Resilient market

Despite the substantial drop in its share price this morning (down almost 8%), £1.15bn retailer Pets At Home‘s (LSE: PETS) interim figures aren’t bad at all. Over the last six months, like-for-like revenue across the group was up by 2.5% with food sales rising by 3.7% and accessories by 5.9%. Even more positive was the 47.6% growth in its veterinary business from £41.9m to £61.9m. 

Elsewhere, the Wilmslow-based company reported that investment in its online offering was “delivering results” and that its space rollout remains on track with eight new superstores, 17 vet practices and 18 grooming salons opening over the past year. For those who like to focus on fundamentals, Pets At Home also reported an 11.5% rise in free cashflow to £34.4m and a reduction in leverage from 1.5 times to 1.3 times. This last detail is noteworthy as it shows that the company is continuing to focus on steadily reducing its debt pile, no bad thing in an uncertain economic climate. While reflecting that the trading environment wasn’t easy, CEO Ian Kellett remarked that the company was “confident in the long-term outlook” and the “developing potential” of the aforementioned Services business.

On a forecast price-to-earnings (P/E) ratio of 15, I’d say that shares in Pets in Home are reasonably valued and, thanks to today’s 25% dividend hike, should now feature prominently on the radars of those who invest for income.

Small-cap star 

For those who prefer smaller companies, an alternative to Pets At Home might be CVS Group (LSE: CVSG). The £539m cap is the largest veterinary group in the UK and, with good reason, has attracted quite a following among those who hunt for shares at the lower end of the market spectrum. Over the last five years, its share price has rocketed 1,000% thanks to consistent growth in revenue and net profits. Only today, it’s up 12.5%.

Can this fantastic run of form continue? Quite possibly. A rise of almost 170% in earnings per share has been pencilled-in for 2017. Moreover, the company’s recent acquisition of a small animal practice based in the east of the Netherlands is intended to be the first step in the development of a similar business to that operating in the UK. One thing’s for sure, CVS isn’t standing still.

Any downsides? Well, on a forecast price-to-earnings (P/E) ratio of 24 for 2017, shares in a CVS are rather expensive and unlikely to be of interest to those who scour the market for value. Nevertheless, those with stronger appetites for risk and longer investing horizons may be tempted and given the company’s strong pipeline of acquisitions, I wouldn’t blame them.

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Paul Summers 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.

CVS’s sales increased by 30.4% versus the prior year. They were aided by like-for-like (LFL) sales growth of 4.8% that benefitted from increased investment in the company’s services, staff and customer services. Rising sales boosted adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) by 42.5%, which made 2016 a record year in terms of sales and profitability for CVS.

In 2016 CVS acquired 67 surgeries, three crematoria, the VetShare buying group and the VETisco instrumentation business. Together, those businesses are due to deliver sales in excess of £50m per annum and the acquisitions (plus three further surgery acquisitions post-year-end) mean that CVS now operates 363 surgeries. This provides it with a size and scale advantage over a number of its smaller peers that could help it improve its margins over the medium term.

Since the start of the year, CVS’s share price has risen by 13%. This is ahead of the 11% share price gain made by AstraZeneca in 2016. CVS’s growth potential is high thanks to an aggressive acquisition strategy as well as a growing referrals business. It also enjoys a rising level of customer loyalty thanks in part to its Healthy Pet Club, where membership numbers increased by 18% in the last financial year.

CVS is forecast to increase its bottom line by 15% in the current financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.7, which indicates that its shares offer further upside. That rate of growth is well ahead of AstraZeneca’s expected decline in earnings of 2% this year and 3% next year.

Long-term pick?

AstraZeneca is struggling to overcome the losses of patents on key drugs. It will take time for the company to return to positive bottom line growth, but it’s on track to do so over the medium term. This is due to its major acquisition programme that has already dramatically improved the company’s treatment pipeline and should positively catalyse its future earnings.

Therefore, in the long run AstraZeneca could prove to be a better growth play than CVS. It offers greater scale and financial firepower to develop its growth strategy than is the case for CVS. Furthermore, AstraZeneca has a lower risk profile due to its greater geographic diversity, stronger balance sheet and more diversified income stream. Its price-to-earnings (P/E) ratio of 16.1 is also lower than CVS’s P/E ratio of 25.1, which indicates that it offers a wider margin of safety.

