18% in just a fortnight as a direct result of the ongoing public health emergency. Investors first raced for the exits when the insurer warned it had taken a hit of ZAR6.6bn in the nine months to September due to excessive Covid-19 deaths.

The news worsened the sense of panic around Old Mutual when it subsequently emerged that the Omicron virus variant was spreading rapidly in Old Mutual’s key territory of South Africa. As I type, the financial services provider is now trading well inside penny stock territory blow 57p.

I think this recent drop could provide a decent dip-buying opportunity for me, however. The ongoing pandemic is something that shouldn’t be underestimated. But as a long-term investor there’s a lot I like about Old Mutual. First, I like its position as one of Africa’s most trusted brands, a critical quality when it comes to looking after people’s money.

8% dividend yield!

I also think profits here could jump because of rising wealth levels and historically-low financial product penetration in its emerging markets. Financial institutions in Africa now hold a whopping $1.41trn worth of assets, according to Statista.

Old Mutual now trades on a price-to-earnings (P/E) ratio of just 7.6 times for 2022. This is the sort of value for money that warrants serious attention in my book. Meanwhile the financial giant also sports a dividend yield just under 8%. Like Rainbow Earth Minerals, this is a penny stock I’m seriously considering loading up on today.

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The good

Sylvania Platinum (LSE:SLP) is a producer and developer of platinum group metals (PGMs), platinum, palladium and rhodium. It has enviable low-cost operations in the element-rich Bushveld Igneous Complex and stellar recent performance. It got back to full production rapidly after the severe initial lockdown in the first half of 2020. Its third-quarter results to 31 March 2021 boasted net profit of $41.3m, more than double the prior quarter’s $20.3m. Fantastic cash reserves also enabled a once-off windfall dividend of 3.75p per share in April.

Moreover, Sylvania interests me as a bet on commodity prices and a hedge against inflation for investors in UK shares. The likes of UBS reckon platinum undersupply will continue while demand grows for the metal in catalytic converters and jewellery. With chatter about global inflation, commodities are a good defence against losing value to rising consumer prices.

The evergreen caveat with commodities is that prices can dip for extended periods, and even the best producers won’t win when that happens.

The bad

My “bad” stock is Old Mutual (LSE: OMU). Established in Cape Town in 1845, the insurance and financial services giant is a pillar of South African commerce. That makes it less of a bet on the business itself than on prospects for “South Africa Inc.”.

South Africa’s output growth has declined steadily from just over 3% in 2011 to zero before the pandemic. The economy shrank 7% in 2020. Covid-19 responses have depleted an already creaky fiscus. And politicians aren’t helping.

A planned constitutional amendment to allow land reform, likely in the shape of confiscation of land without compensation, is a frightening reminder of Zimbabwe’s violent farm takeovers and ensuing economic collapse. If this goes ahead, my outlook for South Africa and businesses that rise and fall with it turns dour.

I retain some hope that political haggling will scrap at least the “without compensation” part of the plan.  

The ugly

Mediclinic (LSE:MDC) runs private hospitals in South Africa. It serves a small elite who pay for private medical insurance. The harsh truth is that an unfortunate majority of people in this unequal society have no choice but to use the poorly resourced public system. However, that already regrettable status quo could change disastrously.

The proposed National Health Insurance (NHI) Bill would establish nationalised universal healthcare. A single, taxpayer-financed NHI Fund would buy healthcare services for the entire population from both public and private providers.

We don’t need the minutiae of the plan to calculate its potential for calamity. This redistributive system would spread too few medical resources among too many people, just as the wealthy tax base is fleeing. Doctors and nurses are departing, too.  

Owners of Mediclinic International’s UK shares can take solace in the company’s operations in Switzerland and the United Arab Emirates. But I won’t be buying while nationalisation is on the cards.

The post Good, bad and ugly: 3 UK shares with South Africa exposure appeared first on The Twelfth Magpie.

A penny stock for the construction boom

The homes shortage that’s driving prices in the UK through the roof (so to speak) isn’t confined to our corner of Europe. Naturally, this means homebuilders on the continent need to get frantically building too. And this plays into the hands of SIG, a building products supplier with operations in Northern and Eastern Europe.

This penny stock’s share price just spiked to 14-month peaks around 47p per share. And I reckon it can keep rising as it recovers from 2020’s washout (like-for-like sales rose 4% in the last three months of last year). That said, there’s a risk the Covid-19 ‘third wave’ sweeping across Europe could snap off these green shoots of recovery.

A golden oldie

I believe Old Mutual (LSE: OMU) — which trades at 66p per share — is another top penny stock for long-term investors like me. I believe having exposure to fast-growing emerging markets is a great strategy for UK share investors. And this particular life insurance provider concentrates on exciting African markets south of the Sahara. These are territories in which insurance demand looks on course to boom.

American research group Brookings says that, prior to the pandemic, the African insurance market was set to grow at around 7% per year between 2020 and 2025. It noted: “This projection placed the African insurance market’s growth at approximately twice the rate of North America, more than three times the rate of Europe, and slightly higher than Asia’s 6% growth rate.”

