The summer sun is bringing us flowers, insects… and plenty of company updates. Today we’ve had news from a very possible recovery prospect, plus a couple of nice-looking growth opportunities. But which is best?
TalkTalk Telecom Group (LSE: TALK) shares have had a tough 12 months, suffering a 43% fall to 221p. But that could well be overdone, with the shares now on a predicted P/E for the year to March 2017 of 15.6, dropping to 12.7 a year later. But what does today’s first-quarter update reveal?
Despite a lower customer base, overall revenue has been flat, with corporate revenue up 7.5% and data revenue up 38.5%. The company expects full-year revenue to “grow modestly“, and has reiterated its guidance of headline EBITDA of £320m-£360m. Debt is expected to keep falling, and the firm says its 2017 dividend should be at least in line with 2016’s and covered by cash flow.
The dividend, forecast to yield 7%, does concern me as it wouldn’t be covered by currently-forecast earnings per share, while net debt stood at £679m at year-end — and I don’t see that as optimum use of cash. But, with that low P/E valuation and EPS growth forecasts giving TalkTalk attractively low PEG valuations for this year and next, I think I do see a bargain here — and very possibly a takeover target.
Shares in Electrocomponents (LSE: ECM) climbed by more than 9% to 282p by midday, after the electronics and engineering distributor released an impressive first-quarter update. Although overall sales only grew by 1%, that did build on a stronger fourth quarter, and showed sales growth slanted towards Europe — though Asian and North American sales are falling.
But is the firm’s focus on Europe a risk in the post-Brexit world? All chief executive Lindsley Ruth had to say was that it’s too early to tell, but the fall in the value of the pound should make the firm’s exports more attractive and should provide a benefit to profits stated in Sterling. One to buy? There’s some uncertainty here, but with the firm’s undemanding P/E of 17.5 this year, dropping to 15.5 next, coupled with expected dividend yields of 4.5% and with EPS growth forecasts, it looks relatively safe for a growth stock.
Shares in IQE (LSE: IQE) have had a rocky ride, losing 44% over the past five years. But a trading statement from the silicon wafer supplier this morning provided a 15% boost, taking the shares to 20.4p. Sales in the first half of the year are expected to be at least 15% higher than in the same half of 2015, with revenues coming from an increasingly diversified range of products and services.
Net debt is reducing thanks to strong cash generation, with £3.5m in license income from joint ventures expected to add to the pot in the half. Chief executive Dr Drew Nelson could barely have sounded more upbeat, telling us that “with the progress being made on new product qualifications, further product developments and with increasing revenue diversity, we remain on track to achieve full year expectations”.
With the shares valued at a mere six times forecast earnings, and two years of EPS growth forecast to follow on from the previous three, IQE is my pick of the bunch here.
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Alan Oscroft 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.