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News flow keeps powering the Sirius Minerals share price. The latest is that an expanded partnership agreement has been signed with Archer Daniels Midland Company, the £22bn US agri-business listed in the Fortune 500, which is an annual list of America’s 500 largest companies by revenue. Sirius will buy binder from Archer Daniels for its Poly4 polyhalite fertiliser product and Archer Daniels will buy Poly4 from Sirius and be its North American off-take partner.

The agreement suggests that Archer Daniels will be a crucial cog in the wheel of production as Sirius extracts polyhalite from its Woodsmith Mine, crushes and grinds it and granulates the resulting powder using starch binder under a patented process. Chief executive of Sirius Chris Fraser said in the news release that the agreement demonstrates “the significant role POLY4 will play in the world fertiliser markets.” 

Pre-committed customers keep piling up and all Sirius has to do now is complete the building and development of its mine and all the infrastructure in North Yorkshire. But I think the share price could wiggle around a fair bit before the mine is ready for production so I’m in no hurry to buy into the story by taking a position in the stock.

Storming towards profitability

Meanwhile, BATM Advanced Communications delivered encouraging interim results today. Revenue rose almost 17% compared to the equivalent period last year and the adjusted operating loss decreased to $0.6m from $1.4m the year before. That translated to an earnings per share loss of 0.35c compared to 0.66c the year before. It seems that the firm is storming towards sustainable profitability, which puts it several steps ahead of Sirius Minerals and explains the big share price rise we’ve seen over the last couple of years.

Some 51% of revenue came from the firm’s bio-medical division and the other 49% from the networking and cyber division. Chief executive Dr Zvi Marom said in the report: “In the first half of 2018 we’ve seen sustained momentum in all our areas of activity.” Indeed, robust design and development activity seems to have powered the good financial numbers and the firm has a higher order book than it had a year ago.Both divisions are seeing increasing demand for newly-launched products and solutions “as well as significant interest in those soon-to-be launched that are undergoing development.”

The directors are confident of hitting previous expectations and anticipate growth ahead. City analysts following the firm have revenue growth of around 5.4% pencilled in for 2019 and a strong move toward a positive earnings per share figure. I think the growth story emerging is well worth following with a view to buying some of the company’s shares.

The post This dynamic small-cap is thrashing Sirius Minerals appeared first on The Motley Fool UK.

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Kevin Godbold 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.

Personally, I only consider paying up front only when the firm is delivering strong growth with improving profitability. Today I’m looking at two growth stocks to see if either meets my buying criteria.

This could be a turning point

Shares of IT services and medical device manufacturer BATM Advanced Communications (LSE: BVC) dipped slightly today, despite the group issuing a fairly solid set of 2017 results.

Revenue at the Israeli firm rose by 18.5% to $107.1m last year. The group converted last year’s operating loss of $302k into an operating profit of $4.2m.

A breakdown of the figures shows that BATM’s IT networking and cyber security division made a modest profit of $0.9m on sales of $49.4m last year, after reporting a $2.2m loss one year earlier.

However, the group’s Bio-Medical division, which makes laboratory diagnostic products, saw its operating loss increase from $0.3m to $1.1m, despite sales rising from $51.6m to $57.4m.

So where did the $4.2m operating profit come from? It turns out that the vast majority was generated by the sale of a freehold building — obviously a gain that can’t be repeated.

The true picture

According to today’s figure, the group’s underlying operating profit was just $0.1m last year. Although this is an improvement on the $2.2m operating loss reported last year, it doesn’t appeal to me.

Analysts expect sales growth of just 4% this year and are forecasting a fall in adjusted earnings. This group still seems to be struggling to turn a profit on revenue of more than $100m. With the stock trading on a massive 358 times 2018 forecast earnings, I’d take advantage of recent gains and sell.

A proven performer

If you’re looking for a good example of a business where it might be worth paying extra for future growth, you might want to consider IT infrastructure group Softcat (LSE: SCT).

This £1.2bn business was founded in 1987 but only floated in 2015, since when its shares have risen by 128%. One reason for this is probably the firm’s strong profit growth. After-tax profit has risen from £20m in 2013 to £40m in 2017.

Since the group’s flotation, earnings per share have risen from 15.8p to 20.2p. An increase of 15% is expected for the current year, putting the stock on a forecast P/E of 26.

Although this is quite expensive, it’s worth noting that the company’s earnings have been consistently backed by free cash flow in recent years. This is reflected in the debt-free balance sheet and a generous dividend. The total payout last year was 19.6p per share — almost 100% of earnings.

Although 13.5p of this payout was a special dividend, analysts expect a similar payout of 18.4p per share this year, giving a prospective yield of 3.1%.

Too good to be true?

This is an extremely profitable business. Softcat’s return on capital employed was 56% last year and has averaged 50% since 2013. This indicates that the company can generate very high levels of profit from its assets.