Brookings also notes that the pandemic has delayed the continent’s insurance growth pattern rather than altered it, meaning operators like Old Mutual still have a very bright future. That said, be aware that competition here is rising as overseas operators try to get in on this lucrative territory.

Property powerhouse

I believe that investing in the student accommodation sector could be a good idea too. This is why I’d happily add Empiric Student Property (LSE: ESP), which trades at 88p per share, to my own ISA. This particular penny stock is one of the country’s largest operators in this part of the real estate market. And while it was battered by the Covid-19 crisis last year — revenues dropped 16% in 2020 as the pandemic smacked occupancy rates and forced it to dole out refunds — the sunny outlook for the sector remains.

In particular, inflows of international students continue to grow at a robust pace. As Savills notes, these particular students are 60% more likely to move into purpose-built student accommodation than homegrown students.

However, any changes to the higher education sector in Britain could damage demand for its digs going forward. But, all things considered, I think this is a great penny stock to buy right now.

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Of course investors don’t have to buy UK shares before the end of 5 April. But do they need to have sunk their money inside the tax wrapper before that time. Here are three penny stocks I’m thinking of buying with my just-in-time contribution:

A penny stock for cannabis bulls

I think investing in the medical cannabis market could make UK share pickers a lot of money. Demand looks set to soar as laws surrounding its usage begins to loosen. I also expect sales of the drug to increase as the number of health conditions it is used to treat grows. Don’t just take my word for it though. Researchers at Valuates Reports reckon the global medical cannabis industry will be worth $30.5bn by 2026. This is up from $12.9bn in 2020. All this explains why I think investing in Zoetic International (LSE: ZOE) could be a good idea. The business manufactures cannabidiol (or CBD) oil products which it sells in the US and Europe. Be warned, though, that this industry is highly regulated. Law changes could therefore cause serious operational problems that could knock profits.

Screen star

I’m also thinking about buying Ocean Outdoor (LSE: OOUT) for my Stocks and Shares ISA. I think this penny stock — whose outdoor screens allow businesses to advertise their products across Northern Europe  — could soar in value in the very near future. This is because the amount companies spend on advertising rises strongly during the early stage of economic recoveries. I think that the huge amounts Ocean Outdoor has spent to expand its geographic footprint should pay off handsomely. But remember that such an aggressive strategy is high risk and the share price could suffer if trading in new markets fails to live up to expectations. The business also has to compete with other forms of outside advertising and other media categories including newspapers, mobile Internet, and television. This could result in a lowering of its prices on top of rising costs.

African Queen

Another penny stock on my radar today is Old Mutual (LSE: OMU) I bought shares in Prudential last year because rising wealth levels, strong population growth, and low life insurance product penetration in Asia are likely to result in huge profits in the years ahead. Old Mutual operates in sub-Saharan markets in Africa where the same conditions are in play. And this 175-year-old company has the clout to make the most of this enormous opportunity. That said, companies of this nature always run the risk that larger-than-expected claim costs can see them fail to be covered by the premiums it’s charged. And this can have a devastating impact on the bottom line.

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Once again, the annual Equity Gilt Study from Barclays — which focuses on long-term returns in the UK and US — has shown just how important it is to stay in the market and re-invest all that you receive if circumstances allow. £100 invested in 1945 might only be worth £288 now but if the income received over that time had been used to buy more shares, it would now be worth an astounding £6,294.

Solid payer

Anglo-South African life assurance and banking giant Old Mutual (LSE: OML) is a good example of a stock I’d consider investing in for its bi-annual payouts.

Today’s update, released to coincide with the company’s AGM, confirmed that the £12.6bn cap’s businesses continue to trade “in line” with those expectations announced back in March alongside its full-year results. 

First quarter net client cash flow at Quilter — the wealth manager that will separate from Old Mutual and list on the London and Johannesburg stock exchanges in June — has continued to be strong. At £1.6bn, this was 14% higher than over the same period in 2017.

Although assets under management fell by 2.4% to £111.6bn over the reporting period thanks to “negative market movements“, the company stated that this compared favourably to the 8.2% decrease in the FTSE 100. That said, CEO Paul Feeney did remark on likely “uncertainties in equity, bond, and currency markets” as the full impact of Brexit becomes clearer. 

Q1 performance at South African banking group Nedbank was also as expected.

Despite rising 31% over the last year — impressive for such a large company — Old Mutual’s stock still trades on a fairly undemanding valuation of 11 times forecast earnings. The 3% yield is somewhat average but it is expected to be covered three times by profits — the kind of security that holders of higher yielding stocks in the FTSE 100 can only dream of. Speaking of which…

Shaky foundations

In contrast to some of my Foolish colleagues, I remain wary of communications behemoth and top table peer Vodafone (LSE: VOD). 

