UK investors continue to be drawn to Lloyds‘ and Rolls-Royce‘s shares. And I can understand why – right now these two names are delivering. Looking ahead however, City analysts see far more potential in other, less popular shares. Here’s an under-the-radar dividend stock that they see huge potential in over the next 12 months.
‘Mission-critical’ services
The stock in focus is Restore (LSE: RST). It’s a London-based company that provides ‘mission-critical’ services to businesses such as document shredding, document scanning, data storage and erasure, and relocation services.
Listed on the UK’s Alternative Investment Market (AIM), it currently trades for £2.61. At that share price, the market-cap’s £353m.
Growth, value, and dividends
It has been a while since I’ve covered this stock. And looking at it today, the set-up is quite interesting, in my view.
For a start, the company’s growing at a healthy clip, helped by acquisitions. This year, revenue’s expected to come in at £345m – 25% higher than the figure for 2024.
One acquisition it made recently was that of Synertec. This business – which predominantly serves the NHS – specialises in outbound communications and Restore’s management believes that it offers “significant” growth potential.
Next, we have rising earnings. This year, Restore’s earnings per share (EPS) are expected to come in at 22.3p, up from 19p last year.
That forecast puts the price-to-earnings (P/E) ratio at 11.7. Using next year’s EPS forecast, the P/E ratio falls to just 10.4, so there could be some value on offer here.
It’s worth pointing out that management’s aiming to boost profit margins. In the medium term, it’s targeting 20% adjusted operating margins versus 17.7% in the first half of 2025.
We also have rising dividends. Currently, analysts expect a payout of 6.62p for 2025 versus 5.80p for 2024. That puts the prospective yield at 2.5%. Dividend coverage (the ratio earnings per share to dividends per share) is very high, so there’s scope for substantial increases to the payout.
Finally, analysts seem to be bullish on the stock. At present, the average price target is 383p – about 47% above the current share price.
I’ll point out that the average price target for Lloyds is only about 12% above the current price while the average target for Rolls-Royce is actually below the current price. So analysts see far more potential here.
A value play
Now the stock’s not perfect, of course. One issue is that there’s some uncertainty in relation to the long-term outlook for the document storage and shredding segments due to the fact that businesses are using less paper these days.
Another issue is that, as a result of acquisitions, debt has piled up. At the end of June, the company had net debt of £120m on its books.
Weighting everything up however, I see quite a bit of appeal in this one. In my view, it’s worth considering as a value play.