Assuming the markets in which it operates are big enough, I don’t see why Softcat can’t continue to expand. In my view, the shares remain a growth buy.

The post One super growth stock I’d buy today and one I’d sell appeared first on The Motley Fool UK.

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Roland Head 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.

However, even with the Footsie trading within 10% of its highest-ever level, there are still opportunities to generate relatively high capital returns. Here are two stocks that despite their strong profit outlooks continue to trade on low valuations.

Improving performance

Reporting on Monday was provider of real-time technologies for networking solutions and medical laboratory systems BATM (LSE: BVC). The company’s shares moved 7% higher following its trading update, with guidance being updated for the 2017 financial year after a successful second half. It now expects to report revenue for the year which are 17% higher than the previous period, with EBITDA (earnings before interest, tax, depreciation and amortisation) expected to be $7m versus $2.8m in 2016.

Growth in both of the company’s divisions was responsible for the higher-than-expected revenue growth. The Networking & Cyber division generated higher sales due to rises in the company’s existing ICT services and solutions business. In the Bio-Medical division, expansion was driven by stronger sales in the distribution unit. This was mostly based on diagnostic and molecular biology products and services.

Looking ahead, BATM is forecast to deliver a black bottom line in the current year. It is then due to follow this up with growth of 272% in 2019, which could help to improve investor sentiment in the stock. With it trading on a price-to-earnings growth (PEG) ratio of just 0.2, it seems to offer a wide margin of safety and could post further stock price gains in the long run.

Solid growth potential

Also offering growth at a reasonable price within the technology space is FTSE 100-listed Micro Focus (LSE: MCRO). The company has a solid track record of earnings rises, with its bottom line having risen at an annualised rate of 14% in the last five years.

Looking ahead, further growth is forecast. The acquisition of HPE could help to diversify the business and create additional growth catalysts for the long run. In the near term, the group is due to report a rise in earnings of 12% this year, followed by 13% next year. For a large-cap stock, this is relatively high and yet the company has a PEG ratio of just 1 at the present time. This suggests that investors have not yet factored-in its outlook, with there being a wide margin of safety on offer.

In addition, Micro Focus has a dividend yield of 3.6%, with shareholder payouts being covered 2.1 times by profit. This indicates that it has a mix of income, growth and value potential. As such, now could be the perfect time to buy it – even with the FTSE 100 still trading above 7,000 points.

The post One bargain stock and one growth share I would buy today appeared first on The Motley Fool UK.

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Peter Stephens owns shares in Micro Focus. The Motley Fool UK has recommended Micro Focus. 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.

Improving performance

Reporting on Wednesday was BATM Advanced Communications (LSE: BVC). The provider of real-time technologies for networking solutions and medical laboratory systems delivered a rise in revenue of 10% in the first half of the year. Gross profit also increased after a period of meaningful investment in new products, capability and bolt-on acquisitions. Such investments have the potential to improve the long-term outlook for the business and place it on a firmer financial footing.

The company made solid progress in its Bio-Medical division, as well as in its Networking and Cyber divisions during the first half of 2017. It expects to make further inroads in these areas, with a target of gaining new customers and developing its sales potential. Government agencies continue to express interest in its Cyber division, with BATM’s order backlog increasing substantially compared to the same time last year.

The company’s increasingly positive outlook has the potential to deliver improved share price performance in future. In the last six months, its share price has fallen by around 10%. While it remains a lossmaking business and a relatively risky investment opportunity, it has the potential to recover in the long term.

Defensive option

Also disappointing in terms of its share price performance in recent months has been food and support services provider Compass Group (LSE: CPG). The company’s share price has declined by 5% in the last three months. However, it could easily recover and make strong gains in future.

One reason for this is the company’s defensive characteristics. It has a long track record of profits growth, and this could appeal to investors given the current geopolitical outlook for the world. Tensions regarding North Korea have already negatively affected investor sentiment and share prices. More could follow, and investors may become increasingly risk-off, thereby seeking more stable companies over the medium term.

With Compass Group forecast to increase its bottom line by 18% in the current year, it seems to offer significant growth potential as well as defensive attributes. Despite this, it trades on a price-to-earnings growth (PEG) ratio of just 1.2 at the present time. This suggests that it offers a wide margin of safety and that it could post significantly better share price returns in future.

Alongside its growth potential, the stock also has a growing dividend. It has risen by 49% in the last four years and with dividends covered more than twice by profit, more growth in shareholder payouts could be ahead. This could boost its 2.1% dividend yield.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group. 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.

Shares in financial adviser Lighthouse Group (LSE: LGT) have fallen by over 10% today after AFH Financial stated that it does not intend to make an offer for the company. While this may be viewed as disappointing for investors in Lighthouse, since it means that its shares could fall back to the level at which they were trading prior to AFH’s initial approach, Lighthouse states that it is continuing to perform in-line with expectations.

