The last time I covered Park Group (LSE: PGK), I concluded that the company was on track to report a robust performance for its fiscal year, following a better than expected first half.
According to a trading update issued by the firm today, it looks as if this continues to be the case, although the outlook is not as bright as it once was. Specifically, in today’s update, the company said: “The board expects to report continued growth with results ahead of last year but marginally below market expectations.“
Management is blaming this performance on “later than expected rollout of a significant contract” as well as higher costs “associated with the recent changes in senior management.” The company recently lost its Managing Director of Park Retail Limited, Gary Woods after 38 years of service only a few months after Finance Director Martin Stewart announced that he would be stepping down in August.
Underlying growth
Despite this management turmoil, it seems Park’s underlying business continues to recover. Today’s update notes that over the crucial Christmas trading period, customer orders at the group’s consumer business rose 4% year-on-year. Meanwhile, the number of corporate clients using Park’s business-focused offering is also growing steadily.
And as long as there are no further surprises to earnings throughout the rest of the financial year, it looks as if shares in the business are a steal at current levels.
Based on current analyst estimates (earnings per share growth of 7.6% for fiscal 2018), the stock is trading at a forward P/E of 14.3. Now we know the company is going to come in slightly below target for the full year, earnings estimates will be revised lower over the next few months, but even after factoring in this decline, a forward P/E of around 14.3 looks to me to be too cheap for a steadily growing retail business.
Dividend danger?
Another turnaround play that I believe could generate impressive returns for investors is Talktalk (LSE: TALK).
Over the past two years, earnings per share have been cut in half, from 10.2p to 4.8p. However, analysts believe that the company will start to recover in 2019. Earnings growth of 45% has been pencilled in for 2019. Even though the stock still looks expensive based on this projection (forward P/E of 17.9), it’s the long-term growth that interests me.
Assuming the telecoms business can return to its earnings high water mark 0f 10.2p, the shares are trading at a multiple of only 12 times forward earnings, a discount of around 20% to the broader telecoms sector. What’s more, Talktalk has a history of giving investors market-beating dividend yields, a trait I expect the group to reclaim when its recovery is fully underway. My Foolish colleague Peter Stephens is also optimistic about the company’s outlook and believes the group could become a takeover target in the near future.
That being said, not everyone is optimistic about Talktalk’s outlook. Another Fool, G A Chester, has put Talktalk on his “dividend danger” list, due to the company’s rising indebtedness.
