Today, I’m looking at another company that has managed to impress investors, and its returns over the past three years leave 88E trailing.

The comeback kid

During the first few years of the last decade, it was touch and go for steel producer Severfield (LSE: SFR). Losses spiralled and only a gigantic rights issues stopped the bleeding. Since then, management has been working flat out to restore the business to profitability and put it on a stable growth footing.

And it’s succeeded. Severfield has reported a profit for the last five years and, with revenues up by around 40% since 2015, the City expects earnings to continue to expand for the next two years. Analysts have pencilled in earnings per share (EPS) growth of 9.2% for fiscal 2019, followed by an increase of 8.6% for the following financial year.

In comparison, the City is only forecasting losses for 88E for the next few years. This is primarily because the company isn’t generating any revenue and, as its exploration plans struggles, it’s unlikely to see any income any time soon. 

Therefore, it’s no surprise Severfield has outperformed 88E by 93%, excluding dividends, over the past two years.

Missing oil 

88E is the perfect example of how tricky the oil business can be. Only last year, the company was riding high on the belief that its Icewine project, covering some 690,000 gross acres, could contain as much as 3.6bn barrels of oil. But after months of testing, in July the firm suspended operations at its Icewine#2 well where, despite trying different techniques to stimulate production, a 28-day testing period in June only produced 1,372 barrels of stimulation fluid. Although an amount of gas was also produced, that critical ingredient, oil, was missing.

The group has now moved on to the Winx prospect on Alaska’s North Slope where it may yet stumble across a vast oil reserve, although I’m not holding my breath. Oil exploration is notoriously difficult and unpredictable. Personally, I would rather invest in a company that has a brighter outlook and is already producing income for investors.

That’s why I’d buy Severfield over 88E any day. Unlike 88E, it’s also easy to place a value on the steel producer’s shares. 

Cheap growth 

Based on current City growth expectations, Severfield is currently worth 11.4 times forward earnings. This is hardly cheap, but it doesn’t take into account the £33m of cash on Severfield’s balance sheet. Strip out these funds (worth approximately 10.6p per share) and the stock is trading at a forward P/E of 10, falling to 9.1 for 2020.

In my opinion, this is far too cheap for a cash-rich business with EPS set to grow at a high single-digit rate. For income seekers, there’s also a dividend yield of 3.7% on offer, and the payout is covered 2.4 times by EPS.

The post This dynamic small-cap is thrashing the 88E share price appeared first on The Motley Fool UK.

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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.

Indeed, thanks to the launch of special editions of the first Harry Potter book during the first half of its current fiscal year, the company saw a 15% increase in total revenues and a 74% increase in adjusted profit before tax to £2.5m. Print revenues, which are still by far the largest division accounting for 80% of overall sales, grew by 16% during the period, contrary to broader industry trends. 

Continued growth 

But Harry Potter isn’t the only string to Bloomsbury’s bow. The company also produces content for the academic and professional markets as well as non-fiction titles and other children’s franchises. A great example is that of Sarah J. Maas, a New York Times Bestselling Author whose title revenues grew 47% for the six months ended 31 August. Put simply, Bloomsbury is one of the publishing world’s best businesses and right now, I believe the shares look deeply undervalued. 

Even though the company’s growth is sluggish, with analysts expecting earnings per share to expand by around 10% over next two years, the stock’s valuation of only 12.7 times forward earnings leaves plenty of room for upside surprises if sales turn out to be better than expected.

What’s more, the shares also support a dividend yield of 4.2% with the payout covered 1.8 times by earnings per share and backed up by £16m of cash on the balance sheet. In my view, this market-beating dividend yield and attractive earnings multiple makes Bloomsbury a great ISA pick. 

Impressive recovery 

Another value stock that’s recently attracted my attention is steel producer Severfield-Rowen (LSE: SFR). This company hit the rocks in 2013 and has been recovering ever since, but it now looks as if the group has finally regained its composure. The dividend was reinstated in 2016, and the firm has built a healthy cash balance of £31.4m over the past few years, almost double the 2017 net profit of £15m. 

