Moneysupermarket

It has gone into sharp reverse today with the share price crashing 10% after a disappointing, but hardly disastrous, Q3 trading statement. The site’s current motto is Get Money Calm, but today investors are in a selling frenzy. This could be an opportunity for those who believe in the group’s longer-term prospects. 

Today’s update was bullishly headlined “Revenue grows 4% as energy outperforms”, but investors chose to focus on less impressive numbers, primarily the 5% drop in revenues from its Money division to £20.6m.

Quarterly revenues from Home Services (which includes energy) compensated by growing a healthy 21% to £17.7m, but this slowed from 40% growth when measured over the nine months to 30 September.

Revenue growth in its Insurance division, which accounts for half of all sales, remained solid at 3% to £49.9m, despite the “subdued premium environment”. CEO Mark Lewis warned that although overall trading dynamics should continue to the end of the year, Money will “weaken”. However, the board remains confident of meeting full-year market expectations.

There were signs of a slowdown in July, when I warned the group has to keep growing fast to justify its toppy valuation of 22 times forecast earnings. Today it still looks pricey at 21.4 times forward earnings, with a price-to-revenue ratio of 5.3. City analysts remain optimistic, suggesting earnings will rise 4% this year and 9% next, when the dividend will hit 3.3%.

Moneysupermarket has a strong brand and mobile functionality, and the over-crowded market has been whittled down to just four major competitors: Compare the Market, Confused.com, GoCompare and uSwitch. The stock may still tempt, but given today’s pricey valuation you might want to look elsewhere in the FTSE 250.

GoCompare

GoCo Group (LSE: GOCO) has been flying lately, its share price jumping 16% in the last week (30% over the month), despite July’s interims showing year-on-year revenue growth of just 0.3% to £76m.

Its numbers show the difficulty of competing in this market, with price comparison revenues flat and car insurance conversion of just 1.2 percentage points, “broadly offsetting marketing inflation in a competitive market”.

GoCompare has been looking to drive growth – or at least maintain its market position – with new services such as WeFlip, and the recent acquisition of the Look After My Bills service, which has more than 150,000 live customers, for £12.5m.

The group is keen to stress its “disciplined financial performance”, essential in such a competitive market, and is looking to add a new revenue stream by developing proprietary technology platform SaveStack, striking a recent partnership with CYBG/Virgin Money.

Again, GoCompare looks pricey 21.1 times forward earnings, given low growth prospects and a forecast yield of just 1.4%. Investors have been piling in lately, but this remains a tough sector to make money in.

The post This FTSE 250 high flier is down 10% today! Here’s what I’d do right now appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com. 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 the Money

But it had to slow at some point, and that moment is now. The stock was down 3% on publication of its group interim results for the six months to 30 June, despite a positive set of numbers with group revenue up 15% to £199.4, “driven by exceptional energy switching.”

Profit after tax rose 18% to £50.2m, while “strong” operating cash flows jumped 20% to £51.4m. In fact, the only negative figure I can find is a rise in net debt, with last year’s net cash position of £24.4m turning negative at £12.6m.

As Roland Head recently pointed out, management is investing its plentiful cashflows on next generation of services to boost automated switching and tighten customer relationships, and this could be money well spent. Given that the FTSE 250 stock now has a market-cap of more than £2bn, I can’t get too worried about it. 

Reinvent that

I can only assume the downbeat market response is because the group has to keep growing fast to justify today’s toppy valuation of 22 times forecast earning. CEO Mark Lewis is still confident of delivering market expectations for the year and hailed the success of the group’s Reinvent strategy. The interim dividend was increased 5%, reflecting a progressive policy which puts the forecast yield at 3.5%.

The group distributed £83.4m wealth of dividends during the period, including a £40m special divi announced in February, up from £40.7m last year. City earnings projections look positive at 6% and 8% for the next couple of years and, with cash-strapped Britons still keen on switching, the Moneysupermarket share price may continue to reap the rewards, especially if the Reinvent strategy bears further fruit. 

Compare and contrast

It’s interesting to compare the Moneysupermarket stock with rival GoCompare.com Group (LSE: GOCO), a relative minnow with a market-cap of just £357m. The home of Gio Compario has been out of favour with investors and is down nearly a third over the past year. But lately, there’s been signs of life, with a 20% pick-up in the last six months.

