Green machine

Kingspan (LSE: KGP) shares currently cost less than £1 (they actually trade at 55 euro cents). But the business doesn’t quite fall into penny stock territory.

This UK stock has a mighty market-cap of €10.8bn. And it’s a heavyweight in the field of building insulation, a market which is undergoing rapid growth. The company’s own revenues soared 33% in the nine months to September.

Energy efficiency is becoming critically important as worries over the climate crisis grow. So investment by businesses and governments in green technologies like insulation paneling are steadily rising.

The British government today rolled out a £1bn scheme to help people insulate their homes with grants. It’s a trend seen over the world and one which Kingspan, thanks to its broad geographic wingspan, is well-placed to exploit.

I’m encouraged by the company’s plans to grow further through profits-boosting acquisitions too. It spend €1bn on bolt-on buys between January and September alone.

Near-term sales could suffer as the global economy cools. But I am encouraged by Kingspan’s resilience despite toughening trading conditions. It expects trading profit to jump 10% in 2022 to €830m, it said this month.

Look ahead

Car retailer Lookers (LSE: LOOK) is another cheap UK share on my radar today. The seller of new and used vehicles trades at 77p per share and has a market-cap of just below £300m.

Like Kingspan, deteriorating economic conditions could slap revenues here in the near term. Sellers of big ticket items like automobiles are particularly vulnerable when times get tough.

Lookers may also have to navigate further stock shortages as supply chain issues plague autobuilders. Jaguar Land Rover last week said it will reduce UK output until the spring because of microchip shortages, for example.

But I’d still buy the retailer today owing to its excellent value for money. It currently trades on a forward price-to-earnings (P/E) ratio of 5.2 times and also carries a market-beating 4% dividend yield.

This valuation provides the scope for solid share price gains. Lookers shares actually surged in mid-October after the firm upgraded its full-year profits forecasts and announced a £15m share repurchase programme.

I’m expecting profits here to grow strongly over the next decade as electric vehicle usage soars. ONS data shows that 44% of Britons are ‘likely’ or ‘very likely’ to switch to an all-electric vehicle in that period.

And businesses with a large estate of showrooms plan to benefit particularly strongly as consumers seek face-to-face advice on these new technologies. Lookers operates more than 140 dealerships across the country.

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Vertu Motors

What it does: Sells new and used vehicles (and provides after-sales services) through its 160 showrooms.

Friday’s closing price: 58.4p per share

I believe revenues at motor retailer Vertu Motors (LSE: VTU) could rocket as demand for electric vehicles (EVs) increases.

According to Uswitch, the number of EVs on British roads leapt tenfold between 2015 and 2020 (to 447,359 units). Uptake of these low-carbon vehicles has boomed all over the world as worries over the climate crisis have intensified. And EV sales have been boosted more recently by soaring petrol and diesel prices.

I’m concerned about how supply chain issues could damage profits at businesses like Vertu. This threatens to keep nudging vehicle prices higher — a dangerous scenario as the cost of living crisis worsens — and could also result in stock shortages.

However, Vertu Motors has so far been able to navigate these problems effectively. And this fills me with encouragement. Adjusted pre-tax profits soared to a record level of £80.7m in the 12 months to February. This was helped by gross margins rising to a fatty 12% as unit shortages boosted prices.

Today Vertu Motors trades on a forward price-to-earnings (P/E) ratio of just 7.7 times. I think this fails to reflect the penny stock’s excellent growth opportunities during the EV explosion.

Kingspan Group

What it does: A supplier of construction products with a focus on the ‘green’ economy.
Friday’s closing price: 75.9 euro cents per share

I believe Kingspan Group (LSE: KGP) could thrive over the next decade too as the drive for energy efficiency picks up.

Kingspan sells a huge range of building materials but is perhaps best known as a titan in the field of insulation products. Sales of these products are rising as companies and consumers try to reduce their carbon footprints and cut power bills.

