Small and mid-cap broker Numis (LSE: NUM) is far from a household name but with a 4% dividend yield, attractive valuation of 12 times forward earnings and decent growth prospects, it may be wise to take a closer look at the company.
Numis has found success in recent years in hoovering up small and mid-cap clients that more established rivals have turned away from to focus on larger, more profitable accounts. This has worked out just fine for Numis as it has found these clients a steady source of income from research, broking and advisory services.
In the year to September, a rebound in corporate transactions and an uptick in trading services from a bundle of new clients increased revenue by 15% year-on-year (y/y). This performance was heavily weighted to the second half of the year, which bodes well for the coming quarters as buoyant equity markets increase IPO volumes.
Looking forward, there are challenges approaching for Numis and the sector as a whole. Aside from the cyclical nature of the industry, the most evident is the new Mifid II EU regulations that are seeking to bring clarity to the traditionally opaque world of how asset managers account for and bill payments to brokers for research. This helps explain why Numis has made such a big push into offering a broader range of services in recent years.
However, these changes have been known for some time and Numis feels prepared to tackle them. Furthermore, the company’s dividend prospects look very good. The company’s balance sheet had £71.2m in net cash at the end of March and since then the company has cancelled its share premium account, which was an un-distributable reserve that held £38m at the end of March. With this account cancelled, the bulk of the cash can be returned to shareholders via its already impressive dividends or its growing share buyback programme.
With a decent valuation, increasing shareholder returns and good growth prospects, Numis has definitely earned a place on my watch list.
Fuelling up for future growth
Another stock that fits the bill is nearly-new car dealer Motorpoint (LSE: MOTR). The company currently offers a 3% dividend yield while its shares are priced at only 8.2 times forward earnings. Furthermore, analysts are forecasting a 4.1% dividend yield for the year ahead as the company’s expansion continues and fuels increased earnings and dividends.
They look to be right as the company’s half-year trading update released this morning detailed an 18% uptick in sales from new and existing locations as well as an increase in underlying pre-tax profits from £6.4m to £10.5m y/y. This solid performance suggests the market for Motorpoint’s cars, which are under two years old and have less than 15,000 miles on them, remains robust, even as economic indicators such as consumer confidence have taken a dip recently.
Of course, investing in a used car dealer entails risks related to the macroeconomic environment, but with no debt, good potential for opening new sites and an evidently healthy market for its products, Motorpoint could be an option for more risk-hungry income and growth investors.