Inevitably, it’s cheaper than Moneysupermarket, trading at 14.6 times forward earnings. However, earnings prospects look more volatile with a 25% drop forecast for 2019, followed by growth of 22% in 2020. The forecast dividend is less generous at 2.1%.

GOCO for it

Lower expectations could work in favour of the GoCompare share price, offering it more scope for uplift. Last year’s operating profit margins of 24.7% were strong, while its return on capital employed was a thumping 105%. It’s also looking to drive customer numbers with its ‘weflip’ regular energy switching service.

Investors have woken up to the opportunity, but there could be further growth to come. Do you favour Moneysupermarket’s momentum, or GoCompare’s recovery potential? It’s a tough comparison, but I’d buy either rather than leave my money in a Cash ISA paying 1% or less.

The post Forget the Cash ISA! I’d rather buy these 2 FTSE 250 income and growth stocks appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com. 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.

Strategic reinvention

Some of the gloss has come off the price comparison sector in recent years as early rapid growth slowed amid tough competition and market saturation. However, Moneysupermarket’s ‘reinvent strategy’ appears to be paying off as it targets  automated switching and tighter customer relationships in a bid to drive up repeat income.

Today CEO Mark Lewis said the strategy has delivered new branding and advertising “to remind everyone how we can help them with their finances and ‘get money calm’ “, helped by new products such as Credit Monitor.

Money motoring

Motor insurance is a key market and conversion numbers were up, partially offset by subdued trading in life insurance as competitors spent more on customer incentives, so overall total insurance revenues only grew 3% to £48.3m.

Revenues from its money services such as banking grew 9% to £25.3m, against a weak comparative quarter in 2018. Gas and electricity switching was particularly strong, due to attractive offers and the rapid jump in the new energy price cap.

Special dividend

Home services revenues (which include energy) grew 70% to £19.6m with total group revenues up 19% to £104.9m. Lewis warned that “exceptional” home services performance will moderate, but the outlook remains unchanged with the board confident of meeting expectations.

In February, the £2bn group proposed an enhanced £40m distribution, which today it confirmed will be made by way of a special dividend of 7.46p per share to be paid on 21 May, to shareholders on the register on 3 May.

Moneysupermarket now trades at a relatively pricey 20 times earnings and 4.9 times revenues. The forecast dividend is 3.8% with cover of 1.4. Earnings per share are forecast to grow 9% and 6% over the next couple of years and the group will have to avoid stumbles to justify its current valuation.

Compare and contrast

I thought it would be interesting to compare it with smaller rival Gocompare.com Group (LSE: GOCO). Also listed on the FTSE 250, this has a market cap of just £336bn. Last year it suffered a pretty calamitous crash, but is up almost 20% in the past month, boosted by news that chairman Peter Wood, who founded Direct Line, Esure and Sheila’s Wheels, has loaded up on 17.8m shares, lifting his total holding from 25.6% to 29.9%.

This was a real vote of confidence and led to speculation that he might even take GoCompare private. It is publicly traded for now and in contrast to Moneysupermarket still looks a relative bargain trading at 12.7 times earnings, and 2.3 times revenues. The forecast yield is just 1.9%, though, but covered four times.

GoCo is investing £10m in promoting its new regular energy switching service weflip, which also aims to drive repeat revenues, while full-year revenues showed adjusted operating profit up 22.2% to £44m, and adjusted basic earnings per share 20% higher at 7.8p. After a tough time, the price comparison sector could be worth a closer look again.

The post I can see a strong case for buying both these FTSE 250 dividend and growth stocks today appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com. 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.

Is a profit warning on the horizon?

Online financial trading firm IG Group Holdings (LSE: IGG) has fallen by 37% over the last six months. The company’s stock is out of favour because of new regulatory restrictions hitting revenue. In short, non-professional traders can’t use as much leverage as they could previously.

IG isn’t the only company to be hit by the changes. Rivals Plus500 and CMC Markets have both issued profit warnings recently, saying that the impact of the new rules is more serious than expected.

Investors are worried that IG might have to do the same. With a trading update due in late March, we won’t have long to wait. But in the meantime, I think IG could be worth a look for long-term investors. Here’s why.

Buy the market leader

IG has been in business for 45 years, during which time it’s become a global leader in online CFD trading and spread betting. It’s the largest such firm listed in the UK and generates more revenue from professional traders (who are exempt from the new rules) than Plus500 or CMC Markets.