While CVS is a sound buy, AstraZeneca has a superior risk/reward ratio. This makes it the better buy of the two stocks for long-term investors.

The post Is this a better healthcare buy than AstraZeneca plc after today’s update? appeared first on The Motley Fool UK.

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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Looking ahead, gains of 20%+ could easily be posted by Persimmon in the medium term, since it offers very strong growth prospects at a very appealing price. For example, its earnings are due to rise by 25% in the current year and by a further 10% next year. Both of these figures are well ahead of the wider market’s expected growth rate of mid to high-single digits but, despite this, Persimmon trades on a price to earnings (P/E) ratio of just 13.6, which indicates that a rating expansion is very realistic. Certainly, interest rate rises are on the horizon, but demand for housing should keep housebuilders performing well.

Similarly, Barclays (LSE: BARC) could easily post a rise in its share price of 20%. That’s because it trades on a price to book value (P/B) ratio of just 0.6, so even a rise in valuation of two-thirds would leave Barclays trading at its net asset value, which would still be appealing.

The catalyst to push its share price higher is likely to be a new strategy under a new CEO. This is unlikely to occur until 2016, but a new man/woman at the helm may stimulate investor interest in Barclays through focusing to a greater degree on its investment banking division, for example, or on returning a greater proportion of profit to investors in the bank as a dividend. And, with Barclays being highly profitable and due to increase its earnings at a double-digit rate over the next two years, it may not take much to convince the market that its shares should trade considerably higher than they have during 2015.

Meanwhile, today’s results from veterinary group CVS (LSE: CVSG) show that the business has huge growth potential. That’s because it has only 12% of the UK small animal vet market as well as a negligible portion of the equine and large animal vet markets. And, with the company’s strategy clearly paying off with pretax profit growth of 35% in its most recent year, CVS’s valuation is likely to move much higher.

Clearly, today’s 7.5% rise in its share price is impressive, but CVS could easily rise by another 20%. Its financial standing remains strong and its policy of making multiple acquisitions could lead to further growth alongside excellent organic performance.

On the topic of acquisitions, Judges Scientific (LSE: JDG) also released an upbeat update today. It is on-track to meet full-year expectations and, despite a weak first quarter, it expects the rest of the year to show improvement. As such, the acquirer of scientific instrument companies is currently up around 3% at the time of writing.

Looking ahead, more gains are on the cards for the company’s investors. That’s because Judges Scientific is expected to grow its bottom line by 14% next year and, with it trading on a price to earnings growth (PEG) ratio of just 0.9, it appears to offer excellent growth prospects at a very reasonable price.

The post 4 Stocks With 20% Upside? Barclays PLC, Persimmon plc, CVS Group Plc & Judges Scientific PLC appeared first on The Motley Fool UK.

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Peter Stephens owns shares of Barclays, Judges Scientific, and Persimmon. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Senior

I have been bullish over the defence sector for quite a while now as recovering Western economies provide defence budgets with a welcome shot in the arm, and the rising might of emerging nations underpins weapons acquisition elsewhere. With this in mind, I believe Senior (LSE: SNR) is a great pick for those seeking brilliant earnings growth this year and beyond.

The Hertfordshire firm was last dealing 1.5% lower in Monday trade despite furnishing the market with a positive trading release — group revenues advanced 9% during January-June to £434.5m, and advised that it expects trading to improve looking further down the line “as new Aerospace and Flexonics programmes and products enter production“. This view is shared by the City, and earnings growth of 3% and 7% is chalked in for 2015 and 2016 correspondingly.

Such figures make the business sterling value for money, with P/E multiples of 13.7 times for this year and 12.7 times for 2016 coasting inside the barometer of 15 times that indicates exceptional bang for one’s buck. Prospective dividends of 6.1p per share for 2015 and 6.7p for next year create market-lagging dividends of 2.2% and 2.4% respectively, but with Senior having hiked the interim dividend 10% today — to 1.84p — these forecasts could be in line for a swift upgrade.

