One theory is as good as another

The recent full-year report is packed of optimistic and rallying language. But words are as effective as snake oil when it comes to overcoming operational difficulties, so I think it’s worth discounting them. I rather like the theory I heard that the larger oil companies all knew decades ago that the oil under the Weald Basin was too hard to access because of the geology, so they ignored it. That may or may not be true, but one theory is as good as another before the case is proven either way. It’s as good as the theory that UKOG will be a good investment because it will increase its assets by discovering commercially viable oil, for example.

During the past year, the company lost another £2.27m and raised gross proceeds of £7.46m — via the issue of equity — which it used to fund £8.72m of investments made into further exploration and evaluation. The story grinds on…

The share price is lower than it once was, but I think there’s massive potential for it to go much lower from here, so I’m avoiding the stock. I could be wrong, but upside risk is a risk, so I’m prepared to talk in favour of other investments.

One interesting situation exists in Sportech (LSE: SPO), former owner of the Football Pools, which delivered its full-year results today. After a busy year of restructuring, the company posted revenue from continuing operations up 2.3% to just over £66m and adjusted profit from continuing operations 114% higher than the previous year, at £1.5m.

A new focus and emerging growth

New chief executive Andrew Gaughan described 2017 as a year of “material change” for the firm and said 2018 is shaping up “to be one of significant opportunity.”  He pointed to the positives of recurring revenue in the firm’s Racing and Digital business and additional sales opportunities and growth in the 50-50 business. He expects the firm to benefit from “a liberalisation of sports wagering in the US.”

Following the sale of the Football Pools business in June 2017, 80% of Sportech’s earnings are in US dollars and the firm has become a US-focused firm with UK-based directors resigning. We could be about to see a new growth phase emerge from the ashes of the old business. The firm is in good financial shape, with no debt and around £12m cash in the bank. There’s also a further €3.25m on the way following today’s announcement of the sale of the company’s business in the Netherlands.

Points of major change in a firm’s business, like we are seeing with Sportech today, can be opportune moments to consider the stock for investment. I think your research time could be well spent on this one.

The post Is the UKOG share price ridiculously low, or should you pile into this stock instead? 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.

Racing ahead?

The first of these companies is the former owner of The Football Pools, Sportech (LSE: SPO), which released half-year figures today.

Sportech is building a technology-focused sports betting business. This has two main parts. It operates sports betting venues in Asia, Europe and North America, and provides the world’s most widely-used tote-based betting software for horse racing bookmakers.

The company is also loaded with spare cash. As a result of a VAT refund and the recent sale of The Football Pools, it had net cash of £76.2m at the end of June, compared to a market cap of £179m. The company has already returned £21m to shareholders this year, and has plans to return more cash, up to a maximum of £55m.

This is appealing, but I believe investors need to look beyond the cash and focus on the group’s continuing business. Today’s half-year results show that revenue from continuing operations rose by 5% to £36.4m during the six months to 30 June.

The group’s earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 5% to £3.9m. Looking at the figures in more detail, a fall in software sales seems to have been offset by an increase in recurring service revenues.

Sportech shares have risen by 41% over the last year and the group is cashed-up to fund acquisitions and expansion. But my concern after reading today’s report is that there’s not much evidence of underlying growth. Does the share price reflect this?

Analysts are forecasting adjusted earnings of 3.2p per share for 2017. After stripping out the group’s net cash, this gives an effective P/E of 17. That actually seems fairly reasonable. If Sportech’s growth plans are successful, the shares could deliver decent gains. I’d hold after today’s news.

A wizard buy for smart investors?

A publisher of printed books isn’t an obvious choice for a growth stock, but I believe Bloomsbury Publishing (LSE: BMY) has appeal. Not only does this group have a fast-growing digital division, but it’s also the publisher of Harry Potter books. With two new books due this year, sales should be buoyant.

