Today’s small-cap winner and loser: Redde plc and Impellam Group plc

Redde pkc (LON: REDD) and Impellam Group plc (LON: IPEL) are moving in opposite directions today.

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Accident management, vehicle fleet and legal services company Redde (LSE: REDD) is today’s small-cap winner. Shares in the company jumped more than 5% in early deals after the firm issued an upbeat trading statement for the first six months of its financial year. 

Redde is planning to publish its official results for the six months to December 31 at the end of February 2017 but based on trading to date, the group is expecting to report solid year-on-year sales growth. Organic growth and its acquisition of fleet accident management company FM (acquired during October 2015) have both helped to drive sales growth. Management is so confident about the company’s outlook, the board decided to announce today that it expects to declare an interim dividend of not less than 4.9p per share, an 8.9% increase on its interim dividend in the prior financial year of 4.5p.

For the financial year ending 30 June 2017, City analysts are expecting Redde to report year-on-year earnings per share growth of 2%. However, based on today’s update City forecasts could be revised higher as the company now looks set to exceed expectations. 

That said, even if Redde does exceed City expectations for growth this year, the company’s shares already look fully valued. Shares in the company are trading at a forward P/E of 16.2, so earnings growth of 16% per annum or more is needed to make the shares look cheap. Still, after today’s dividend hike Redde’s shares support a highly attractive dividend yield of 6.6%. 

Overall, for income seekers who are not too bothered about Redde’s valuation, the company could be an attractive buy. 

Cautious outlook

As Redde rises, shares in Impellam (LSE: IPEL) are sliding today after the company announced it expects earnings for 2016 will broadly meet market expectations despite disruptions suffered in the UK healthcare market. 

It seems as if the market is concerned about Impellam’s use of language here. “Will broadly meet” is hardly the most inspiring statement and implies earnings will actually come in lower than expectations for the full year. If earnings were on track to meet full-year targets, the press release would have most likely used different terminology. 

Still, City analysts have pencilled-in earnings per share growth of 14% for Impellam this year, but the market is making it clear it doesn’t believe the company can hit this target. Indeed, shares in Redde trade at a discounted seven times forward earnings, a low multiple for a firm expected to report 14% earnings growth this year and 8% earnings growth for 2017. Put simply, it looks as if the market isn’t expecting fireworks from the company anytime soon. 

However, if you’re looking for a cheap stock that’s been neglected by the market, Impellam may be for you. 

Like many of its recruiter peers, Impellam has fallen out of favour with the market due to concerns about the company’s growth outlook after Brexit. If you believe the group has what it take to weather the storm, the shares might offer value. 

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.

Rupert Hargreaves 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.

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