One I’m keen on right now is Henry Boot (LSE: BOOT), the UK-based land promotion, property investment, development, and construction company. It’s at least worth further attention because of that cracking name!

Joking aside, I reckon the firm’s prospects look interesting, so I want to dig a bit deeper. For the record, Henry Boot can be found in the FTSE Smallcap index, and with the share price near 230p, the market capitalisation is around £311m.

Positive announcements

The stock started climbing in April after a decline that started in the late spring of 2022. So I’m hopeful that this character change in the shares is being driven by something substantial in the business.

Sure enough, there was some good news from the firm in an announcement on 16 April, and it looks like it kick-started the new uptrend.

The company announced the sale of 494 residential plots in Cambridge to Barratt Developments (now Barratt Redrow). The sale completed in July, delivering Henry Boot an internal rate of return of 15% per year. So that was the conclusion of a decent investment for the business.

Chief executive Tim Roberts said at the time the sale demonstrates the “continued demand” the firm has been seeing for its premium sites. It was “particularly encouraging” given the challenging market backdrop and lower transaction volumes, Roberts said.

It looks like the stock market re-evaluated the prospects for Henry Boot’s business in a positive way. So that might be why the share price has been moving higher.

Roberts reckons the disposal shows the company’s experience in securing planning permission for complex sites and “navigating them through an increasingly onerous planning system“. So that skill enables the company to sell the plots to housebuilders.

The example is a great insight into how the business makes its living. But it’s been followed by several positive announcements since, and an upbeat interim results report delivered on 17 September.

An encouraging outlook statement

One risk with the shares arises from Henry Boot’s business being sensitive to general economic conditions. It’s also affected by sentiment surrounding the wider property sector. So it’s one of those stocks that requires careful consideration and timing by potential shareholders.

Nevertheless, September’s outlook statement from the company is optimistic in tone. A strengthening economy and the prospect of easing interest rates will likely help the business. So it may be a good time to focus on the stock.

Meanwhile, multi-year growth in the dividend has been robust, and the forward-looking yield for 2025 is about 3.6%.

I think that’s an attractive level of shareholder income. So if I had spare cash to invest right now, I’d dig in with further research with a view to considering a few shares for November and beyond. If the economy and the housing market continues to improve, Henry Boot may be well placed.

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A series of disposals and a rationalisation agenda over the past few decades have transformed the company into a land management, property development and construction company today – a smaller, leaner and more focused operation with the potential to keep on growing.

Good strategic progress

One of the things I like about Henry Boot is its record of dividends. The payment has gone up a bit every year since at least 2013. Another attractive feature is the modest level of debt on the balance sheet.

I’m less keen about the inherent cyclicality in the business. Revenue, earnings and cash flow demonstrated their volatility during 2018. And the share price sank by around 32% between its peak in January 2018 and August 2019. However, since then it’s bounced back up and now trades within a whisker of its previous high. Perhaps the easing of Brexit uncertainty had a bit to do with that.

In today’s update for the full 2019 trading year, the directors revealed to us that the company made “good”strategic progress in the period “against an uncertain political and economic background.” But I’m nervous about the short-term prospects for the company, and the directors’ comments didn’t reassure me. They said in the report: “As a long-term business, Henry Boot is well-positioned.”

Meanwhile, the overall performance of the business in 2019 was “marginally lower” than the board’s original expectations. That was driven by the disposal of “the majority” of the firm’s retail investments, which reduced rental income. I reckon that’s a good thing, and I’m pleased to see the firm still nipping and tucking its operations for optimal trading.

The sales have endowed the company with higher-than-expected net cash of around £30m, which compares to a net debt position of £18m a year earlier. That dry powder means the company is well-positioned to take advantage of “several” opportunities for reinvestment that the directors have identified for 2020.

Is the construction division a weakness? 

The construction arm of the business has negative potential, in my view. For perspective, during 2018 around 18% of overall operating profit came from construction activities, but the division accounted for about 25% of total revenue. We’ve seen several investing disasters over the years from listed construction companies, and the turnover in that area of operations could cause a headache if it starts generating losses.

But the directors said in the narrative that construction held up well in 2019 “especially given the much-publicised challenges facing the construction market.” There’s a strong order book in the division for 2020.

The overall outlook is positive, but I can’t help thinking that the share price could swing lower before it goes meaningfully higher, and I’d be more inclined to buy such dips than I am to pick up the shares now. With the share price at 327p, the forward-looking earnings multiple is just under 11 for 2020 and the anticipated dividend yield around 3.4%. I’d aim to buy when the valuation looks lower.

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However, there are some exceptions. Henry Boot (LSE: BOOT), which released its half-year results today, is one. Here, I’ll explain why I see value in buying this stock right now and holding it for the long term.

When the tide goes out

Warren Buffett famously wrote of the unfolding financial crisis and economic slump in 2008: “You only learn who has been swimming naked when the tide goes out.” For highly cyclical businesses, economic stress can produce a collapse in earnings and expose weak balance sheets. Some companies may even go bust.

Henry Boot owns a number of businesses in land promotion, property investment & development, and construction. As such, and with a UK focus, it’s sensitive to the performance of the domestic economy. However, the company ticks positive boxes for me in terms of management, balance sheet and resilience through economic cycles.

Multi-generational survival and success

Boot was established over 130 years ago, and descendents of the founder remain prominent in the boardroom and among senior management, as well as on the register of shareholders. It’s a company that’s been carefully stewarded for multi-generational survival and success, and its current market capitalisation is £320m.