However, my attraction to Bloomsbury stock isn’t just based on the company’s most famous character. I believe this is a high-quality business that’s performed well over a number of years, and now looks quite affordable.

Starting with the basics, analysts expect earnings per share to rise by about 13% in 2017/18, and by a further 6% in 2018/19. This puts the group’s shares on a forecast P/E of 14.2, falling to a P/E of 13.3 in 2018/19.

Growing momentum

However, what’s interesting about this is that broker forecasts for the year ahead rose significantly after the firm’s last set of results were published, in May. The firm’s next set of figures are due in October. If the company continues to impress City analysts, earnings estimates could be upgraded again.

Supporting Bloomsbury’s growth potential is a solid balance sheet, with £15.5m of net cash and no debt. So I’ve no concerns there.

I suspect many investors are overlooking Bloomsbury in favour of more exciting businesses. But in my view, this could be a surprisingly successful small-cap buy.

The post 2 under-the-radar small-cap growth stocks with exciting momentum 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

Upbeat performance

Reporting on Wednesday was online advertising specialist RhythmOne (LSE: RTHM). Its trading update for the most recent financial year shows that it has made excellent progress towards its target of returning to profitability. This was aided by a rise in core revenue of 28%, which pushed total revenue 5% higher. This led to a swing in EBITDA (earnings before interest, tax, depreciation and amortisation) of $11.7m, with the company reporting EBITDA of $1.2m.

Clearly, 2017 was a pivotal year for RhythmOne. It saw a continuation of the fundamental transformation which started two years ago that has put the company in a much stronger position. Its investment in core strategic capabilities across mobile, video and programmatic trading has been hugely beneficial. Its acceleration of the drawdown of certain historical non-core and non-programmatic product lines has also delivered improved financial performance.

Looking ahead, the company has an upbeat outlook. It is expected to deliver a black bottom line in the current financial year and then record growth of 91% in the next financial year. This puts its shares on a price-to-earnings growth (PEG) ratio of just 0.2, which indicates that they offer a wide margin of safety.

With the company’s growth strategy continuing to deliver improved performance, its shares may not remain so cheap for all that long. Therefore, now could be the perfect time to buy them.

Improving outlook

While betting company Sportech (LSE: SPO) is forecast to record a rise in its bottom line of just 3% this year, its outlook for next year is much more positive. It is expected to deliver a rise in its earnings of 17%, which has the potential to create a step change in investor sentiment following a rather mixed period for the business. For example, in the last five years its earnings have fallen in three financial years and were 9% lower in 2016 than they were in 2011.

Possibly because of its volatile track record of earnings growth, Sportech’s shares trade on a relatively low valuation. They have a PEG ratio of only 0.9, which indicates that now could be the perfect time to buy them. Certainly, competition within the gaming and betting sector is becoming increasingly intense and this has led to sector consolidation. However, with a clear catalyst to push its share price higher, Sportech could be a relatively strong performer in the long run.

The post 2 ‘undervalued’ growth shares I’d buy before it’s too late 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. 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.

Sporting boost

Sportech shares are up 6% as I write, as the markets are ingesting a whole load of news from the sports betting operator and technology supplier. Headlines from 2016 full-year results include an adjusted pre-tax profit rise of 17% to £13.8m, with adjusted earnings per share up 18% to 5.2p.

But the big item is the change in the company’s cash position. Despite a non-cash impairment of £63.7m due to a review of assets, the overall balance sheet strengthened by £22.6m — and Sportech turned a £57.7m adjusted net debt at the end of 2015 into adjusted net cash of £36.5m.

Some of that cash is set to find its way back to shareholders in the form of a tender offer through which the company will invest approximately £20m in buying back around 10% of its ordinary shares.

Sportech also said its eight-year £97m VAT refund appeal has been successful, and tells us it it has agreed to sell its Football Pools subsidiary for £83m.

With the shares having almost doubled to 103p over the past 12 months, is it still time to buy?