Severfield has recently been awarded several landmark contracts which should guarantee income for some time to come. One of these deals was a contract to manufacture 15,900 tonnes of structural steelwork for new Google Headquarters in King’s Cross, London adding to the existing UK order book of £245m reported in the interim results for the six month period ended 30 September. 

City analysts are expecting the entire order book to produce a net profit of £17.7m for the company in 2018 and £18.6m for 2019 giving earnings per share of 6.7p. Based on these figures, the shares are trading at a forward earnings multiple of 11.2. There’s also a dividend yield of 3.7% on offer.

In my opinion, Severfield’s low valuation does not give much room for positive earnings surprises. The company has undergone a tremendous turnaround since 2013 and now looks better placed to grow than ever, I believe, so it’s worth buying at today’s low price to benefit from this growth ahead of a possible re-rating. With a 3.7% dividend yield, investors are being paid to wait as well.

The post 2 top value stocks I’d buy for my ISA appeared first on The Motley Fool UK.

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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.

However, 12 months on and the firm appears to be suffering no ill effects from Brexit just yet. Today the company reported its results for the year ended 31 March and the referendum is only mentioned three times in the release. Revenue for the period grew by 15% on a reported basis to £271m, and underlying profit rose 11.7% to £23.8m. Operating cash flow jumped by 46.1% to £29.8m giving management headroom to reduce debt by 28.6% from £32.5m to £23.2m and hike the company’s full-year dividend payout by 9.1% to 7.2p from 6.6p. Even after this hefty increase, the payout is still covered 3.9 times by earnings per share. 

Growth ahead 

Norcros is rapidly closing in on the growth goals management set out several years ago. Management is targeting revenues of £420m by 2018, and a pre-tax return on underlying capital employed of 12% to 15% over the economic cycle. ROCE is currently ahead of target and has been for the past two years at 18.4%, but revenue is still lacking. 

Excluding the negative impact of the South African rand’s depreciation against the pound, revenue for the year to 31 March would have been £304m. Still, even though the company looks as if it may struggle to meet its growth objective, management remains convinced that it can find opportunities to accelerate it over the next few years. 

And if Norcros does not meet this aim, the shares still look incredibly cheap based on current earnings. Today the company reported underlying diluted earnings per share of 27.8p for the year to March giving a historic P/E of 6.3. Even if we assume no earnings growth for next year, a mid-single digit P/E looks too hard to pass up. A payout of 7.2p gives a yield of 4.1%. 

Undervalued growth

Unlike Norcros, over the past year shares in Severfield (LSE: SFR) have charged higher, rising 75% as the firm’s recovery gathers steam. And today the company reported further progress with revenue for the year to 31 March growing by 10% to £262m and underlying profit before tax rising 50% to £19.8m.

Basic earnings per share for the period nearly doubled to 5.1p, although despite this growth, the shares still look relatively expensive at 83p. 

That being said, Severfield’s value is in its growth potential. Indeed, management is seeking to double group profits by 2020. City analysts believe this is possible and have pencilled-in earnings per share of 6.6p on a pre-tax profit of £24m for the year to 31 March 2019.

Based on this estimate, shares in the steel producer are trading at a 2019 P/E of 12.4 and could be even cheaper if additional growth emerges in the year after. 

The post 2 value stocks on my watch list today appeared first on The Motley Fool UK.

More reading

• How much do you need in an ISA to aim for a £2,613 monthly second income
• 9 dividend-paying FTSE 100 shares to target a huge ISA retirement income!
• £20,000 in an ISA? This passive income stock could give you £3,271 in dividends in 2025 and 2026
• Plan to fund your retirement with just the State Pension? Good luck with that!
• HSBC shares plunged 5% on Tuesday. Here’s what I did…

Rupert Hargreaves owns shares of Norcros. The Motley Fool UK has recommended Norcros. 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.