Indeed, emergency callout specialist Homeserve has witnessed “early signs of a shift of emphasis” towards green home improvements. It said last week that people are beginning to switch away from kitchen and bathroom upgrades, for example, towards cost-saving improvements like insulation and fitting solar panels.

Penny stock Kingspan is about more than just insulation, however. It supplies products that improve the amount of natural light entering a building, reducing the need for lighting. Other solutions include the management of water and wastewater and boosting a structure’s ventilation.

Sales at Kingspan would take a hit if inflation keeps soaring and the construction industry slows. However, I think this threat is more than reflected by the company’s recent share price slump. As a long-term investor I think Kingspan could be a brilliant dip buy for me right now.

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Here are four top penny stocks Id happily sink £500 into right now.

A high-energy growth stock?

Hydrogen power could be a massive growth market in the 2020s as people seek cleaner energy sources. It’s why I’d buy AFC Energy (LSE: AFC) for my portfolio. It’s a company whose alkaline fuel cells are used to power vehicles in the Extreme E racing series.

AFC’s contribution to Extreme E (for which it extended its contract last month) has given it a stage to show off its technology and prove its reliability. It’s a strategy that could reap huge rewards because sales of hydrogen-powered vehicles are tipped to boom.

Indeed, Transparency Market Research thinks demand for hypercars — a category which is leaning more heavily on hydrogen technology to improve speeds — will grow at an annualised rate of 11.6% between now and 2031.

It’s possible that AFC could enjoy soaring demand for its products for other applications as well. Just this week, the business announced an agreement with Spain’s ACCIONA to deploy its first hybrid fuel cell at a site near Cádiz, Spain.

AFC Energy faces intense competition from other providers of energy-producing technology. But this is still a penny stock that’s packed with potential as the clean energy revolution takes off.

Going for gold

I think gold stocks remain an attractive asset class to buy today. Buying bullion-producing companies rather than the metal itself exposes investors to the often-risky mining sector. Exploration, development and production setbacks that smack profits can be common.

That being said, the pull of big dividends still makes many gold producers highly attractive, in my book. This is why I’d buy shares in Centamin (LSE: CEY) today. The dividend yields here sits at 5% for 2022 and 5.1% for next year.

Gold prices recently exploded to their highest since late 2020 as tension surrounding the Ukraine war intensifies. At $1,940 per ounce, it seems that the yellow metal could be primed for a charge to fresh record highs in the days ahead too.

But it’s not just geopolitical and macroeconomic worries that are spooking investors as the West and Russia collide. Gold prices have been steadily gaining ground because of fast-rising inflation in parts of the world. This is a problem that threatens to worsen too as energy values increase along with prices of other key commodities, from wheat and aluminium to coffee beans.

Consumer prices are rising at a rate not seen for decades in the US and the UK. And data earlier this week showed such inflation hit 5.8% in February. This was up sharply from 5.1% a month earlier and the highest level on record.

I wouldn’t just buy Centamin shares because of the positive near-term outlook for gold prices however. I think the penny stock could deliver excellent shareholder returns as it steadily ramps up annual production from its African assets. It is looking to produce half a million ounces of gold each year from its Sukari mine.

Riding the gaming revolution with penny stocks

The mobile gaming segment looks set for further strong growth in the post-pandemic era. It’s why I’m considering buying Gaming Realms (LSE: GMR) today. This penny stock develops and licences games software to betting companies and broadcasters. The business is perhaps best known for the blockbuster Slingo line of games.

I like the aggressive steps the business is taking to exploit this theme as well. The US market is opening up rapidly to the gambling industry and Gaming Realms last year launched its products into Pennsylvania and Michigan. Its rapid international expansion has also seen the software giant launch its titles in the Netherlands and Spain in more recent months.

Gaming Realms added dozens more licensing partners to its books in 2021. This helped revenues and adjusted earnings rise 27% and 70% respectively year-on-year.