It’s also a very profitable and well-funded business. Over the last five years, IG’s generated an average pre-tax profit margin of 47% and consistently maintained a net cash position.

This tells me that this business should cope easily with a period of change, during which profits might dip. The group is working to diversify and I’m sure it will find a way to return to growth.

In the meantime, the shares appear to be priced for a fairly grim future, on 11.5 times 2019 forecast earnings, with a 7.6% dividend yield. I rate IG as a buy and have bought some myself.

Compare this

Unlike IG, price comparison website Gocompare.com Group (LSE: GOCO) isn’t the biggest in its sector. But results published on Thursday suggest to me it could be an attractive investment.

Although revenue only rose by 2.3% to £152.6m last year, operating profit jumped 14.2% to £37.7m. The reason for this is the company focused on maximising profits, rather than growing at all costs.

Although the number of customer interactions fell by 16% to 27.1m, the average revenue from each rose by 10% to £5.13. That seems fine to me, but some investors appear to be spooked. The shares were down by about 6% at the time of writing.

In my view, this downbeat view is unjustified. This business generated an operating profit margin of 24.7% last year and a return on capital employed of 105%. That means that for each £100 of capital invested in the business, Gocompare generated an operating profit of £105.

Some of this cash is being invested in new technologies, such as the weflip automated utility switching service. I expect more of this kind of service, which should drive repeat income from loyal customers.

Today’s results have left the shares trading on 8.4 times 2018 earnings with a 2.5% yield. I think that’s too cheap and have added the shares to my watch list for a possible purchase.

The post Have £5k to invest? Why I’d buy this FTSE 250 7% dividend stock today appeared first on The Motley Fool UK.

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Roland Head owns shares of IG Group Holdings. 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.

Both operate in sectors that appear to be unusually profitable. Although increased competition may be a risk in the future, these businesses are larger than most of their rivals. I believe this should give them good pricing power and economies of scale.

Verdict: more growth

Litigation financing group Burford Capital (LSE: BUR) bucked the market trend this morning with an 18% share price rise during early trading. This company finances legal cases for corporate clients and then collects a share of any damages.

This business model has proved very successful. The AIM-listed firm’s annual profits have risen from $17m in 2013 to $249m in 2017.

However, this growth has relied on a continual supply of new cash to invest in new legal cases, which can take several years to resolve. Today’s share price rise was prompted by news that the firm has secured $1.6bn of new funding on what appear to be very attractive terms.

It’s a complex picture, but the end result is that the company will provide 42% ($633m) of this new cash, but will receive 60% of all profits from the cases in which the cash is invested.

The right time to buy?

Burford’s track record suggests that its staff are skilled at selecting legal cases which can be won. I also think it’s reassuring that the firm’s two top executives, founders Christopher Bogart and Jonathan Molot, each have a shareholding of about 4%. Their interests should be well aligned with those of outside shareholders.

Analysts expect the firm’s earnings per share to rise by about 20% in 2019, putting the stock on a forecast price/earnings ratio of about 14. Although I’m concerned about the risk of boom and bust in this fast-growing sector, I think Burford could be a good long-term investment from current levels.

A potential bargain

Back in April, I rated internet price comparison firm Gocoompare.com Group (LSE: GOCO) as a potential long-term buy. The shares have since fallen heavily and now trade at a level that looks very cheap to me indeed.

The good news is that nothing much seems to have gone wrong. During the first half of the year, management chose to maximise the profitability of the business, rather than chasing growth. As a result, operating profit rose by 9.5% to £17.3m during the six-month period, even though revenue was flat at £75.8m.

This patient approach may have disappointed some investors, but I don’t see a problem with it. In my view, improving profit margins is just as useful as pursuing growth.

Director buying

Gocompare.com’s share price slide has attracted at least one insider buyer. Chief executive Matthew Crummack bought £50,000 worth of shares in November, at a price of 78p.

The share price at the time of writing is considerably lower, at just 67p. This values the stock at just 8.7 times forecast earnings for 2018, with a dividend yield of 2.7%.

In my view this is probably too cheap for a business with an operating profit margin of 22%. I rate Gocompare.com as a buy for income and growth.

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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.

These can provide an opportunity for faster capital gains and allow you to learn what investing style suits you best.

However, to protect your portfolio from big losses, I think it’s essential to focus on profitable firms with proven business models. Today I’m looking at two potential buys.

