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Are Imperial Brands plc, FirstGroup plc & Norcros plc a buy in today’s uncertain market?

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Imperial Brands (LSE: IMB) may have changed its name, but the firm’s focus on tobacco sales and market-beating dividend growth hasn’t changed.

Imperial’s tobacco sales rose by 16.8% during the first half of the year, thanks partly to a £468m contribution from its recently acquired US cigarette brands. Total adjusted operating profit was 19.5% higher than during the same period last year, while adjusted earnings per share were 20.4% higher.

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The interim dividend was increased by 10%, maintaining the firm’s long track record of double-digit growth. This is likely to continue. In a recent strategy update, Imperial confirmed that it intends to maintain its current policy of increasing the dividend by at least 10% per year “over the medium term”.

In my view this policy is entirely realistic, as long as Imperial’s board is also able to find some surplus cash to reduce its record £13.7bn net debt. With a forecast yield of 4.3%, Imperial is likely to remain a solid income buy, regardless of the outcome of next week’s EU referendum.

Cash generation set to improve

Shares in FirstGroup (LSE: FGP) rose by as much as 10% this morning, after the bus and train operator said that “significantly increased cash generation” was expected during the 2016/17 financial year.

The news suggests that FirstGroup’s business is now getting back on track, after being forced into a £615m rights issue in 2013. Today’s results show that adjusted pre-tax profit rose by 2.7% last year, despite the loss of certain rail franchises.

Commenting on the year ahead, Tim O’Toole, First’s chief executive, said that lower fuel costs and more operating days in the firm’s US school bus business would help boost profits this year.

FirstGroup shareholders will be hoping that Mr O’Toole can make good on his promises. The group’s net debt remains high, at 2.3 times earnings before interest, tax, depreciation and amortisation (EBITDA). This ratio didn’t improve last year and FirstGroup hasn’t yet restarted dividend payments.

This may help to explain why FirstGroup shares are still only trading on 8.8 times 2016/17 forecast earnings. In my view, FirstGroup could be worth a closer look — although investors may still need to be patient.

This small cap looks cheap to me

Today’s full-year results from bathroom fittings and tiles group Norcros (LSE: NXR) looked pretty solid to me. Sales rose by 11% last year, while underlying pre-tax profit rose by 29% to £20.4m.

Norcros’ full-year dividend rose by 17.9% to 6.6p, giving an attractive 3.8% yield. Although some of these gains were the result of acquisitions, net debt remains reasonably low at £32.5m. In my view the firm’s shares now look notably cheap, on a trailing P/E of 6.3 times underlying earnings.

Norcros reported a group operating margin of 9.0% for last year, up from 7.6% in 2014/15. Excluding acquisitions, free cash flow was enough to comfortably cover last year’s dividends. Norcros now trades on a forecast P/E of 7 for 2016/17, compared to a multiple of 9 times 2014/15 profits.

I’m not sure why Norcros shares are so cheap. Despite its heavy exposure to the UK housing market, Norcros looks good value to me.

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Roland Head 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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