But I am concerned about the threat of tightening regulations to the gambling industry and, by extension, to Gaming Realms. Last week, UK regulators slapped 888 Holdings with one of the largest fines in history in a sign that patience is beginning to wear thin. But, on balance, I still think the potential benefits of owning Gaming Realms outweigh the possible risks.

Things are warming up

I think demand for insulation products could also soar as fears over the climate crisis increase. This is why I’m considering loading up on Kingspan Group (LSE: KGP) shares right now. The business sells a wide range of building materials across 70 countries, but is perhaps best known for its energy-saving products.

Kingspan reckons the total energy saved by its insulation boards, panels and similar products between 1993 and 2018 was equivalent to 20m cars being taken off the road. The huge difference that these types of products can make to reducing carbon footprints means people are spending small fortunes to improve their home insulation. Businesses are also spending increasing amounts here to help them meet their carbon targets.

Sales of Kingspan’s insulated panels leapt 45% year-on-year in 2021. And I think they could continue rising strongly too as people take steps to protect themselves from soaring energy costs. A recent study showed that Britons living in F- and G-rated homes on the energy efficiency scale stand to be £390 worse off than those in C-rated properties when new price-cap rules come into force in April.

It’s true that Kingspan could see demand for its materials sink if the global construction market slows. But, on balance, I still think the pivotal role of its products in tackling climate change could help me make solid long-term returns.

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All hail the King

I think profits at Kingspan Group (LSE: KGP) could soar as the fight against climate change revs up. The building materials business is perhaps best known for the insulation products it supplies. I think sales of such materials will soar as housebuilders use larger amounts in their homes and people retrofit their existing homes.

A study by the Royal Institute of British Architects reveals the huge positive impact insulation materials have on reducing emissions. It says that improved insulation, better windows and gas boiler replacement in 3.3m UK suburban homes could cut the country’s carbon footprint by 4%.

The government’s Green Homes Grant is due to end at the end of next month. This could have a big near-term effect on Kingspan’s revenues in the UK. But it’s my view that fresh measures could be resurrected as fears over the environmental emergency inevitably rise.

Besides, it’s important to remember too that Britain accounts for just 16% of Kingspan’s revenues. The business sources almost 60% of sales from other European territories, regions where legislation to help the planet is a very hot topic.

The downside is that Kingspan’s operations are highly cyclical. So any fresh weakness in the global economy could severely damage its revenues. Still, as the fight against climate change intensifies, and housebuilding rates rise to match growing populations, I think this penny stock could still deliver big shareholder returns over the long term.

Another top penny stock to buy

Increasing my exposure to e-commerce is something I’ve strived to do in recent years. Packaging manufacturer DS Smith and warehouse operator Tritax Big Box REIT are a couple of stocks I’ve bought as online shopping volumes continue to increase.

Penny stock Ediston Property Investment Company (LSE: EPIC) is another I’m thinking of buying for the digital revolution too. The property giant specialises in operating retail parks. These are the sort of spaces which are perfect for the ‘click and collect’ age.

The retail units this penny stock lets out tend to be larger than the usual high street or shopping mall space. This gives retailers the space to store products that people order online. It’s also often simpler for customers to pick up goods from shopping parks as they can slip their purchases straight into the back of their car after collection.

The main threat to Ediston is the potential for fresh economic downturns that could hit consumer spending. This may in turn result in retail tenants asking for rent discounts or possibly even vacating.

Still, this is a risk I’d be prepared to swallow. I think the company’s long-term outlook — combined with its bulky 6% dividend yield — make it too good to miss.

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Long live the King

Revenues at Kingspan Group (LSE: KGP) are climbing strongly amid growing concerns over the climate emergency. The building products business — a big player when it comes to insulation materials — saw sales leap 44% in the nine months to September, latest financials showed.

Kingspan has a huge opportunity to make big profits as interest in foam insulation rises. Analysts at BCC Research think the global market will be worth $29.5bn by 2025, up more than $7bn over a five-year period. I like Kingspan’s wide geographic footprint that should allow it to capitalise fully on this fast-growing industry too. The penny stock operates in more than 70 countries.

