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Shares of international recruitment firm Harvey Nash Group (LSE: HVN) gained 5% this morning, after this £70m firm said that revenue rose by 13.4% to a record of £889.3m during the year to 31 January.

Adjusted pre-tax profit for the year rose by 24.4% to £10.8m, while adjusted earnings climbed 29.3% to 11.5p per share. Shareholders were rewarded with a 5% dividend increase, taking the payout for the year to 4.3p per share.

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Today’s figures give the stock a trailing P/E of 8.8 with a dividend yield of 4.3%. That seems pretty cheap for a growing business, so is there anything we should watch out for?

A big adjustment

As a shareholder in Harvey Nash I’m quite pleased with today’s figures. But there are a few points worth noting.

The first is that the group’s adjusted figures exclude some big restructuring costs. Management closed a number of offices last year in order to cut costs in less profitable territories, at a cost of £1.8m.

If we accept the group’s definition of non-core and focus only on core activities, then pre-tax profit including one-off costs fell from £8.5m to £7.8m last year. On the same basis, diluted earnings per share fell from 8.7p to 7.8p, giving a P/E of 13.1.

As investors, I believe we need to be wary of companies whose figures are heavily adjusted. But in this case I think the underlying picture is still quite attractive. I expect this restructuring plan to improve the profitability of the group going forward.

City analysts also seem confident of further progress. Earnings are expected to rise by 14% to 13.1p per share this year, putting the stock on a forecast P/E of 7.8 with a prospective yield of 4.7%.

Although I wouldn’t chase a cyclical business like this to a high valuation, I believe the shares remain a buy at this level.

A strong recovery

Equipment rental group Speedy Hire (LSE: SDY) is another cyclical stock that’s performing well on a modest valuation. Since hitting problems in 2016, the business has been turned around and is now delivering significantly higher profits.

During the six months to 30 September, underlying sales rose by 6.9% to £183.2m. Pre-tax profit climbed 11% to £6m, while strong cash generation enabled the group to reduce net debt by 26% to £63.1m.

Analysts expect an adjusted net profit of £18.8m for the year ended 31 March 2018. Adjusted earnings are expected to rise by 53% to 3.7p, putting the stock on a forecast P/E of 14.

Growth expected to continue

This strong momentum is expected to carry on this year. Forecasts for 2018/19 suggest earnings will climb 22% to 4.6p per share, putting the stock on a modest forecast P/E of 11.5. Alongside this, the group’s improved cash generation is expected to support a dividend of 1.72p per share, giving the stock a forecast yield of 3.3%.

Like Harvey Nash, Speedy Hire is exposed to cyclical risks. A slowdown in the construction and infrastructure markets could leave the firm with too much equipment that it can’t hire out.

However, there’s no sign of this so far. And the company’s increased focus on value-added services such as testing and training could help to reduce this risk, supporting higher profit margins.

In my opinion, Speedy Hire may be too cheap to ignore at current levels.

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Roland Head owns shares of Harvey Nash. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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