Concerns about the state of the UK retail industry have weighed on shares in SCS (LSE: SCS) since the beginning of the year. Indeed, until this morning, shares in the company had lost 6% excluding dividends for the year.
However, today shares in the firm have jumped by 7.3% in early deals after it published an upbeat set of results for the year ended 29 July 2017, somewhat allaying concerns about the state of the UK consumer market.
For the first six months of the year, gross sales expanded 4.4%, and revenue improved 4.9%. Operating profit rose 8.8% year-on-year and earnings per share for the period grew from 21.8p to 23.5p. As well as the uptick in sales, SCS reported free cash flow for the year of £23.6m and a net cash balance at year end of £40.1m.
As well as the positive historical trading performance, more importantly, the company reported today that trading for the nine weeks to September 30 had continued to show a positive trend with sales order intake up 3% on a like-for-like basis.
I believe that these figures show SCS’s outlook is not as dim as many analysts have speculated, and despite Brexit uncertainty, customers are still attracted to the business’s offering. And that’s why I believe that the shares could be a great income investment at current levels. Based on today’s numbers, shares in SCS are trading at a highly attractive historic P/E of 7.4, and support a dividend yield of 9.1%, 2.4 times more than the market average.
Nonetheless, there’s still a risk that a Brexit-inspired consumer slowdown could weigh on SCS in the near future. That said, the company’s low valuation indicates to me that there’s already plenty of bad news baked into the shares here, and any positive surprises could result in a re-rating higher.
Dividend set to double
Homebuilder Bovis (LSE: BVS) has put in a stronger performance than SCS this year. The company’s shares are up 37% year-to-date excluding dividends, thanks to tailwinds from the government’s help-to-buy scheme. News that this scheme may be extended helped the shares add another 4% yesterday and even after these gains, I believe that the shares still look attractive.
Over the past five years, thanks to rising home prices, sales volumes and widening margins, Bovis’s earnings per share have more than doubled as pre-tax profit has tripled. Over the same period, the firm’s dividend to investors has increased fourfold, and it looks as if this is just the start.
During August Bovis reported its results for the first half of the year. Operating profit jumped 18% year-on-year, but more importantly for dividend investors, net debt was reported at £8m, compared to £59m a year ago. Based on this trend, it looks as if the company will be nursing a healthy net cash position within the next two years and City forecasts are calling for the company to pay a special dividend as a result.
Based on current forecasts, shares in Bovis support a dividend yield of 4.2%. Next year, however, analysts have pencilled in a prospective dividend payout of 80.3p per share for a dividend yield of 7.3%. To me, that looks to be a dividend yield worthy of further research.