A word of warning however. Demand for Kingspan’s product could take a hit if incentive schemes to encourage people to insulate their homes end. Indeed, the UK government is said to be considering rolling back a £1bn levy that helps fund home insulation work.

A penny stock for the pandemic

Concerns over the Covid-19 crisis have dialled down several notches in recent weeks. Worries about the ferocity of the Omicron mutation have dropped on a raft of positive medical data. But it’s far too early to claim that the pandemic is over.

It’s why I still believe buying UK healthcare shares like BATM Advanced Communications (LSE: BVC) is a good idea. And news in recent days that a new Omicron variant is under investigation illustrates why. It seems that living alongside Covid-19 will be the new norm, as many scientists now predict. So I expect the sort of Covid-19 testing equipment that BATM manufactures to remain in high demand.

I am concerned by the amount of competition in the Covid-19 testing space. But I think the potential size of the market of the long term still makes the penny stock an attractive buy today. Besides, the steps it is taking to expand into new geographies also gives it an opportunity to capture significant sales (its RAPiDgen antigen test was approved for sale in Russia just before Christmas).

Call me up

Strong recent trading over at Netcall (LSE: NET) is encouraging me to give this tech firm a close look too. The business — which makes software that allows companies to automate their operations — saw revenues soar 10% in 2021, predominantly as demand for its cloud-based services took off. The rapid pace at which businesses are digitalising their operations is yielding big returns at companies like this.

My main concern with buying Netcall shares is the company’s high valuation. Today, the penny stock trades on a forward P/E ratio of 43 times. It’s the sort of rating that could prompt a sharp share price reversal if signs of explosive profits growth appear in danger. That said, it’s my opinion that Netcall merits such a premium, given the investment businesses are increasingly making to automate their processes.

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This UK share has developed proprietary advanced thermal conversion technology (called distributed modular generation, or DMG for short) that turns waste like plastics and rubber tyres into hydrogen. Powerhouse claims that its system is lower cost, can create less waste, and can be used in a broader range of uses than other ‘energy from waste’ technologies.

Powerhouse is setting itself up to exploit a potentially explosive market. Statista thinks the waste to energy industry will grow by almost a quarter between now and 2027 to be worth $50.1bn. But I need to remember that development of its flagship Protos plant remains at the early stages. Any issues in the construction of the site could have significant implications for future profits and sink Powerhouse’s share price.

Another penny stock for the green revolution

The escalating climate crisis also means that demand for Kingspan Group’s (LSE: KGP) construction products is booming. The business sources the majority of its revenues through the manufacture of insulation panels and boards, helping its customers improve their energy efficiency. Its other technologies also help save water and boost the amount of natural daylight coming into buildings.

Kingspan’s operations span Europe, North America, and Australasia, giving it excellent geographic diversity. Sales volumes rocketed 30% in the six months to June, while revenues leapt 36% excluding currency movements and contributions from acquisitions thanks to price inflation.

Turnover could take a hit if economic conditions worsen and the construction sector begins to struggle. But thinking about buying the stock and holding it in my portfolio for the long term, I think Kingspan is a highly attractive ESG stock. Analysts at Researchandmarkets.com think the global foam insulation market will grow at a compound annual growth rate of 4% during the next five years.

An exciting healthcare share

Investing in pharmaceutical stocks can be risky business. Drugs development is packed with hazards. Even if a treatment passes the R&D stage without costly setbacks and delays it may fail to get regulatory approval. But sometimes an attractive healthcare stock comes along that really grabs your attention. Sareum Holdings (LSE: SAR) is one that I’m consdering buying today.

This penny stock produces drugs for the treatment of cancer and autoimmune disorders. These areas alone provide plenty of growth opportunity for Sareum. Indeed, positive patent and testing news on its oncology-related products have helped drive the share price to record highs recently. The company’s decision to make drugs that battle Covid-19 symptoms has also boosted its profits outlook. Its SDC-1801 treatment has proved to be more effective in combating symptoms of coronavirus than other anti-inflammatory steroids.