Disrupting an old business

The business of foreign exchange isn’t new. But the recent years have seen a number of new technology companies get involved, with a focus on providing better value for customers.

One example is FairFX Group (LSE: FFX), which operates a peer-to-peer platform that allows customers to make transactions in different currencies. The group also offers pre-paid cards and is building an online bank.

This £155m AIM-listed firm has taken a few years to reach a profitable scale. But 2017 saw the group generate its first annual profit. According to figures released today, revenue rose by 52% to £15.5m last year, generating an adjusted pre-tax profit of £0.9m.

The value of transactions handled by the company rose by 41% to £1.1bn last year. Customer numbers rose by 11% to 728,985. In my view these figures highlight the size of the opportunity for the firm — it’s still a relatively small player in a very big market.

The way forward

FairFX is expanding through a mixture of acquisitions and organic growth. Last year’s deals included digital banking group CardOne and Q Money. The company also recently gained full membership of MasterCard, so can now issue its own cards.

Although foreign exchange transactions still generate most of the group’s revenue, I think the banking operation could have big potential.

Today’s trading update confirmed that growth stayed strong the first quarter. Like-for-like revenue rose by 18.7% and total revenue, including acquisitions, rose by 85.3% to £4.8m.

The shares currently trade on a 2018 forecast P/E of 20. This doesn’t seem excessive to me given the current rate of growth. I’d be willing to buy a starter position in FairFX after today’s news.

Compare this

Foreign exchange isn’t the only part of the financial sector that’s faced disruption from tech firms. Price comparison businesses have forced financial firms to be more competitive and transparent in their pricing.

One of the top players in this sector is Gocompare.com Group (LSE: GOCO). This £470m business generated an operating profit of £33m on £149.2m of revenue last year. That’s equivalent to an impressive operating margin of 22%.

Although Gocompare.com isn’t the biggest company in this sector, it’s still fairly large. Last year’s results show us that the firm handled 32.2m customer “interactions” in 2017. Average revenue per interaction was £4.67.

Still growing fast

Price comparison isn’t new anymore. But the firm is making targeted acquisitions and upgrading its services to provide an increasingly personalised service.

City analysts expect adjusted earnings to rise by 24% to 8.1p per share this year. The group’s dividend is expected to rise by 45% to 2.03p per share.

These figures put the stock on a 2018 forecast price/earnings ratio of 14 with a prospective yield of 1.8%. In my view, this could be a good stock to tuck away for long-term income and growth.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Mastercard. 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.

Devoted to helping consumers save money, its brands, which include MoneySuperMarket, MoneySavingExpert and TravelSupermarket, are some of the most recognised in the UK when it comes to financial services. This recognition, coupled with rising demand for its comparison offering, has helped the group grow net profit at a compound annual rate of 26% over the past six years. And despite the historical growth rate, shares in the company trade at a forward P/E of only 16.5 today, a valuation that in my view, seems to undervalue Moneysupermarket and its prospects.

Consumer champion 

According to a trading update issued by the firm today, revenue for the first quarter expanded by 4%, thanks to high demand for energy switching services.

Not only is it growing rapidly, but it is also hugely profitable. Last year the firm’s operating profit margin came in at 29% and return on capital employed, a measure of profit for every £1 invested in the business, was 54%, making it one of the most productive companies listed on the London market.

CEO Mark Lewis is making the most of the capital generation, deploying funds for acquisitions and returning the rest to investors via dividends.

Last month the group forked out £40m to buy Decision Technologies, a B2B comparison site that supplies white label technology for a wide array of price comparison websites. As well as this deal, Moneysupermarket is investing in its own capabilities via the expansion of its engineering hub in Manchester.

These efforts should help the company maintain its growth rate and edge over the market. The stock also supports a dividend yield of 3.9%, making it not only attractive as a growth play but as an income investment as well.

Bid on the cards? 

Gocompare.Com (LSE: GOCO) is my other favourite tech pick. Over the past few years, Gocompare has chalked up an annual earnings growth rate of just 5.9%, which looks terrible in comparison to that of Moneysupermarket. However, what I’m excited about is the group’s growth potential as it has been investing heavily in recent years, buying up other businesses and funding growth at others.

