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Are Dialight Plc, Utilitywise PLC & Berkeley Group Holdings PLC A Compelling Buy?

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Shares in Dialight (LSE: DIA), Utilitywise (LSE: UTW) and Berkeley Group Holdings (LSE: BKG) have delivered a mixture of big gains and losses for investors this year.

In this article, I’ll ask whether these companies are likely to deliver fresh gains over the coming months.

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Dialight

Shares in LED lighting manufacturer Dialight fell sharply this morning after the firm said it would cancel its dividend until at least 2017 and faced “an increased level of uncertainty” heading into the fourth quarter.

Dialight shares were down by more than 20% at one point, before recovering to trade around 10% lower, at about 595p.

The group also announced the results of its strategic review. Dialight is targeting a return to a 15% operating margin and annual sales growth of 25% by 2018.

Back in 2012, this is how Dialight was performing — but since then things have slowed as the LED market has expanded and matured. I’m not sure if these targets are realistic, going forwards.

Dialight shares aren’t cheap, either. At 590p, they trade on around 28 times 2015 forecast earnings, falling to 18 in 2016. If analysts” forecasts are cut following today’s update, as I expect, these P/E multiples could rise further.

I think it’s too soon to bet on a recovery at Dialight.

Utilitywise

Utility broker Utilitywise announced full-year profits broadly in line with expectations today. This firm issued a profit warning back in August, sending the shares tumbling, so it’s good that no further bad news has emerged since then.

Today’s results show that revenue rose by 41% to £69m last year, while diluted earnings per share rose by 28% to 17.9p. The total dividend is 25% higher at 5p, giving the shares a trailing yield of 2.8%.

Interestingly, Utilitywise also issued a second announcement. This explained that the group has started to restructure its contracts with energy suppliers so that it receives commission payments at an earlier stage in customer contracts than it used to.

Utilitywise has been criticised by investors over the last year for recognising revenue before it is due to be paid. This accrued revenue rose from £10m to £22m last year, so I think it’s good that the firm is starting to address this.

In my view, Utilitywise could be worth a closer look after today’s results.

Berkeley Group Holdings

Shares in upmarket housebuilder Berkeley are up 33% this year but have been treading water since then end of June.

Berkeley is currently generating a lot of free cash flow thanks to its 25% operating margin and controlled capital expenditure. The shares are expected to payout 150p in cash returns in 2015 and 2016, as Berkeley’s plan to return £13 per share to shareholders by 2021 continues.

Despite this rosy outlook, Berkeley’s valuation, on 2.8 times its book value, strongly suggests to me that we are somewhere near the top of the housing market cycle. Investors need to be aware of the reality that at some point, possibly not for several more years, the market will turn down.

I wouldn’t bet against Berkeley. I certainly wouldn’t sell the shares if I already owned them. I’m just not sure that they are cheap enough to buy — although I could be wrong.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Berkeley Group Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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