Not so toxic

I’d bet that most retail investors won’t have heard of £200m cap Augean (LSE: AUG). The AIM-listed, Wetherby-based business specialises in hazardous waste management — hardly the sexiest of line of work and unlikely to hit the radars of those searching for the next big tech play. When it comes to making money in the markets, however, what’s ugly/boring can often be very lucrative (see self-storage firms and pest control businesses).  

Back in October, the company announced that strong trading over the third quarter would likely see adjusted pre-tax profit for 2019 come in “materially ahead” of previous market expectations of £16.5m. Today, it followed this up by stating that this encouraging performance had continued over Q4 and that the number would now be “at least in line” with analysts’ new predictions of £18.4m. 

Of course, all this good news hasn’t gone unnoticed by the market. Augean’s shares were already up a little over 50% since October before this morning, highlighting just how lucrative small-cap investing can be even over the short term. 

Although one might argue that the ‘easy money’ has already been made, I suspect there could be more gains to come for those willing to hold for the medium-to-long term, especially as the company still trades on a very reasonable 12 times expected FY20 earnings and has a market capitalisation of just £84m.

The only negative in all this is that Augean won’t appeal to those looking for income alongside growth as the company doesn’t currently pay out any of its earnings as dividends. 

Record profits

Another market minnow that’s hit my radar recently is 100 year-old elevator parts supplier Dewhurst (LSE: DWHT). 

December’s results for the full-year to the end of September were certainly very positive with the company reporting record sales of £56.4m — up 23.4% from the previous financial year. Adjusted operating profit also broke records, coming in at £7.7m — up 28.3%.

Like most companies, Dewhurst’s management likely cheered the outcome of the General Election since it provides a bit more certainty on trading going forward. That’s not to say that the company is wholly dependent on the UK as it also has a presence in the US (a market it describes as “strong“), Australia (described as “steady“), plus Canada.

Like Augean, Dewhurst’s shares aren’t exactly pricey at the moment, despite making great gains over the last year (+54%). A forecast price-to-earnings ratio of 12 for FY20 looks good value, particularly given the defensive line of work the company operates in (I’m pretty sure a quicker method of moving between floors in a building is yet to be discovered!) and the fact that Dewhurst has no debt on its books.

There’s even a dividend. The anticipated 13.5p per share payout in the current financial year equates to a yield of 1.7%, hardly massive but still worth having. Holding Dewhurst’s stock within an ISA also means that holders won’t be taxed on this income either.

The post 2 secret small-cap stocks I think could be perfect ISA additions appeared first on The Motley Fool UK.

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Paul Summers 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.

In terms of the adjusted numbers for the six months to 30 June, revenue jumped 40% compared to the equivalent period the year before and basic earnings per share shot the lights out by moving 114% higher. The progress showed up in cold, hard cash too, with the net cash figure on the balance sheet rocketing by 178% to £22.8m. Admittedly though, the firm did enjoy the £3.35m proceeds of a disposal in the period, which helped.

Argument with HMRC

Things have come a long way since the bleak-looking outlook of two summers ago. In August 2017, the firm was hit by a Notice of Assessment for Landfill Tax from Her Majesty’s Revenue and Customs. It turned out that HMRC had been discussing with the firm whether it had paid sufficient landfill tax in relation to its treatment and disposal of hazardous waste.

The news hit the shares hard and they plunged by around 60% in the space of a week, to just 23p. Indeed, Augean was on the hook for millions in unpaid tax and interest. But it vowed at the time to “robustly challenge” the landfill tax assessment “and any other subsequent assessment it may receive from HMRC.”

In hindsight, buying the shares on the plunge would have delivered spectacular returns because today, the share price stands close to 118p. But Augean looked risky back then because there was a real chance that back-taxes and interest could have wiped out the firm’s finances, perhaps leading to the need to re-finance and the possibility of major shareholder dilution.

Subsequently, HMRC ‘went for it’ and issued a tax demand worth tens of millions to Augean, after which followed a period of can-kicking until today. Augean has maintained all along that it believes it has collected and paid its taxes correctly and that HMRC’s assessment is wrong. Meanwhile, alongside the ongoing legal battle, the firm has been trading its socks off and the share price has moved higher to reflect operational progress.

Then, on 15 July this year, the company revealed it had been granted permission to not pay anything to HMRC in respect of the tax assessments “before the conclusion of any tribunal.” My guess is that the firm has a strong legal case, and the performance of the share price suggests that investors believe it will end up not paying the full amount, if any, of the money demanded by HMRC.

Good trading

It’s quite a back-story. And in the meantime, the firm reported today that its business optimisation programme delivered cost savings “considerably exceeding target,” which, along with the impressive growth in revenue, helped deliver those stunning advances in profits.

Looking ahead, the company said it expects further growth from its Energy from Waste and North Sea Decommissioning markets and the directors anticipated exceeding market expectations for the full year to December 2019. Yet the firm remains fairly valued with the forward-looking earnings multiple running just below 11 for the current trading year.

Even after such a strong run-up I’m tempted by the stock, although there’s no dividend to collect with this one, at least for the time being, and probably not until we see the end of the messy HMRC situation.

The post Is it too late to pile into this well-performing super stock? appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any share 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.

When it comes to looking for stocks that can generate huge returns, it can pay to look away from mainstream stocks that receive constant coverage. Many smaller companies receive very little attention from the broker community and as a result, it’s often possible to find fast-growing companies that are not priced ‘efficiently.’ Here are two companies that stand out to me as high-growth opportunities.