With chief executive Ian Penrose calling it a transformational year and saying the firm is “in a strong position and more focused to take advantage of the strategic positioning of its predominantly US based businesses“, I think we could be in for good times. And analysts agree, suggesting EPS growth by 2018 that would put the shares on a lowly PEG of 0.4.

Hospital expansion

Full-year results gave shares in Spire Healthcare a 5% boost in early trading, but they’ve dropped back to 333p as I write, just 1% ahead. The price has been erratic with no overall change for around two years, so where are the growth prospects?

With 2016 revenue up 5.4% to £926.4m, adjusted profit after tax grew by 4.9% to £76.6m and adjusted EPS picked up the same percentage to 19.2p. The dividend was lifted by 2.7% to 3.8p, modestly beating inflation. The only minor downside is a 3.1% rise in net debt to £432.3m.

Cash flow conversion was strong, and the firm is expanding its operations, literally — five new operating theatres were opened in the year. A number of the firm’s hospitals saw new developments too.

Executive chairman Garry Watts said that “integration issues” at Spire St Anthony’s Hospital had impacted performance and that “the first half of 2017 will still be a period of recovery at St Anthony’s“. And with further start-up costs still to be faced at the company’s newest two hospitals, EBITDA for 2017 should be pretty much flat.

But Mr Watts reckons EPS growth will return in 2018, with demographics and pressure on the NHS helping boost Spire’s long-term prospects.

Analysts appear to think so too, and have pencilled-in a 14% rise in EPS for 2018, with the forecast dividend rising to yield 1.2%. That dividend is low, but it’s well covered, and I can see a greater proportion of Spire’s earnings being paid out in future years as the company matures further into a growing market.

The forecast suggests a P/E of around 16.5 for 2018, and I think that’s a good price — for a long-term growth prospect rather than a get-rich-quick punt.

The post SPO vs SPI: which cracking growth prospect should you buy? appeared first on The Motley Fool UK.

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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.

Rocky ride

Shares in Sportech (LSE: SPO) have had a volatile ride over the past 12 months, soaring and plummeting as a VAT claim by HMRC swung this way and that — as it stands, HMRC is seeking permission to appeal the most recent Court of Appeal ruling in favour of Sportech.

Putting that aside, Sportech, which billls itself as “one of the world’s leading pool betting organisations,” reported first-half revenue of £48.7m and adjusted pre-tax profit of £5.6m. The company is only just (hopefully) into sustainable profits and there are no dividends yet, but there are strong forecasts on the cards — analysts suggest an 11% rise in EPS this year followed by 30% in 2017, giving us P/E ratios of 14.3 and 11 respectively.

That valuation doesn’t look like bargain territory to me, especially as Sportech is carrying adjusted net debt of £59.8m, which seems high compared to current profit levels. I also wouldn’t touch it until the VAT dispute is finally settled.

Cheap challenger bank?

OneSavings Bank (LSE: OSB) was a bit of a ‘challenger bank’ darling until the Brexit vote put the wind up the banking sector. Since the fateful day, the shares were down 29% — until today’s interim figures, which have spurred an 11% resurgence to 263p.

Underlying pre-tax profit rose 36% to £64.6m, with a 10% rise in the bank’s loan book. Liquidity measures look strong, and the interim dividend was lifted by 45% to 2.9p per share. Chief executive Andy Golding did say that it’s “too soon to predict the medium to long-term impact of Brexit on the UK economy.” But has the uncertainty unfairly depressed OneSavings Bank’s shares and are they in bargain territory?

I’d say they are, with post-referendum forecasts holding strong and the City expecting a 7% rise in EPS this year with a 3.6% dividend yield (rising to 4% in 2017). That puts the shares on a P/E of only seven, which I see as significantly undervaluing OneSavings’ long-term prospects.

Printing success

As company names go, Xaar (LSE: XAR) has always been one of my favourites, even if I haven’t been so keen on the trajectory of its share price in recent years. Soaring earnings saw the printing technologist’s shares rocket to more than £11 apiece by the end of 2013, but several years of contraction have seen it crash back down to today’s 505p.