For example, at the end of last year, the company acquired MyVoucherCodes for £36.5m, its first full acquisition in its 11-year history. This deal followed investments in robo-advisor MortgageGym and UAE-based comparison site SouqAlmal. City analysts believe these deals will boost earnings per share by 37% in 2018, and management is looking for other acquisitions to complement this growth.

There is also the chance that the company could become a bid target. Indeed, last year ZPG, the owner of property portal Zoopla, tried and failed to pay £460m (110p per share) for the GoCompare business, and I wouldn’t rule out another approach as GoCompare builds its online business. Management estimates its online properties will attract more than 100m views this year.

Overall, considering the above, I believe GoCompare’s current valuation of 13.9 times forward earnings undervalues the business and its prospects.

The post Why I believe it’s time to buy these two top tech stocks appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and Facebook. The Motley Fool UK has recommended Moneysupermarket.com. 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.

Admirable Admiral

Admiral has staged a dogged fightback since last summer, when interim profits were smashed by the rising cost of personal injury claims after the government changed the payment calculation, known as the Ogden rate. Today it floated clear of those worries to post a 43% jump in full-year pre-tax profit amid record customer numbers, and further cheered investors with a special dividend. Earnings per share (EPS) rose 49% to 117.2p and group net revenue jumped 11% to £1.13bn.

Group chief executive officer David Stevens said “it’s great to be back in the groove, with a 23rd year of record profits”, after posting a rare fall in 2016. The group has invested in widening its product range, to include van, travels and loans, and improved customer service.

Float on

Growth was also driven by higher UK insurance profits, improved price comparison results, and fewer losses in its international insurance business. Admiral announced a final dividend of 58p per share for the year, made up of a normal dividend of 39.5p and a special dividend of 18.5p. That is up 12.6% from 51.5p in 2016. No wonder my Foolish colleague Rupert Hargreaves recently named it one of his top 2 dividend stocks for 2018.

Trading at a forecast valuation of 17 times earnings, it does not look too pricey. The forecast yield is 5.9% for 2018 (albeit with cover of just 1) and a whopping 6.3% for 2019. EPS are forecast to slower, rising 4% in 2018 and 5% in 2019, against the 2017 figure of 49%. Steady as she goes.

Gio shows Brio

Looking at another segment of the motor insurance business, price comparison site GoCompare.com (LSE: GOCO) has also posted its preliminary results for the year ended 31 December. The market is less impressed, with the stock down 1.4% at time of writing.

The group hailed its “strong financial performance” with adjusted operating profit leaping 19.8% and revenue growth of 5.1%, and says it helped customers save more than £1.1bn. It is tentatively expanding into related areas, with minority investments in start-ups Mortgage Gym and Souqalmal, and acquiring MyVoucherCodes owner The Global Voucher Group in January.

Compare that!

It needs to branch out given its dependency on insurance, accounting for 94% of total revenues. This is currently working in its favour as rapidly rising premiums double-digit premium hikes drive switching business, but could backfire if renewal prices slow or fall.

GoCompare’s management has previously declared it will target a dividend payout ratio of 20% to 40% of EPS, and today it announced a final dividend of 0.7p per share, taking the full-year dividend to 1.4p. The forecast yield is now 2% for 2018 and with cover of 3.6, there is scope for progression.

The share price is up 20% over the past 12 months, making this a dividend and growth play, albeit one with plenty of challenges too. However, forecast EPS growth of 26% in 2018 and 13% in 2019 show promise. Trading at a forecast 13.9 times it could be good to go.

The post Here’s why I’d buy Admiral Group plc and this stunning growth stock appeared first on The Motley Fool UK.

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Harvey Jones 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.

And as part of this mission, today the firm announced that it has decided to acquire UK online voucher code website Global Voucher Group Ltd, trading as MyVoucherCodes.co.uk and its subsidiaries for £36.5m in cash.

According to today’s press release on the matter, GoCompare is buying MyVoucherCodes with a combination of existing cash resources and the extension of existing credit facilities. The deal is expected to be to be completed in January and be earnings accretive in 2018 on an underlying basis. 

It is an exciting buy for GoCompare, as it takes the company out of its price comparison home market. Management believes that the deal makes sense as it will increase the opportunities to grow both brands cost-effectively and sustainably. Apparently, the enlarged group will generate 100m views annually on its sites, a vast audience to which management can flog products. 

