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Is Barclays a top FTSE 100 share to buy in June?

Peter Stephens — Mon, 04 Jun 2018 10:40:10 +0000

The last year has been a relatively disappointing period for investors in Barclays (LSE: BARC). The companyâs share price has fallen by 3%, underperforming the FTSE 100 by over 5% in the process.

However, with it now seeming to offer an improving growth outlook and having what could be a wide margin of safety, is it worth buying for the long run alongside a smaller financial services sector peer?

Changing business

Barclays has experienced a period of significant change in recent years. Under its current CEO it has changed its strategy, seeking to focus to a greater extent on its core operations. This has meant an exit from non-core operations such as Barclays Africa. Not only has this created a simpler and more focused business model, it may also have improved its risk/reward ratio. This could mean that the bank is better able to generate rising profitability in future years.

Improving outlook

In fact, the company is forecast to deliver a rise in earnings of 15% in the next financial year. This puts it on a forward price-to-earnings (P/E) ratio of around 10, which suggests that it may be undervalued. Investors seem to have been relatively downbeat about the companyâs prospects due in part to the changes it has been making, as well as the regulatory risk that has surrounded its management team.

Now, though, Barclays appears to have a clear growth catalyst for the medium term. And with the prospects for the wider index and banking sector continuing to improve, it could be a sound value opportunity at the present time. Certainly, investor sentiment may be slow to improve, but with a low valuation and improving growth prospects, the risk/reward ratio on offer appears to be enticing.

Of course, itâs not the only financial services company that could offer growth at a reasonable price. Reporting on Monday was AFH Financial (LSE: AFHP), which gained over 8% following a generally positive update.

Encouraging prospects

AFH Financialâs performance in the first six months of the year was upbeat. Revenue increased by 63%, with underlying earnings per share rising 62%. Its focus on value for money and service to customers seems to be paying off, with funds under management increasing by 45%. Further acquisitions could be ahead, with the company reporting a strong balance sheet and regulatory dynamics in the industry which support further consolidation.

With AFH Financial expected to report a rise in earnings of 12% next year, it currently trades on a price-to-earnings growth (PEG) ratio of 1.4. This suggests that it may be undervalued at present and could deliver improving levels of capital growth.

Certainly, it’s a relatively small and potentially risky stock. The outlook for the industry remains uncertain and this could lead to a volatile share price. But with a margin of safety on offer, its future performance looks set to be positive following its encouraging first half of the year.

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Peter Stephens owns shares of Barclays. The Motley Fool UK has recommended Barclays. 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.

Alert: this micro-cap stock has massive growth potential

Edward Sheldon, CFA — Tue, 16 Jan 2018 14:50:31 +0000

Today Iâm profiling two tiny growth companies that are well under the radar of mainstream investors. But donât be put off by their small market capitalisations. Companies of this size can reward investors with huge gains over the long term.

K3 Capital

K3 Capital (LSE: K3C) only floated in April last year. The Â£69m market cap company is a business sales and brokerage firm with operations throughout the UK. Through its three trading subsidiaries Knightsbridge, KBS Corporate and KBS Corporate Finance, it acts for vendors of businesses in the price range of Â£50,000 to Â£50m. The group has recently received a number of adviser awards, including first place in the 2017 Thomson Reuters Small-Cap Financial Advisory Review.

Since listing on the stock exchange at a price of 95p last year, the shares have soared to 180p today. Thatâs not surprising when you consider the momentum K3 currently has. Last year revenue and profit before tax rose 26% and 18% respectively, and the dividend was hiked 250%.

Yet to my mind, there could be plenty more to come from this micro-cap star. Todayâs half-year results look excellent. For the six months ended 30 November, revenue rose 34% on H1 last year and EBITDA climbed 28%. Earnings per share increased 32% and the interim dividend was lifted by 217%.

Chief Executive John Rigby was upbeat in his assessment of the future, stating: âThe positive momentum in the business continues to gain pace and the improved performance across all KPIs, coupled with the robust deal pipelines that exist across all three trading brands, lead us to a confident outlook for both the full year FY2018 and beyond.”

The stock is up around 10% today, but I believe the valuation still looks appealing at present. With analysts forecasting earnings per share of 10p for FY2018, the forward-looking P/E of 18.5 seems justified. Furthermore, if analystsâ dividend estimates are on the money, there could be some huge cash payouts coming to investors. The latest FY2018 consensus dividend estimate is 8.2p per share, a yield of 4.4% at the current share price.

