Dividend up, share price down: this FTSE Small Cap is worth a closer look.
When I ran a share screen in March, FTSE Small Cap company Creston (LSE: CRE) popped up. Since then, the share price has eased back a little, but the recent full-year results have prompted a closer look.
This practically debt-free, high-yielding business in the media has just posted a 17% dividend hike on the back of an 11% increase in revenue and a stable underlying profitability performance. It's now yielding around 6.3% on this year's payment.
Low debt, well-covered dividend
The share screen looks for companies with a decent, well-covered dividend and low debt. If it finds those things cheaply enough, there's a good chance that other desirable characteristics might be present, too.
Right now, at the share price near 55p (market cap. £34m), Creston is trading on a forward earnings multiple of just over four for 2013 based on underlying earnings per share, so it certainly hits the spot for cheapness.
Steady performance
The company provides marketing and communications services to blue chip and other clients in three divisions it calls Communications, Health and Insight. Business has been steady, as the figures show:
| Year to 31 March: | 2010 | 2011 | 2012 |
|---|
| Revenue (£m) | 61 | 68 | 75 |
| Net Cash from operations (£m) | 15.44 | 7.29 | 7.54 |
| Continuing diluted earnings per share | 4.97p | 9.41p | 15.08p |
| Dividend | 1p | 3p | 3.5p |
| Cash (£m) | 2.78 | 1.68 | 1.82 |
| Borrowings | 27.7 | 1.72 | 1.91 |
There's been revenue growth and debt reduction, all reflected in the company's progressive dividend policy.
Creston has a number of operating businesses and has a busy history of acquisitions and divestments. I think a flexible strategy can be a good idea, but it leads to one-off charges and gains on the accounts. Recognising that, the company also presents underlying profit figures, which show a broadly flat profit performance in 2012, rather than the increase in earnings per share shown from the income statement.
It's also worth noting that 2010's net cash performance was flattered up 23% from operations that didn't continue into 2011.
Outlook
Although cautious of general economic conditions, the directors believe they have a viable strategy for profitable growth and cite strong cash flow and conservative financing as reasons for confidence.
Indeed, free cash flow covers the dividend payment around two-and-a-half times, and the modest debt is more-or-less offset by cash in the bank.
Share price weakness could be down to investors worrying about the cyclical nature of the company's operations. That's understandable, after all, the shares bottomed at about 20p in 2008. Then again, they were at 120p just last year.
Given the outlook, I think Creston is a cautious buy at the current level.
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> Kevin doesn't own any Creston shares.