Dividend Growth ahead

Even though GoCompare has only been a public company for 13 months, the firm has made a splash. After reporting earnings growth of 24% last year, this year analysts are projecting an increase of 11% followed by growth of 18% next year. Today the group confirmed that adjusted operating profit for 2017 is expected to be at the upper end of market expectations.

So it looks as if the company is on track to meet these growth numbers and this should be great news for income investors. 

GoCompare’s management has declared that the company will target a dividend payout ratio of 20% to 40% of earnings per share. For 2017, City analysts are predicting a total distribution of 1.6p per share, rising to 2p next year — payout ratios of around 25% based on current earnings forecasts.

If management decides to pay out 40% of 2018 earnings, the dividend could hit 3p per share, giving a yield of 2.9% at current prices. Put simply, this is undoubtedly one dividend stock worth keeping an eye on. 

Excess cash 

Alongside GoCompare, insurer Esure (LSE: ESUR) does not look like a dividend growth champion, but it is compared to the rest of the market. 

Since its IPO in 2013, it has paid out 55p per share in regular and special dividends, which is equal to around 18% of its IPO price. Analysts have pencilled in a dividend payout of 12.3p for 2017, giving a dividend cover ratio of 65% and dividend yield of 4.8%

Its interim results showed that at the end of the first half, the company had a solvency coverage ratio of 153%, indicating that the firm’s balance sheet is strong enough to support further generous payouts and earnings are growing strongly. For the nine months ended 30 September, the group reported a record quarter of premiums at £233m, up 25% year-on-year. 

This growth should underpin further special dividends and regular payout rises from the group. City analysts are forecasting earnings per share of 18.7p for the full year, giving a forward P/E of 13.5. For 2018, earnings are projected to expand by 13%, and analysts are calling for an 11% dividend increase. So, for 2018 the shares are set to yield 5.4% excluding any special payouts. 

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Rupert Hargreaves owns no 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.

Rising profits

You won’t learn much about CYBG (LSE: CYBG) from its name. But this group is actually the holding company which owns the Clydesdale and Yorkshire Banks. It joined the market in February 2016, since when the shares have risen by 40%, outperforming the 24% gain delivered by the FTSE 250.

CYBG shares rose by 8% this morning after the group issued a strong third-quarter trading update. The group’s mortgage lending rose by 5.8% on an annualised basis during the quarter, while lending to small businesses rose 4.7% on the same basis.

Profit margins are holding firm, despite the growth in lending. Net interest margin – a key measure of lending profit – rose slightly to 2.29% during the quarter, while underlying operating costs are now expected to be £680m this year, below previous guidance of £690m-£700m.

Still good value?

CYBG’s current share price of 285p is in line with its last-reported tangible net asset value of 283.3p per share. This means that the bank’s valuation reflects no more than the theoretical break-up value of its assets.

A profitable and stable bank would normally trade at a premium to its tangible book value. I believe this is likely to happen at CYBG as the group’s profitability continues to improve.

Analysts expect underlying earnings to rise by 16% to 18.9p this year, putting the stock on a forecast P/E of 14. A maiden dividend of 3p per share is also expected, giving a 1.1% yield. I believe these shares could be a rewarding buy at current levels.

A top tech buy?

When I last wrote about price comparison business Gocompare.Com Group (LSE: GOCO), I suggested the group might be on the lookout for acquisitions to help fuel growth. Today’s interim results confirm this, reporting a “first strategic investment” in Mortgage Gym, a new mortgage-matching start-up due to launch later this year.

I view Gocompare.com as being similar to Zoopla. It’s not the market leader (Moneysupermarket.com) but it can still make a lot of money by sweeping up the remainder of the market.

Today’s interim results from Gocompare suggest to me that this view may be correct. The group’s marketing margin – a measure of adjusted operating margin – rose from 34.5% last year to 39.6% during the first half of 2017. That’s better than Moneysupermarket, whose equivalent measure fell from 34.1% to 33.4% during the first half of the year.

Average revenue per interaction rose by 2.8% to £4.43, while adjusted earnings per share rose by 14.3% to 3.2p. That’s also better than Moneysupermarket, whose adjusted earnings per share only rose by 4% during the same period.

Gocompare.com currently trades on a 2017 forecast P/E of 18, falling to a P/E of 15 for 2018. In my view, this stock still has attractive growth potential. I believe shareholders should hold on for more.

The post 2 growth stocks that could make you a millionaire appeared first on The Motley Fool UK.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com. 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.