But we’re at least seeing a 4% rise on the back of this morning’s interim figures, which showed continuing falls in profits — but that was in line with expectations, as the firm commits bigger sums to R&D and seeks to succeed with the new “strategic vision” launched in March. According to chief executive Doug Edwards, Xaar has launched “major new products” and has announced a “strategic partnership with Ricoh” as it works towards its “2020 vision.“

Would I buy the shares? On a forward P/E of 26, rising to 36 on 2017 forecasts, nope. The latest interim report contains too many fancy-sounding marketing buzzwords for my liking — I want to see the colour of Xaar’s money first.

The post 3 smaller shares to buy on today’s results? appeared first on The Motley Fool UK.

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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.

Drinks darling

Pub chain Wetherspoons (LSE: JDW) enjoyed a chunky bounce last week following the release of bubbly trading numbers.

Wetherspoons advised that like-for-like sales leapt 3.8% during February-April, representing a speeding up of till activity in recent weeks. Total underlying sales were up 3.2% for the period from July of last year to April.

Investor appetite was also stoked by news of a planned £60m share buyback programme for the year to July 2017, Wetherspoons already having purchased £37.3m worth of shares in the current period, the most for almost a decade.

While rising wage costs remain problematic for the firm, I reckon strong demand for Wetherspoons’ cut-price ale and food — allied with its ongoing restructuring programme — makes the company a robust long-term growth candidate.

So while the pub giant is expected to endure a 7% earnings dip in the current fiscal year, the City expects Wetherspoons to print a 10% rebound in 2018. Consequently a P/E rating of 16.3 times for 2017 drops to 14.8 times for next year, making the stock a tasty value pick in my opinion.

Digger set to slump?

Gold mining giant Petropavlovsk (LSE: POG) surged to fresh record highs last week around 8.8p per share, taking total gains during the past three months to 45%. And the business has kept rising in Monday’s session, taking it to within a whisker of the 9p marker.

Gold prices touched their highest level for 2016 at $1,304 per ounce early last week, the yellow metal bolstered again by the Federal Reserve’s latest dovish comments regarding interest rate rises.

But while the ‘safe-haven’ metal may gain further traction should key economic indicators suggest further deterioration, I reckon huge risers like Petropavlovsk remain in danger of a severe correction.

A recovering US dollar could shunt gold prices — and with it the share values of Petropavlovsk et al — firmly to the downside should data from across the Pond start to improve, a possible precursor to Fed rate hikes. And the prospect of prolonged physical demand weakness in China and India could also send metal values shuttling lower again.

The City expects Petropavlovsk to keep racking up the losses until 2017 at the earliest. And while recent moves such as the $144m acquisition of Amur Zoloto may be fuelling hopes of a stunning turnaround at the battered firm, I reckon the gold digger remains a risk too far at the present time.

On the ball

Football pools organiser Sportech (LSE: SPO) saw its share price soar last week after a landmark battle against the taxman.

The Court of Appeal agreed with Sportech’s assertion that its ‘Spot The Ball’ competition was a game of chance rather than skill, and should therefore be exempt from VAT. As a result the business is in line to receive £97m back from Her Majesty’s Revenue and Customs.

Sportech isn’t quite out of the woods, however, and an appeal from authorities could see the seven-year case rumble on even longer.

This may not be enough to deter some investors, however, as Sportech represents stellar value based on current forecasts.

Indeed, City predictions of an 11% earnings rise in 2016 leaves Sportech dealing on a P/E rating of just 15.4 times. And the multiple moves to a lip-smacking 11.9 times for 2017 thanks to predictions of a 30% bottom-line advance.

The post Should you buy last week’s risers J D Wetherspoon plc (+7%), Petropavlovsk plc (+6%) and Sportech plc (+15%)? 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.