Somero Enterprises

With President Trump looking to spend $1trn on infrastructure in coming years, I reckon I’ve found the perfect under-the-radar business to capitalise on this building boom.

Somero Enterprises (LSE: SOM) specialises in producing laser-guided equipment that assists in the installation of concrete slabs. Somero’s equipment and technology ensures a high level of precision in concrete surface flatness, resulting in the faster installation of each slab at a lower cost. Although the company has operations in Europe, China, the Middle East and Australia, the bulk of the its revenues are generated in the US.

The laser specialist’s shares have surged higher over the last 12 months, rising over 100%, and it’s not hard to see why when we examine the numbers. Somero generates a high return on equity (33%), a high operating margin (27%), strong cash flow and has minimal debt. Revenue has increased 76% over the last three years and earnings per share have risen from 13 cents to 28 cents in this time. 2016 results announced in March were excellent, with revenue jumping 13% and profit before tax increasing 22%.

However despite the impressive numbers, Somero trades on a forward looking P/E of 15.3, which seems attractive for a company that should enjoy tailwinds from Trump’s infrastructure boom. A dividend of 2.6% is also on offer, further sweetening the deal.

Augean

Hazardous waste specialist Augean (LSE: AUG) also looks like an interesting opportunity in my opinion. 

Revenue jumped 25% last year and while earnings were a little lower than in 2015, City analysts covering the stock (all two of them) are forecasting earnings growth of a huge 43% for FY2017. The 6.2p consensus earnings figure places Augean on a forward looking P/E ratio of just 10.3, which seems excellent value given the fact that revenue has grown at an annualised clip of 19% over the last five years.

Management released an upbeat statement in March, stating that the company had seen an “encouraging start to 2017 with a growing sales pipeline” and that “the board remains confident of maintaining its track record of year-on-year increases in profitability in 2017.” In a further statement of confidence, the company also hiked its dividend by 54% for the year to 1p per share.

The stock has been trending upwards over the last five years, gaining approximately 70% in this time, and if revenue and earnings continue to increase in the coming years as analysts expect, I see no reason why the uptrend can’t continue.

The post Two high-growth stocks I’d buy in May appeared first on The Motley Fool UK.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Somero Enterprises, Inc. 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.

Upcoming pharma?

Vectura Group (LSE: VEC) is a smaller pharmaceuticals company developing inhaled treatments for respiratory diseases, and that’s certainly big business. Vectura took over rival Skyepharma in 2016, so full-year results (due in March) will be heavily influenced by that. The firm’s pre-close update said that things are going as expected, with the City predicting a 4% drop in EPS.

But that small fall is nothing to worry about, and 2017 looks to me like it could be a transformational year for Vectura. There’s a continuation of the last couple of years of earnings growth on the cards, with analysts forecasting 43% growth this year, followed by 52% next. But what does the share price look like?

Despite a couple of years of prior rises, the shares have been falling back since the beginning of 2016. And at 145p today, we’re looking at a forward P/E based on 2017 forecasts of 18, dropping as low as 11 for 2018. I reckon that’s cheap for a growth share, especially as it gives us PEG ratios of just 0.4 and 0.2 respectively (where 0.7 or less is usually seen as good).

Vectura looks tempting to me.

Power growth

If you’re looking for a straightforward business model, you’ve got it in OPG Power Ventures (LSE: OPG). OPG develops and operates power plants in India, and it’s turning into a nicely profitable business.

Earnings have been rising for several years now, and the firm paid a maiden dividend of 0.26p per share at the interim stage after announcing a doubling of revenue and an 81% rise in EBITDA. We also saw free cash flow of £20.6m and a small fall in debt.

There’s a 0.89p dividend, for a 1.6% yield, predicted for the full year ending March 2017, and forecasts suggest it will rise as high as 3.8% by 2019. But the dividend is not the only attractive thing.

At 56p, the share price has almost halved since its 2015 peak, and that’s dropped the forward P/E as low as nine, dipping to a forecast 7.3 by 2018. And that gives us PEG ratios of 0.5 this year and 0.3 next, which look pretty good. There will be uncertainties due to India’s sometimes unpredictable regulatory regime, but that valuation looks low enough to me to more than compensate for the risk.

Where there’s muck

Augean (LSE: AUG) not only has a great name for a waste management company, it also has attractive-looking growth prospects. The firm’s January trading update told us that 2016 pre-tax profit should be in line with expectations, supporting a predicted 14% rise in EPS. That comes after a solid five-year record of EPS growth, with a further 15% expected this year.

We also heard that Augean “generated strong net operating cash flows during 2016 and as at 31 December 2016 net debt was £10.8m which is £2.3m better than expected,” so the firm’s modest but progressive dividends (yielding around 2%, but rising) are pretty much assured.

Despite the squeaky clean outlook, Augean shares are lowly valued. At 49p, they’re on a P/E of only 9.3, dropping as low as 6.6 on 2018 forecasts — and PEG ratios come in at 0.3 for 2017, followed by 0.6. Could be the best growth prospect of the three.

The post 3 growth stocks I’d buy right now appeared first on The Motley Fool UK.

More reading

• Here’s what £15,000 invested in Taylor Wimpey shares on Thursday is worth today…
• How much would it take to turn an ISA into a £1,000-a-month passive income machine?
• 2 reasons a stock market crash could be a good thing!
• How much do I need in a Stocks and Shares ISA to target a £13,400 annual income?
• Want to aim for £31,353 more than the State Pension? A SIPP could be the answer

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.