Of course, stocks of this size can be volatile. That means they are higher risk. Yet overall, the risk/reward profile here looks attractive, in my view.

AFH Financial

Another micro-cap financial services stock that looks to offer strong value right now is AFH Financial (LSE: AFHP). The Â£112m market cap company is an independent financial advisor and discretionary investment manager that is growing at an impressive speed.

Indeed, between 2014 and 2016, assisted by several key acquisitions, revenue increased 60%, while net profit surged 180%. For the year ended 31 October 2017 (full-year results will be released in two weeks), revenue and net profit are expected to rise a further 37% and 130% respectively. Yet itâs not just the acquisitions that are powering the companyâs growth, as AFH revealed in a November trading update, like-for-like growth for the year was around 20%.

Over the last three years, AFH shares have risen almost 100%, yet at the current share price, I believe value is still on offer. With earnings per share of 22.6p expected this year, the forward-looking P/E ratio is just 13.1. That valuation looks very reasonable to me, given the companyâs track record of strong growth.

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Edward Sheldon has no position in any shares mentioned. 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.

2 dirt-cheap growth stocks that could make you brilliantly rich

G A Chester — Mon, 06 Nov 2017 15:11:43 +0000

Shares of AFH Financial (LSE: AFHP) are up 3% at 255p today after the fast-growing wealth management firm released a trading update for its financial year ended 31 October. This revealed that the strong growth reported in the company’s half-year results has continued through to the year-end, with revenue expected to exceed Â£33m, up 35% on the prior year, and funds under management up to over Â£2.7bn from Â£2bn.

This AIM-listed firm has a market cap of Â£78m and I see it as a dirt-cheap growth stock that continues to fly under the radar of many investors. I’d be happy to buy a slice of the business today, as I reckon the shares can rise a lot higher, driven not only by strong increases in earnings, but also by a potential re-rating as the firm gains wider attention.

Hugely attractive valuation

AFH is delivering tremendous organic growth, as well as proving itself to be a shrewd acquirer and consolidator in the sector. The latter provided half of the year’s top-line growth and I expect more of the same, with the company telling us today that it had Â£8m cash on the balance sheet at the year-end and a “strong pipeline of potential acquisitions currently under negotiation.”

As revenues increase, we can expect profits to rise even faster, due to margins expanding under operational gearing. For example, ahead of today’s update, a broker forecast had revenue rising 31% but earnings per share (EPS) increasing 93%, followed by a 27% rise in revenue and a 53% increase in EPS for fiscal 2018.

I expect to see the forecasts upgraded after today’s news that fiscal 2017 revenue was up 35%. However, even based on the pre-update forecasts, the valuation looks cheap. The forward price-to-earnings (P/E) ratio stands at 12, while a price-to-earnings growth (PEG) ratio of 0.22 indicates great value against the PEG ‘fair value’ marker of one.

Finally, this growth stock is also a highly cash generative business, paying a small but fast-growing dividend, which is forecast to yield 1.8% for fiscal 2018. The dividend only adds to my conviction that AFH is a hugely attractive stock to buy at the current share price.

Bargain-basement rating

Also offering terrific growth appeal, in my view, is Highland Gold Mining (LSE: HGM). This established Russia-focused miner, which counts Chelsea FC owner Roman Abramovich among its major shareholders, posted solid first-half results in September. It said it was well placed to meet its production guidance for the full year, as well as making “substantial progress in each of the projects targeted for the company’s future growth.”

Reporting at the end of Q3 last month, it said it now expects production for the year to be near the upper end of its guidance range. This leads to some very attractive financials. The City consensus forecast is for EPS of 21 cents (16p at current exchange rates), 45% ahead of last year. At a current share price of 147p, the P/E and PEG are at bargain-basement levels of 9.2 and 0.2, respectively.

What’s more, in addition to its growth prospects, Highland Gold has a significant focus on delivering generous dividends for its shareholders. A current-year forecast payout of 11 cents (8.4p) gives a terrific yield of 5.7%. Listed on AIM and capitalised at Â£478m, this is another under-the-radar stock I rate a ‘buy’.

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G A Chester has no position in any of the shares mentioned. 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.

2 hot growth stocks that could make you a million

Alan Oscroft — Wed, 21 Jun 2017 11:43:34 +0000

Immunodiagnostic Systems Holdings (LSE: IDH) has been through a tough patch, and itsÂ share price has responded with a 50% fall fromÂ February 2014’s peak. ButÂ that includes a 70% recovery over the past 12 months to today’s 285p, and I reckon we could be on the cusp of an impressive change of fortunes.

A 4% rise in full-year revenue didn’t excite the markets on Wednesday,Â accompanied as it was by an 8% drop in the like-for-like figure, and as I write the share price is unmoved. But it’s been a consolidation year for the maker of clinical diagnostic kits.. New chief executiveÂ Regis Duval said: “We have made good progress in stabilising the financial performance of the group, and believe we are well positioned to return to growth in the medium term.”

That growth isÂ unlikely to be achieved this year, as the company is facingÂ declines from its vitamin D businessÂ and antibody royalties, but I’m convinced there’s long-term growth potential here.

Cash flow

FromÂ revenues ofÂ Â£40m, adjusted EBITDA roseÂ by 4% to Â£7.7m (though like-for-like was down 15%), and a turnaround from last year’s bottom-line loss brought in adjusted earnings per share of 14.8p — that’s a P/E of 19, which I don’t think is stretching.

Importantly, free cash flow is up 43% to Â£4.8m, andÂ Immunodiagnostic signalled its confidence by lifting itsÂ full-year dividend from 1.2p last year to 4p — that’s only a 1.4% yield, but it’s well covered and I expect to see significantly more by March 2018.

We can’t ignore the risks, and the recovery won’t be here until we see the colour of the cash, but I’m optimistic for the long term.

Rapid growth

Shares inÂ AFH Financial Group (LSE: AFHP) have climbed 45% so far this month, to 275p, responding belatedlyÂ to the previous two years of very strong EPS growth. Big expectations had already been built in to the share price, but we’re seeing valuations back down to tempting levels now.

With EPS forecast to rise more thanÂ 90% for the year to December 2017, and another 50% in 2018, the P/E would drop to around 19.5 this year and 12.5 next — that’s a lower-than-average multiple, for shares on aÂ very attractive PEG of only 0.2.

AFH is a full-service wealth manager, growing organically and by acquisition, and its client base ofÂ high net worth folkÂ is a market segment that is surely going to prosper in the coming years, whatever Brexit-driven ills befall the bulk of the UK’s working population.

Acquisition plans

At the interim stage, funds under management were up 17% to Â£2.2bn, producingÂ a 19% rise in revenue to Â£13.9m and a 34% boostÂ in pre-tax profit to Â£1.15m.

Cash stood at Â£12.6m after aÂ Â£10m placing in March, with the firm speaking of a “strong pipeline of acquisition opportunities.” Increasing size through acquisition should help AFH to drive down costs, which adds to my optimistic outlook forÂ a rosy future.Â

My biggest puzzle is what I might have missed that would justify whatÂ I see as a seriously undervalued stock — and all I can think is that the company has fallen under the radar, and perhaps investors are put off by the recent strong price gain.

I might indeed have missed something, so be sure to do your own research, but I think AFH could be one of the best growth stock bargains out there right now.

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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. 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.

These promising small-cap stocks could help you become a millionaire

G A Chester — Fri, 16 Jun 2017 11:10:55 +0000

Shares of Eckoh (LSE: ECK) are little changed since it announced its annual results earlier this week. After a breakthrough year in the US, I believe this provider of secure payment products and customer contact solutions has a promising future. It looks undervalued to me at a current share price of 47.5p and market cap of Â£119m.

Tremendous growth opportunity

Eckoh reported an impressive 30% increase in revenue to Â£29.1m from Â£22.5m for its financial year ended 31 March. This was its fourth successive year of double-digit top-line growth. Revenue from the UK increased by a reasonable 5% but in the US it soared by 145% and now represents a third of the group’s total revenues.

The US growth was all the more impressive because Eckoh transitioned from ‘capex pricing’ to ‘opex pricing’ during the year. Under the former model, the company receives a large initial payment and then small annual payments, while under the latter, revenue is recognised across the term of the contract. As a result, only $1.8m or 21% of the $8.3m contract value won in the year has been recognised, with the remaining $6.5m to come through largely over the next three years.

The US provides Eckoh with a tremendous growth opportunity. The average contract size has climbed from $53,000 to approaching Â£1m over the last couple of years. As the company builds scale, the combination of strong revenue increases and expanding profit margins are set to turbo-charge earnings growth.

The company trades on a current-year forecast price-to-earnings (P/E) ratio of 29, falling to 24 next year. With annual earnings growth expected to run at a mid-20s percentage for the foreseeable future, the shares look good value and very buyable to my eye.

Hugely attractive

Wealth manager AFH Financial (LSE: AFHP) is another under-the-radar small cap where recent results persuade me that the company has a bright future. And in my view, a share price of 265p (market cap Â£80m) undervalues the growth prospects of this business.

For all the growing popularity of low-cost DIY investing, AFH demonstrates that there’s continuing strong demand for advisors who provide financial planning and wealth management services. AFH’s client base is mass affluent and high net worth individuals, as well as a number of companies. And it’s growing both organically and by acquisitions.

Recent results for the half-year ended 30 April saw revenue increase 19%, with funds under management rising 17% to Â£2.2bn from Â£1.88bn at April 2016. The balance sheet is cash-rich, bolstered by a Â£10m placing in March, and the company says it see a strong pipeline of acquisition opportunities.

As with Eckoh, increasing scale is set to push down costs. So, again, we have the prospect of twin drivers of strong top-line growth and rising profit margins to power earnings higher at a rate of knots.

For the company’s financial year ending 30 November, earnings growth of 90% is forecast, followed by over 50% next year, leading to P/Es of 19.5 and 12.5, respectively. These multiples look hugely attractive given the anticipated levels of earnings growth and suggest to me that now could be a great time to buy a slice of this business.

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G A Chester has no position in any shares mentioned. 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.

2 hot growth stocks with long-term potential

Peter Stephens — Mon, 05 Jun 2017 12:54:47 +0000

While the FTSE 100 may have reached record highs in recent months, there are still some stocks which appear to be undervalued. They may experience a rather uncertain period, with the result of the upcoming election less clear and Brexit talks likely to cause at least some disruption to investor sentiment. However, for long-term investors, now could be the perfect time to buy them. Here are two prime examples of stocks which appear to fall neatly into that category.

Improving results

Reporting on Monday was wealth management company AFH (LSE: AFHP). Its performance in the first six months of the current year has been impressive, with revenues increasing by 19%. Recurring revenue as a percentage of total revenue was 70% versus 66% in the same period of the prior year. This shows that the company’s income prospects may now be more stable than in the past, while a strong balance sheet could support further acquisitions in future.

Strong growth in funds under management of 17% helped to push profit before tax 34% higher to Â£1.15m. The company could continue to benefit from changing regulations within the wealth management sector, where demand for lower-cost opportunities is causing greater consolidation. AFH’s Â£10m placing means its cash reserves of Â£12.6m could be used to fund further acquisitions.

Looking ahead, the company is expected to record a rise in earnings of 92% in the current year, followed by further growth of 28% next year. Despite such a strong growth outlook, AFH’s shares trade on a price-to-earnings growth (PEG) ratio of only 0.4, which suggests that now could be the right time to buy them. They may be 40% up year-to-date, but further share price gains could be on the cards in 2017 and beyond.

Income potential

Also offering an attractive investment proposition within the financial services sector is Personal Group (LSE: PGH). The employee benefits specialist has endured a somewhat mixed period in recent years, with profit growth swinging between positive and negative. However, during the last five years, it has been able to increase dividends per share at a brisk pace. They are up by 5% per annum during that time, which puts Personal Group on a dividend yield of 6.7% right now.

While the company’s dividend growth rate and mixed profit performance has meant that dividend cover is now only 1.1, Personal Group is forecast to increase its bottom line by 7% next year. This should mean that shareholder payouts become more affordable, and may mean they continue to beat the rate of inflation over the medium term.

With Personal Group trading on a price-to-earnings (P/E) ratio of 14, it appears to offer good value for money. That’s especially the case with a number of stocks within the financial services sector now trading at record highs as the FTSE 100 moves higher. As such, buying it could prove to be a shrewd move in the long run.

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Peter Stephens has no position in any shares mentioned. 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.