The 6% yield on offer is certainly attractive, but this massive payout is still not covered and unlikely to be for another couple of years. That’s fine if you’re invested in some kind of diversified income fund or a simple FTSE 100 tracker but, for those who choose to own a more concentrated portfolio, I can’t help thinking that’s a sufficiently long time period for new problems to arise.

Bulls will point towards the completion of Project Spring as a catalyst for Vodafone’s fundamentals to improve. They may also reflect on the recent jump in mobile data traffic (as reported in February) and the fact that Vodafone now claims to be the fastest growing fixed broadband provider.

While this may be true, I remain concerned by the Newbury-based firm’s huge debt pile and the inevitability of further capital expenditure. In September last year, net debt stood at £32bn, well over half its market capitalisation.

Vodafone announces full year results on May 15. Shares might rally if predictions of organic adjusted EBITDA growth of “around 10%” and €5bn+ free cash flow are met but, on 22 times expected earnings for next year, I’ll be steering clear.

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Enhanced value and good results

Like doves being released from a cage, the newly created individual companies will be free to soar under new, unrestrained and invigorated management teams, delivering value to Old Mutual’s current shareholders. It’s a good theory and a powerful reason to hold the stock now, especially considering the great full-year results released today.

Compared to 2016, pre-tax adjusted operating profit moved up 22% last year and adjusted earnings per share lifted 25%. The directors displayed their confidence in the outlook by pushing up the full-year dividend by 17%, which is great progress for existing shareholders. Yet, despite these good financial figures, Old Mutual experienced challenging macroeconomic conditions in its largest market of South Africa through 2017, with “weakness in consumer and business confidence creating a tough environment for banking, long-term investment and savings.” Meanwhile, in the UK the company said it delivered a “resilient operational performance” despite a weak currency, political uncertainty around Brexit and the general election, and regulatory developments affecting financial services.

The firm is on course to complete most aspects of the managed separation of its businesses by the end of 2018. Chief Executive Bruce Hemphill said in today’s report: “The process has already delivered significant value through cost and debt reduction.” The aim is to “unlock and create significant long-term value” for shareholders, which he believes is “trapped” in the group structure. The separation should remove costs layered in the existing set-up.

Attractive valuation

Three underlying businesses will be set free — Old Mutual Emerging Markets, Nedbank and Old Mutual Wealth. OM Asset Management was the first division to go, having been separated from the firm during 2017. I think the strategy is a good example of how imaginative management thinking can turn a dull old firm into an interesting-looking investment proposition.

Meanwhile, even in this advanced stage of change the valuation still looks attractive. In 2017, the adjusted net asset value per share rose 6% to around 242p, which is close to the current share price of 252p. The price-to-earnings ratio sits just above 10 and the dividend yield around 2.8%, with the payment covered almost three-and-a-half times by current earnings. This does not strike me as a demanding valuation.

Good trading and the impetus created by the company’s bold separation strategy have combined to drive the stock up around 35% since November, and I reckon there could be more to come from capital appreciation and dividend income for investors willing to embrace the uncertainty of the company’s current state of flux. Perhaps this is one to tuck away for your retirement fund.

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With that in mind, here are two companies with high dividend growth potential. Buying them now could be a shrewd move.

Long-term potential

Reporting on Wednesday was Frenkel Topping (LSE: FEN), a specialist independent financial advisor and asset manager focused on asset protection for vulnerable clients. The company has recently been undertaking a detailed review following changes to its management team. It now believes that the potential addressable market available to the company is broader than that which it has previously targeted. It has therefore made investments in its cost base in order to restructure the business.

This could provide the business with higher sales and profit growth potential in the long run. Certainly, it will lead to reduced profitability in the short run, and that could be why the company’s shares are down 10% following the update. However, with a larger potential market from which to seek new business, the company’s future could be brighter following its strategic review.

In terms of its income prospects, Frenkel Topping currently has a dividend yield of 2.5%. While this may seem relatively low, the shareholder payouts are covered around 2.4 times by profit. This suggests that there could be significant growth in dividends in future years. With the company now having a larger market to target, its financial performance could improve in the long run.

Increasing dividends

Also offering the potential for higher future dividends is wealth management specialist Old Mutual (LSE: OML). It is currently undergoing a major restructuring which will see it split into four separate entities. This is being undertaken in order to improve its efficiencies through the prospect of lower costs. It also means there are asset disposals, the latest one of which was for the company’s Single Strategy division for £600m.

With a dividend yield of 3.2%, Old Mutual offers a real income return at the present time. However, in the long run its dividend growth rate could be relatively high. Its shareholder payouts are currently covered three times by profit, which suggests that they are highly affordable and very sustainable.

The company’s price-to-earnings (P/E) ratio of 10.4 suggests that there is a wide margin of safety on offer for new investors. This means that there could be significant upside potential in the long run. In the near term there could be some weakness as investor sentiment may decline to some degree ahead of what is a major change for the business. But with a low valuation, cost-cutting drive and rising dividend, it could be a strong performer in future years.

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