Looking ahead, Lighthouse is forecast to increase its earnings by 32% in the current year, and by a further 22% next year. When combined with its price to earnings (P/E) ratio of 17.9, this rate of growth puts the company on a price to earnings growth (PEG) ratio of just 0.7, which indicates that capital gains are on the horizon. Clearly, Lighthouse is a relatively small and high risk play, but for less risk averse investors it could be worth a closer look.

Unfavourable mix

Also in the news today is Cenkos Securities (LSE: CNKS), with the stockbroking company reporting a fall in revenue and pretax profit for the 2015 financial year. The former declined by 14% in the 2015 financial year, while the latter slumped by 26% due in part to an unfavourable sales mix. While the total volume of funds raised by Cenkos increased versus the prior year, sales were hurt by a bias towards investment fund tap issues and larger average deal sizes.

The impact of this decline in profitability has been a reduction in dividends, with them being cut by 18% versus the previous year. And with the company’s shares being down by 10% today, it is clear that investor sentiment has come under a degree of pressure. As such, and while Cenkos could deliver improved performance, it seems to be a stock to watch rather than buy at the present time.

Maintaining momentum

Meanwhile, shares in BATM Advanced Communications (LSE: BVC) are also down today, falling by 4% following the release of a disappointing set of results for the 2015 financial year. Its pre-tax loss widened to $11.4m from $3.6m in the prior year, with higher financing costs being booked and a stronger US dollar also hurting its overall performance. In fact, the stronger greenback contributed $14.6m to the company’s fall in sales, and at constant currencies BATM posted a small rise in its top line.

Despite a disappointing 2015, BATM has a higher backlog now than at the same time last year and expects to maintain the momentum of last year across all of its divisions. And with BATM forecast to move into profitability in 2016, investor sentiment could pick up in the coming months and help to reverse the share price fall of 15% which has been recorded in the last six months. As such, for less risk averse investors BATM could be of interest.

The post Are Lighthouse Group plc, Cenkos Securities plc And BATM Advanced Communications Ltd ‘Buys’ After Today’s Updates? appeared first on The Motley Fool UK.

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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. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

What’s happened, and why are these shares rising?

Dixons Carphone

Dixons Carphone surprised investors this morning by announcing plans for a 500-store joint venture with US mobile operator Sprint.

Dixons will supply “mobile phone retail expertise and proprietary knowledge” to Sprint. The US firm will initially open 20 Sprint-branded stores in the US. If these are a success, the two companies plan to expand the venture to create a chain of 500 stores.

Dixons’ investment is limited to $32m for a 50% stake in the joint venture, so if things don’t go well, shareholders’ exposure seems limited. I reckon this could prove a success for the firm, assuming the Carphone Warehouse retail system translates to the US market successfully.

Shares in Dixons Carphone currently trade on a forecast P/E of 19, so they’re not cheap. However, I reckon shareholders should hang on, as there could be more to come.

Incidentally, Tesco investors may want to remember that the successful combination of Dixons and Carphone Warehouse happened under the watch of former chairman John Allan. Mr Allan has a track record of transforming companies, and is now chairman of Tesco.

BATM Advanced Communications

This small cap technology company makes specialised computer networking and medical equipment.

It’s been struggling to deliver on the promise of a few years ago, but this morning announced a new cyber security contract with “a government defense ministry”. The firm’s shares are currently up by 9%.

The initial value of the contract is only $3.7m, but BATM expects this to increase to $10m by 2017 and to $20m by 2020.

BATM is expected to return to profit this year. Broker forecasts for earnings of 0.2 cents per share put the company on a forecast P/E of 126, falling to 29 in 2016. It’s not a buy for the faint-hearted, but BATM is well funded and could yet prove to be a strong growth story.

APR Energy

Shares in temporary power provider APR spiked higher this morning after the firm announced a new $30m contract in Egypt.

The shares have slipped back somewhat since then, but have seen heavy buying in early trade. In reality, however, this deal isn’t anywhere near big enough to solve APR’s problems.

APR’s shares have fallen by 69% over the last month, after it warned that this year’s full-year loss would be worse than expected. APR has net debt of $547m and in June the firm warned that it might breach its financial covenants later this year.

APR faces a variety of headwinds, but the risk of debt problems should be the biggest concern for shareholders. These could result in the firm being forced to raise new funds through a discounted rights issue or placing.

While APR looks cheap based on its historical performance and its price-to-book ratio of just 0.3, I think the risks are too high. I intend to steer clear until the picture improves.

The post Why Are Dixons Carphone PLC, BATM Advanced Communications Ltd & APR Energy PLC Rising Today? appeared first on The Motley Fool UK.

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Roland Head owns shares of Tesco. 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.