Sareum is a company that seems to have the wind in its sails right now. Though its products are still yet to hit the shelves, this is a share I think could explode in value during the next decade.

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What are the numbers?

Since 2013, revenue has grown from €1.78bn to reach €4.37bn according to the 2018 report released in February of this year. This represents a rise of a massive 146%. Or to put it another way, a compound annual growth rate (CAGR) of over 19%; not too shabby.

Holders of the shares have also had stellar improvements in the dividend. Over the same period, the company increased its payout from 0.14c to 0.42c a share, a CAGR of an incredible 24.5%.

Finally, a favored metric for investors, the return on equity (ROE) is an astonishing 20%. For those unacquainted with ROE, this figure shows how well a company’s bosses are deploying the shareholders’ capital. For any business, the higher the ROE, the better. For comparison, the ROE figure for Barratt Developments is 16.6%.

So what has driven this amazing expansion?

Well, I would say that there are three main reasons: astute acquisitions, developing a worldwide presence and the company’s predominant position in providing particularly high-demand products.

One of the key product lines for Kingspan is the supply of thermal insulation panels and boards. These days, with the focus on saving energy to either heat or cool buildings, insulation is an important factor and is driving demand. Over the years, the company has bought or invested in local suppliers of these thermal materials, thus allowing for an expanding global footprint for its wares.

Most recently, companies in Spain, Poland, Finland, India and Brazil have been purchased, giving ever greater opportunities to develop. The company has also invested in the Middle East, which has a very large market for thermal insulation. Visiting places such as Dubai, visitors may wonder at the cost of keeping shopping malls and other buildings at what seems to be a near zero temperature whilst outside its often around 40 degrees Celsius.

Peruse any magazine about information technology and you are bound to read the words “data centre” at some point. These data centres are essentially very large buildings filled with computers and servers that allow for companies such as Amazon and Facebook to provide their services. In recent years, there has been an explosion in the number of these facilities around the globe. Within these buildings, one essential element is a raised floor to allow for the vast quantities of cabling required for them. Another shrewd addition to the Kingspan stable was Tate Access Floors, a world leader in the supply of such computer room flooring.

It is also worth noting that whilst Kingspan’s product lines may appear to be low tech, the company’s stated aim is to spend 1% of revenue on research and development. This means that a hefty €43m is currently spent on maintaining its market-leading position, which bodes well for the future.

To sum up

A series of canny investments and the development of a global presence has led to remarkable growth for this company. It’s my firm belief that additional acquisitions and further worldwide development will prove a winning combination for investors.

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Going for growth

Infrastructure and support services company Stobart Group (LSE: STOB) has just published its interim results for the six months ended 31 August, and rewarded investors with a big juicy dividend. The FTSE 250 firm upped its dividend from 3p to 4.5p per quarter, a rise of 50%, as it increased its underlying EBITDA to £131.8m. However, today’s profits are mostly made up of £123.9m from the partial disposal of its stake in Eddie Stobart Logistics (ESL), which generated £112m in net cash. The company’s revenue almost doubled to £124.6m in the period, compared to £65.3m a year earlier.

CEO Warwick Brady said the group continues to work towards its clear targets for its three growth divisions – Energy, Aviation and Rail & Civil Engineering, and is also “driving growth in cash generation and returns to our shareholders”. 

Losing power

Stobart Aviation saw good progress, with passenger numbers at London Southend Airport up 25% year-on-year to 610,492. However, Stobart Energy experienced delays in the commissioning of new third party biomass power stations which have impacted short-term volumes by 33%, although EBITDA per tonne is ahead of target and long-term volume unaffected.

Stobart Rail & Civil Engineering is on track to deliver target EBITDA on rail and non-rail civil engineering projects, against a reduction in external revenue. Stobart Infrastructure and Stobart Investments benefitted from the partial disposal of the investment in ESL, in which the group retains a 12.5% stake.

