Immunodiagnostic Systems Holdings (LSE: IDH) has been through a tough patch, and its share price has responded with a 50% fall from February 2014’s peak. But that includes a 70% recovery over the past 12 months to today’s 285p, and I reckon we could be on the cusp of an impressive change of fortunes.
A 4% rise in full-year revenue didn’t excite the markets on Wednesday, accompanied as it was by an 8% drop in the like-for-like figure, and as I write the share price is unmoved. But it’s been a consolidation year for the maker of clinical diagnostic kits.. New chief executive Regis Duval said: “We have made good progress in stabilising the financial performance of the group, and believe we are well positioned to return to growth in the medium term.”
That growth is unlikely to be achieved this year, as the company is facing declines from its vitamin D business and antibody royalties, but I’m convinced there’s long-term growth potential here.
Cash flow
From revenues of £40m, adjusted EBITDA rose by 4% to £7.7m (though like-for-like was down 15%), and a turnaround from last year’s bottom-line loss brought in adjusted earnings per share of 14.8p — that’s a P/E of 19, which I don’t think is stretching.
Importantly, free cash flow is up 43% to £4.8m, and Immunodiagnostic signalled its confidence by lifting its full-year dividend from 1.2p last year to 4p — that’s only a 1.4% yield, but it’s well covered and I expect to see significantly more by March 2018.
We can’t ignore the risks, and the recovery won’t be here until we see the colour of the cash, but I’m optimistic for the long term.
Rapid growth
Shares in AFH Financial Group (LSE: AFHP) have climbed 45% so far this month, to 275p, responding belatedly to the previous two years of very strong EPS growth. Big expectations had already been built in to the share price, but we’re seeing valuations back down to tempting levels now.
With EPS forecast to rise more than 90% for the year to December 2017, and another 50% in 2018, the P/E would drop to around 19.5 this year and 12.5 next — that’s a lower-than-average multiple, for shares on a very attractive PEG of only 0.2.
AFH is a full-service wealth manager, growing organically and by acquisition, and its client base of high net worth folk is a market segment that is surely going to prosper in the coming years, whatever Brexit-driven ills befall the bulk of the UK’s working population.
Acquisition plans
At the interim stage, funds under management were up 17% to £2.2bn, producing a 19% rise in revenue to £13.9m and a 34% boost in pre-tax profit to £1.15m.
Cash stood at £12.6m after a £10m placing in March, with the firm speaking of a “strong pipeline of acquisition opportunities.” Increasing size through acquisition should help AFH to drive down costs, which adds to my optimistic outlook for a rosy future.
My biggest puzzle is what I might have missed that would justify what I see as a seriously undervalued stock — and all I can think is that the company has fallen under the radar, and perhaps investors are put off by the recent strong price gain.
I might indeed have missed something, so be sure to do your own research, but I think AFH could be one of the best growth stock bargains out there right now.
