Shares in industrial software firm Aveva Group (LSE: AVV) fell by 5% this morning after the group reported a sharp fall in profits.
Aveva had a tough year last year, thanks to a combination of the oil market crash and currency headwinds. The group’s adjusted pre-tax profit fell by 18% to £51.2m, while profit margins fell from 29.8% to 25.4%.
Although shareholders were rewarded for their patience with a 20% increase in the final dividend, Aveva shares have now fallen by 23% over the last 12 months and by 6% so far in 2016. The group’s demanding valuation appears to be eroding, but is it time to top up and buy more?
Aveva remains a cash generative business. Net cash rose by 4% to £107.9m last year, despite falling profits. On the other hand, earnings per share are only expected to rise by 8% this year. Even after today’s falls, the group’s shares still trade on a forecast P/E of 21.8. This seems fairly demanding to me. I plan to watch for a little longer before considering a buy.
Empty high streets hit sales
Discount greetings card retailer Card Factory (LSE: CARD) saw sales growth slow during the first quarter. The news sent the firm’s shares down more than 4% this morning.
Card Factory blamed customers for staying away from the high street, but it’s also possible that the firm’s market share is reaching a natural limit. Total sales rose by 6.5% due to 20 new store openings during the period, but like-for-like growth was lower than in previous quarters.
The company says it’s still targeting like-for-like sales growth for the full year of between 1.4% and 3.2%. Consensus forecasts suggest earnings per share should rise by 7% to 19.9p this year, putting the stock on a forecast P/E of 18.3.
Card Factory generates a lot of cash and the dividend is expected to rise by 77% to 15.1p this year, giving a forecast yield of 4%. The company has promised further detail on cash returns with the interim results. I’m concerned that a slowing sales trend could affect dividend growth. In my view, there’s no rush to buy these shares at the current price.
A profitable play on housing?
Shares in Topps Tiles (LSE: TPT) rose by 3.4% this morning after the firm said that sales rose by 3.8% during the first half of the year.
Profits rose much faster, with adjusted pre-tax profit climbing by 13.5% to £10.3m. Tighter stock control appears to have helped. Another attraction is Topps’ impressive gross profit margin of 61.5%. Retailers with high margins can deliver strong profit growth from a small increase in sales.
Today’s figures leave Topps shares trading on a 2016 forecast P/E of around 15. The interim dividend has been hiked by 33% to 1p per share, suggesting that full-year forecasts for a payout of 3.36p per share are reasonable. This gives Topps a forecast yield of 2.5%.
Net debt has fallen steadily to just £28m. This isn’t a concern, in my view, as it’s less than twice the firm’s forecast full-year profits of £17m. Assuming the UK economy and housing market remain stable, I think Topps could deliver further gains for shareholders over the next one or two years.
