The Motley Fool

Do today’s updates make these 2 stocks ‘screaming buys’?

Interserve (LSE: IRV) and RTC Group (LSE: RTC) are major movers today after releasing updates. Should Foolish investors buy, sell or just watch them right now?

Interserve

Interserve is up by 14% today after releasing a robust set of first-half results. Encouragingly, its net debt has been reduced to £275m and the company has improved its year-end net debt guidance of £300m-£320m. It will also exit the Energy from Waste business, with no further charges expected above the £70m announced in May.

Interserve’s interim dividend has risen by 2.5% due to it delivering in-line sales and profitability for the period. Its future workload visibility is good, standing at £7.6bn after the company won £1.9bn of new business during the period. And with Interserve’s operating cash flow improving to £128m from £20m in the first half of 2015, its financial situation is becoming stronger.

Looking ahead, Interserve may endure a challenging period as the UK enters a period of great uncertainty. Although Interserve is an international business, its UK operations are significant and its share price performance could suffer as a result.

However, with Interserve trading on a price-to-earnings (P/E) ratio of just 5.7, it offers an exceptionally wide margin of safety. This means that even if its top and bottom lines come under pressure over the medium term, its shares may still perform well due to their low valuation. And with significant upward rerating potential, Interserve remains a top-notch value play that currently yields a whopping 6.8%.

RTC Group

While Interserve has soared today, shares in recruitment services and conferencing services company RTC Group are down by 15%. That’s despite RTC releasing an upbeat set of interim results for the first six months of the year that show a rise in sales of 16% versus the corresponding period from the prior year.

Furthermore, RTC’s profit from operations before amortisation of intangibles increased from £0.5m in the first half of 2015 to £0.6m in the first half of the current year. And with cash flow from operations being £1m versus a £0.8m outflow last year, its financial outlook is becoming increasingly positive.

RTC has increased its interim dividend to 1.1p per share from 1p per share last year. This puts it on a yield of 6.1% and with dividends being covered 2.6 times by profit, there’s scope for them to rise at a faster pace than RTC’s bottom line. On that topic, RTC is forecast to increase its earnings by 10% in each of the next two financial years. And with its shares trading on a P/E ratio of 6.4, they offer excellent value for money at the present time.

Clearly, the risk of a recession from Brexit is significant and unemployment is forecast to rise to 5.5% from the current 5% level according to the Bank of England. However, with a wide margin of safety and an appealing risk/reward ratio, RTC could prove to be a sound long-term buy, although it may be somewhat volatile in the near term.

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Peter Stephens owns shares of Interserve. 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.