Shine on

The stock currently yields a healthy 5%, forecast to hit an even more tempting 6.5%. That is pretty impressive, especially when you take into account its rampant share price growth, soaring 193% in the last three years.

City forecasters predict a 74% drop in earnings per share in the year to 28 February 2018, but never fear, they are pencilling in a whopping 276% growth in 2019. However, there is a price to pay for its turbo-charged prospects, with the stock valued at a hefty 34 times earnings.

High energy

Kingspan Group (LSE: KGP) has also had a strong year, its share price up an impressive 50% from 24p to 36p in the last 12 months. The firm, which provides insulation products for roofs, wall and floors, posted a solid first half, with revenue up 19% to €1.75bn, and trading profit up 6% to €177.8m. Revenues have been rising particularly strongly, up 20% from €1.47bn to €1.75m year-on-year.

Kingspan’s growth is being drive by increasing demand for greater energy efficiency, the robust European recovery and surprisingly resilient UK despite Brexit. Its strong balance sheet allows it to invest in the business and drive growth with €14m earmarked for acquisitions. It recently entered the lucrative South American market.

The group has posted five consecutive years of double-digit earnings per-share growth, including a spectacular 77% in 2015, and another 35% last year. City forecasters reckon this will slow, to 8% in both 2017 and 2018, but its prospects still look bright to me.

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The firm, which provides insulation products for roofs, wall and floors, was last 9% higher in end-of-week business and trading at six-week peaks after declaring a stunning rise in half-year sales.

Kingspan saw revenues jump 19% between January and June, to €1.75bn, a result that pushed trading profit 6% higher to €177.8m.

At its core Insulation Boards division, the Irish company saw turnover rev to €1.1bn in the period, up 17% year-on-year. As well as enjoying continuing improvement in Western Europe and solid demand in the UK, Kingspan also noted resilient performances in North America and Eastern Europe, despite tougher trading conditions.

And chief executive Gene Murtagh painted a rosy picture for the rest of 2017, saying: “We expect end market activity to be broadly positive for the remainder of the year and at current exchange rates to deliver a full-year result at least in line with consensus. Whilst margins contracted somewhat, we anticipate further recovery of input increases in the second half.”

He added that “our balance sheet is strong and ready to support our development agenda as the opportunities unfold.” Kingspan noted that its bolt-on buys contributed 10% to sales growth, and 6% to trading profit growth, in the first half.

On the rise

City analysts certainly expect earnings to continue marching northwards, and have pencilled in advances of 5% and 7% for 2017 and 2018 respectively.

And it is easy to see why as environmental considerations drive healthy demand for Kingspan’s insulation products steadily higher, and the company’s ambitious acquisition plan sees it enter exciting new territories. Indeed, the Kingscourt company’s appetite for bolt-on buys has seen it enter the lucrative South American marketplace recently.

While current projections leave the insulation play dealing on a forward P/E ratio of 19.7 times, I consider this to be fair value given its ambitious growth strategy and proven record of earnings generation.

Barrels of risk

I am not as enthused by the investment case over at UK Oil & Gas (LSE: UKOG), however.

The London company, which invests in fossil fuel assets in southern England, has seen its share price explode in recent weeks following a spate of positive operational releases.

In the latest update last week it advised that a sidetrack for its Broadford Bridge-1 exploration well in the Weald basin had been successfully drilled. UK Oil & Gas had also secured all necessary permission to conduct the work, it added, meaning that a comprehensive multiple zone extended flow test could now be run.

The business is clearly making terrific headway right now, and could continue to do so, meaning that its stock value may keep on shooting skywards. But the unpredictable nature of oil and gas exploration means that the firm’s stock value could of course easily retreat as sharply as it has ballooned, meaning that it is a poor choice for those intolerant of high degrees of risk.

And in my view, when you also factor in the possibility that crude oil prices could remain weak for a very long time, I’m afraid I for one won’t be tempted to plough my money in right now.

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