Do today’s results make these under-the-radar large caps stellar opportunities?

Solid results make these three relative unknowns worth a second look.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In a society as addicted to cheap credit as ours, it’s no surprise that collecting on the inevitable defaults is big business. That’s where Arrow Global (LSE: ARW) comes in. The company buys packages of defaulted customer accounts for a discounted rate from financial institutions and then tries to collect as much as possible on the investment.

Interim results announced this morning suggest the data-driven approach to collections is working as year-on-year revenue leapt 34% and pre-tax profits were up 24.7%. So with astounding top line growth, high margins and dividends offering a 2.8% yield with room to grow, why are the shares trading at a mere 9.9 times forward earnings?

Perhaps surprisingly for a company that buys defaulted loans, the company is comfortable tacking on significant amounts of leverage. At the end of June the company owed some £739m, good for 3.8 times EBITDA. And, while Arrow believes it will bear little ill effect from any Brexit-related slowdown, there’s always the risk customers without a job will be less likely to pay off old loans.

Building profits

Unless you’re big into DIY home repairs or are in the building industry, Grafton (LSE: GFTU) may be one of the biggest companies out there you haven’t heard of. Grafton sells building supplies to retailers and contractors alike and business is booming with revenue over the past six months climbing 14% year-on-year to reach £1.2bn.

As you can imagine though, margins in this industry are very tight. That’s why statutory operating profit for the same period clocked in at a meagre £66.1m. That means operating margins were a very low 5.3%.

The good news is that Grafton has a healthy balance sheet with only £95.7m of net debt and earnings covered dividends a very safe 3.3 times over last year. It’s always good to see a company’s management remain level-headed during the boom years and avoid over-leveraging to fund unsustainable growth and pay huge dividends.

However, reliant as it is on the continued health of the homebuilding industry and offering quite low margins, I believe there are better options to gain exposure to the sector.

Room to grow

Irish Continental Group (LSE: ICGC) is another name that may not mean much to many, but if you’ve ever taken a ferry between Britain and Ireland it’s likely you set sail on one of their vessels. Alongside passenger and freight ferries, the company also runs cargo terminals at the Belfast and Dublin ports.

This business is inextricably tied to the health of economies on both sides of the Irish Sea and with the Celtic Tiger roaring once again, times have been good. Interim results released today showed revenue up 5.2% and operating profits up 27% year-on-year to €150.5m and €20.8m respectively.

With the fallout from the last time the Irish economy collapse fresh in its mind, management hasn’t allowed itself to be carried away by bumper results. Net debt was whittled down to a mere €18.9m at the end of June while dividends rose a sustainable 5%.

ICGC’s business may not be very exciting but it’s relatively reliable and the current 1.9% dividend yield has room to growth with earnings covering payouts a solid 2.6 times over.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »