Resilient

First up is River and Mercantile Group (LSE: RIV), an advisory and asset management company which is doing well amid challenging market conditions.

Steady fund inflows reflect the asset manager’s resilient business model and the robustness of the appeal of its investment solutions. Net inflows in the three months to 30 June were £0.4bn, with net sales of £0.2bn and positive rebalancing flows in Derivative Solutions of £0.2bn. This marked its 13th consecutive quarter of positive fund flows since its IPO back in 2014.

For the 12 months to 30 June, fee-earning assets under management increased by 22% to £31bn, while performance fees are estimated to have risen to £12.5m, up from £1.5m last year.

Looking ahead, CEO Mike Faulkner said: “We remain well positioned to continue this growth and will continue to invest in our operating platform, international capabilities and new product launches.”

The question for investors is whether earnings and dividends will rise fast enough to meet the market’s demanding expectations — shares in River and Mercantile Group have already gained 63% year-to-date.

Personally, I reckon there could still be more upside to come as the company’s steady growth in assets under management reflects its sector-leading performance. Valuations aren’t necessarily cheap, with the shares trading at 19.3 times expected earnings in 2018, but quality companies with good growth prospects always come at a price.

The dividend outlook is attractive too, with shares in River and Mercantile Group forecast to yield 4.2% this year at current prices — and that’s up from its trailing dividend yield of 2.5%.

Strong growth

Another stock worth a closer look is CVS Group (LSE: CVSG). In a trading update on Monday, the veterinary services provider said it saw like-for-like growth of 6.3% for the year to 30 June, with full-year revenue and earnings likely to be in line with expectations.

CVS is seeing strong growth as it continues to invest heavily in its existing services and in organic growth, amid growing demand for veterinary services in the UK and the Netherlands. Acquisition-led expansion continues apace too, with a total of 62 surgeries acquired over the past year.

Looking ahead, CVS continues to see a significant number of acquisition opportunities and expects further like-for-like growth in the coming year. In addition to generating top-line growth, this could lead to improved scale, which could benefit future margins.

Moreover, City analysts seem sanguine on its growth prospects. They expect underlying earnings to climb 27% this year, with further growth of 9% in 2018, which gives it a forward P/E of 28.1.

Shares in CVS are up 17% year-to-date.

The post 2 fast-rising growth stocks with lots of upside appeared first on The Motley Fool UK.

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Jack Tang 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.

Macroeconomic headwinds

Africa-focused insurer Old Mutual (LSE: OML) is the FTSE 100’s worst performer so far this month. Shares in the company have slumped 12% following the downgrade of South Africa’s long-term foreign currency credit rating by Standard and Poor’s to junk status last week.

The reason this has had such a huge impact on Old Mutual’s share price is due to the company’s outsized exposure to the country. Firstly, there is a currency impact, as the fall in the value of South Africa’s currency, the rand, reduces the sterling value of its profits earned there. Additionally, as the credit ratings of financial companies are linked to the country’s sovereign rating, this has had a knock-on effect on the credit rating of Old Mutual’s operations in the country, which would no doubt raise its funding costs and limit the company’s ability to grow.

Looking forward, the risk of a further downgrade below investment grade is possible this year because of the constrained growth outlook and continued political uncertainty in the country. And investors have taken none-too-kindly to warnings that “political and economic uncertainty” could create hurdles going forward.

Regardless, return on capital is high and sales, profits and dividends are all expected to rise over the next two years. So while the macroeconomic backdrop doesn’t look too good, Old Mutual seems set to weather the current period of economic weakness due to its strong and growing retail franchises.

For 2017, City analysts expect adjusted EPS to grow 9% to 21.1p, giving its shares an enticingly low forward P/E rating of 9.3. And for the following year, adjusted EPS is forecast to increase by another 8%, which would reduce its forward P/E to just 8.6 times by 2018.

Dividend growth

Similarly, shares in asset manager and banking group Investec (LSE: INVP) have been hard hit by the credit rating downgrade.

Of course, macroeconomic conditions will present a challenging trading environment in the near term, but I expect the company’s financial performance to hold up more resiliently than previously expected. The company has a diversified business model, with its strengths in wealth management and private banking expected to drive steady earnings growth.

Its bottom line is expected to have risen by 9% in 2016/17 and is then due to increase by a further 16% in 2016. This gives it a P/E of 12.2 and a forward P/E of 10.5. And this leaves hopes of a dividend of 23p per share this year — up from 21p in 2015/6 — and giving Investec a market-beating prospective yield of 4.2%. Furthermore, with the projected dividend cover of nearly two times, I reckon there’s further scope for dividend growth in the future.

The post Are these battered dividend growth shares due for a rebound? appeared first on The Motley Fool UK.

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Jack Tang 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.

While no asset manager is completely free from the relentless rise of index funds, Schroders is better protected than many of its peers. That’s because the company has a well-diversified mix of clients, including institutional (pension funds, sovereign wealth funds, endowments), intermediary (independent financial advisers, banks) and high net worth individuals.

Nine months to September 2016

However, as this table shows, the intermediary category, whose end users are largely retail investors, has seen net outflows as investors spooked by turbulent markets and/or high fees pulled money from the company’s actively managed funds. A further worry is that Schroders’ overall net operating revenue margin decreased from 57 basis points in 2011 to 51 basis points in 2015. This was due both to downward pressure on fees and an increasing reliance on institutional clients, who due to their size can negotiate lower fees than retail investors.

How has this affected Schroders’ bottom line? Pre-tax profits did fall from £438.9m to £436.2m year-on-year in the first nine months of 2016, but this could have been much worse if the company hadn’t increased its fee base by drawing in significant institutional funds.

However, the fees asset managers charge clients are unlikely to halt their downward spiral any time soon, so if Schroders is going to thrive in the coming decades it will need to continue diversifying its asset base and moving into new markets such as the US at faster clip than fees fall.

Unfortunately Schroder’s smaller competitor Jupiter doesn’t break out AuM by client type, but it doesn’t hide the fact that small investors remain its bread and butter clients. Yet, as we see in the chart below, Jupiter has so far escaped the problems Schroders has with these investors pulling their money from funds.

Annual results through December 31

This dependence on retail investors is something of a double-edged sword for Jupiter. On one hand they offer quite high margins, with overall net management fees averaging 87.6 basis points in the first half of 2016. This figure will reduce in the coming years as Jupiter shifts towards lower fee products such as bond funds and targets more institutional clients, but it’s still quite impressive.

On the other hand, there’s always the risk that Jupiter’s expensive funds will one day lose their lustre for retail investors. This has already happened to many other fund managers, particularly in the US, and if it happens to Jupiter, expect fees to come down in a bid to retain customers. Well run and profitable asset managers such as Jupiter and Schroders aren’t likely to go the way of the dodo soon, but that doesn’t mean passive investing and lower fees won’t take their toll eventually. 

The post Is this asset class doomed? appeared first on The Motley Fool UK.

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Ian Pierce 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.

Troubled estate agent

Shares in Countrywide (LSE: CWD), the UK’s largest estate agency group, gained 13% on the release of first-half figures, to 289p. The shares are, admittedly, still down 48% over the past 12 months, having received a bit of a kicking following the EU referendum result. But could today’s response suggest they’re oversold?

The company reported a 25% fall in adjusted pre-tax profit from a year ago, to £21.8m, and a 22% fall in adjusted earnings per share to 8p as the London market has stalled. We heard of a “market slowdown evident in May/June 2016 in the run up to the EU referendum,” with chief executive Alison Platt telling us that “since the referendum result this has become more marked in London, the South East and expensive prime markets.“

The company warned it won’t be able to match last year’s earnings levels, so the analysts’ consensus of an 8% rise in earnings per share now has to be scrapped. But even a 10% fall in EPS would still leave the shares on a low forward P/E of 10. With dividends likely to be healthy, Countrywide looks like a decent long-term candidate.

Computer security

Meanwhile, Sophos (LSE: SOPH) shares are up 5.8% to 242p after the computer security specialist reported a “strong first-quarter performance,” with “significant cash generation.“

With billings up 25.2% to $141.9m, revenue grew by 12.2% to $127.4m and by 11.9% at constant currency rates (CCR). Cash EBITDA was up 55.2% (48.6% CCR). Free cash flow of $28.8m was far more impressive than the $3.7m outflow recorded at the same stage last year.

Chief executive Kris Hagerman spoke of “our confidence in the outlook for the full financial year,” as the company “expects to deliver mid-teens percentage billings growth on a like-for-like basis” for the full year.

The shares are on a lofty forward P/E of 38 for the full year, but it’s still early days for a company that only floated in July 2015 and it’s surely a strong growth prospect — but difficult to value right now.

Brexit bargain?

Investment manager Henderson Group (LSE: HGG) suffered a sharp fall as a result of the EU referendum, but its shares have started to come back a little, and first half results today have pushed them up another 2% as I write, to 227p.

Henderson told us “retail outflows accelerated considerably in the immediate aftermath of the UK’s referendum on EU membership,” but that was mitigated to some extent by the diversity of the firm’s product range. The result was a net outflow of £2bn, though assets under management of £95bn were up 3% since the end of December.

Underlying pre-tax profit dropped 14% to £100.5m, with underlying earnings per share falling 20% to 7.1p. But the company’s capital easily exceeded its regulatory needs, and the first-half dividend was lifted by 3.2% to 3.2p per share.

Henderson shares are valued at 15 times forecast earnings, and there’s a dividend yield of 4.6% on the cards. That’s probably a fair valuation, but with the uncertainty ahead I think there are better financial services options out there.

The post Three risers to buy on today’s results? appeared first on The Motley Fool UK.

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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.

On that score, today I’m looking at two big yielders that present an intriguing contrast.

Safer

The first is Centrica (LSE: CNA), the owner of the British Gas and Scottish Gas brands. Along with the other power utilities, Centrica is known for paying out a substantial portion of its annual earnings as dividends — usually around two thirds.

Earnings dipped in 2014 by 28%, and there’s a further smaller drop on the cards for the 2015 year just ended, and that’s led to a fall in the dividend from 17p per share in 2013 to a predicted 12p for 2015 — results are due on 18 February. But on today’s 191p share price, that would still bring you a yield of 6.3%, with the forecast 2016 yield up to 6.5%.

That big yield is due to the share price having fallen, but even if you’d bought your shares at their April 2014 peak of 345p, you’d still be looking at likely yields of 3.5% and 3.6% for 2015 and 2016 respectively — and if that’s as low as your yield gets during hard times, it’s really not too bad.

And the best way to invest in shares like Centrica, in my opinion, is regularly over a long period — that way you’ll benefit from pound-cost averaging, and once dividends start rising again you’ll enjoy higher effective yields based on the price you pay in the dips.

More exciting

My second for today is Aberdeen Asset Management (LSE: ADN), which is a very different company indeed. As an investment manager specializing in emerging markets, the Chinese slowdown has contributed to 11 quarters in a row of net cash outflows, and that’s triggered a share price collapse — at 225p today, Aberdeen’s shares are down 55% from their peak in April 2015.

But one thing that has done is pushed up the prospective dividend yield for this year to a massive 8.8%. As it stands, that would only be covered 1.2 times by forecast earnings, so it’s clearly at risk. But January’s first quarter update provided reasonable confidence for the firm’s long-term future. Although the three months saw a net outflow of £9.1bn, total assets under management had actually risen to £290.6bn between September and December.

Aberdeen has a progressive dividend policy, and has been raising its annual payment far in excess of inflation in recent years. A cut in the cash may well be inevitable over the next couple of years, but there’s plenty of room for that while still keeping a yield that’s way ahead of the market average.

Volatility? Pah!

And if emerging markets are going through a downturn, well, a bit of volatility is only to be expected. And Aberdeen has plenty of experience of dealing with it while maintaining a very prudent approach to financial management. On a forward P/E of only 9.7 for 2016, Aberdeen Asset Management shares look like a long-term ‘buy’ to me.

The post Will Dividends At Centrica PLC And Aberdeen Asset Management plc Really Hold Out? appeared first on The Motley Fool UK.

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• How these 2 dividend shares could help an ISA investor target a £1,639 income in 2026
• Here’s 1 action Warren Buffett repeatedly warned investors against
• £10,000 invested in Marks & Spencer shares 1 year ago is now worth…
• £5,000 bought 214 Greggs shares in 2021. How many would an investor get now?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Aberdeen Asset Management and Centrica. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.