CVS Group

Veterinary care provider CVS Group (LSE: CVSG) was last trading flat on the day despite also releasing positive results in start-of-week trade. The pooch and pussycat specialists advised that like-for-like sales leapt 6.8% in the 12 months to June 2015, helping it to meet expectations, and predicted “further like-for-like growth over the coming year.”

CVS Group’s busy acquisition drive has paid off handsomely in recent times, and the company now boasts 291 animal surgeries up and down the country. On top of this, schemes such as its Healthy Pet Club are also driving organic growth higher, and subscription this scheme advanced 32% last year to 213,000 members. With the business clearly on the rise the number crunchers have pencilled in earnings growth of 26% for the outgoing year and 14% for fiscal 2016.

Consequently a P/E ratio of 25.4 times for 2015 collapses to 21.7 times for the current period, and although this remains heady I believe these readings should keep falling as the bottom line expands, with improving household budgets boosting pet healthcare demand. Projected dividends of 3p per share for 2015 and 3.4p for 2016 are handy-if-unspectacular, yielding 0.5% and 0.6% correspondingly.

Vedanta Resources

Unlike the firms I have mentioned above, however, I reckon energy and mining giant Vedanta Resources (LSE: VED) is on course for further share-price pain as commodities markets keep on sinking. The resources giant has seen its value decline by more than a third during the past two months alone, including an additional 5.5% markdown in Monday’s session.

Today’s weakness has been prompted by fresh worrying economic data from commodities glutton China. Firstly, on Friday HSBC/Markit manufacturing PMI numbers for July registered at 48.2, the sixth monthly contraction since January and the worst reading since April last year. And today it was revealed that profits across the country’s industrial firms slipped 0.3% last month.

With output across the oil and many metals segments also ratcheting steadily higher, it appears nailed-on that Vedanta Resources and its peers are set to remain underwater for some time longer — indeed, the City expects the business to record losses of 7.3 US cents per share in 2015. Although an improvement from last year’s losses of 14.2 cents, I expect brokers to keep downgrading these already-insipid numbers as projected balances continue to worsen.

The post Why I’d Buy Senior plc & CVS Group Plc But Sell Vedanta Resources plc appeared first on The Motley Fool UK.

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Royston Wild 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.

Clearly, Monitise is still struggling to turn a great product into a highly profitable business. And, looking ahead, there is a danger that Monitise runs out of time on this front, since technological change is as fast as ever. Certainly, there is the potential for a bid approach, but with it having reviewed its strategic options and found no realistic buyer, Monitise is left trying to turn a red bottom line into a black one.

As a result, it may be prudent to stick to highly profitable businesses that are also in the AIM 50 list. For example, Telford Homes (LSE: TEF) has grown its pretax profit in each of the last five years and, looking ahead, is set to post a 20% rise in earnings in the current year. Furthermore, its long term future is very bright, with it set to benefit from increasing demand near to planned Cross Rail sites in the south east of England. As such, its price to earnings (P/E) ratio of 10.7 indicates excellent value for money – especially with the monetary policy outlook being favourable for the house building sector.

Also benefitting from lower interest rates (via a weak sterling) is flooring company, James Halstead (LSE: JHD). It has an excellent track record of profitability and is a relatively consistent and robust performer. Furthermore, it also offers a yield of 2.7%, which is covered 1.4 times by profit and this provides more evidence that the company’s financial standing is relatively sound. Certainly, it is not as cheap as it was a year ago, owing to a share price gain of 35%, but its consistency means that investor sentiment should remain upbeat moving forward.

Likewise, veterinary services provide, CVS (LSE: CVS), has a bright future ahead of it. That’s because it is expected to post earnings growth of 25% this year, followed by 13% next year. This puts it on a price to earnings growth (PEG) ratio of just 1.1, which indicates that share price appreciation is very much on the cards. Furthermore, CVS is a very robust performer, with the pet care sector being a very defensive space in which to operate. In fact, even during downturns and recessions, pet owners rarely cut back on looking after their animals and, as such, CVS’s long term earnings outlook is strong and very transparent.

The post 3 AIM Stocks I’d Buy Before Monitise Plc: James Halstead PLC, Telford Homes plc And CVS Group Plc appeared first on The Motley Fool UK.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.