Today’s results showed group revenue 3.7% down on the same period last year. Increased construction activity and strategic land sales were offset by lower property development activity, as a major £333m contract moved towards completion. Lower group revenue fed down to an 8% decline in pre-tax profit and a 9.6% fall in earnings per share.

Management described this as “a very resilient result,” given “the uncertainties affecting the UK economy.” It added that trading in the second half has started well and it remains confident of meeting full-year expectations.

I see this confidence reflected in the board’s decision to lift the interim dividend by 15.6%, albeit it cautioned “some uncertainty remains regarding the UK’s exit from the EU and how this may affect future trading conditions.”

Win-win situation

On the subject of the all-important balance sheet, I was disconcerted to read among the headline numbers that net debt at the period end was £50.3m, 93.5% higher than a year ago. However, the company has £43.5m investment properties classified as ‘held for sale’ on the balance sheet. It expects to conclude these sales in the second half, “resulting in the group having no debt approaching the end of the year.”

The shares are trading at 240p, up 2.6% on the day, but remain down from their 52-week high of over 300p. This, together with a trailing price-to-earnings ratio of just 9 and a 4% yield on a 2.8-times-covered dividend, suggests the market’s priced-in a fair bit of downside earnings risk.

I see a potential re-rating in the event of an orderly Brexit. In the event of an economic downturn on a no-deal outcome, Boot can use its soon-to-be-debt-free balance sheet to enhance its longer-term prospects, “should any competitively priced assets become available to us.” I see it as a win-win situation.

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Although there may be risks ahead for the business, it could offer long-term total return potential. Alongside another income stock that released results on Friday, it could be worth buying within an ISA at the present time.

High return prospects

The stock in question is property developer and investment specialist Henry Boot (LSE: BOOT). Its 2018 results showed a fall in revenue of 2.8%, while profit before tax moved 12.2% lower. An uncertain economic outlook contributed to challenging trading conditions for the company. It expects those conditions to continue in 2019, which could mean that its shares are volatile in the near term.

However, with its bottom line due to rise by 3% in the current year, it looks set to overcome the challenges it faces. Its price-to-book (P/B) ratio of 1.1 indicates that it offers a wide margin of safety and may deliver improving share price performance over the long run.

With Henry Boot having a dividend yield of 3.8%, it could offer income investing appeal. Dividend growth could be strong over the medium term, with the company’s dividend payout being covered three time by profit. As such, although it may offer subdued performance in the near term, from a long-term perspective it could have investment potential.

Improving prospects

As mentioned, the outlook for ITV continues to be uncertain. As a highly cyclical company, it is arguably more reliant on the wider economy’s performance than is the case for some of its FTSE 100 peers. With the political and economic outlook for the UK being highly fluid at the present time, demand for TV advertising has come under pressure. This situation could remain in play throughout the remainder of the Brexit process.

As such, the growth prospects for the stock appear to be limited over the short run. In the current year, for example, ITV is due to post flat earnings growth. While disappointing, investors appear to have priced in its limited earnings growth potential over the coming months. For example, it has a price-to-earnings (P/E) ratio of 8.5. This suggests that it offers a wide margin of safety.

In terms of its income prospects, the stock currently yields 6.3% from a dividend that is covered 1.9 times by profit. With a refreshed strategy due to come into play that will focus on a wider range of growth areas, the long-term prospects for the business could be relatively bright. As such, now may be the right time to buy it for the long term within an ISA.

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During 2017, around 48% of the firm’s operating profits came from property investment and development, which includes the firm’s housebuilding joint venture. Roughly 37% of operating profit derived from the company’s land promotion activities, which involves acquiring, promoting, developing and trading land. Henry Boot typically secures planning permissions on land, which adds value, and then sells it to builders and developers. The remaining 15% or so of operating profit came from construction activities.

Inherently cyclical operations

Henry Boot has several strings to its bow within the wider sector relating to real estate. I’d observe that all its activities carry a high degree of inherent cyclicality. But last year’s full-year results were blisteringly good. Indeed, I reported a year ago that earnings were “comfortably ahead of the board’s previous revised expectations.” I liked what I was seeing with Henry Boot and said: “The firm’s attractions are many, not least of which is the modest-looking valuation and a dividend that has risen almost 69% over the past five years.”

But at the end of January 2018, the share price began to slide and declined steadily all year. At the current 254p, it is down around 26%. Today’s full-year trading update reveals that the firm traded “in line with the Board’s expectations” in 2018, which is a less upbeat assessment than last year’s. However, a one-off pension provision pulled the results down a little, without which the firm would have “slightly exceeded expectations.”

A note of caution

However, the directors sounded a note of caution in the update. Trading conditions became “more challenging” during the year and they think that happened because the government’s negotiations with the European Union (EU) about the UK leaving the EU “served to increase the level of uncertainty within the UK real estate market.” The slowdown affected Henry Boot’s biggest profit-generating activity, the Property Investment and Development division. Prospective developments were delayed “by a combination of client uncertainty or planning delays.” Meanwhile, the draft full-year valuation of the investment property portfolio came in “broadly neutral.” Increases in the value of the logistics and industrial assets were offset by deficits in retail investments.

Trading well but I’m cautious

Despite the weakness from the Property Investment and Development division, the other divisions performed well and chief executive John Sutcliffe said in the update that, overall, he expects a good start to 2019, despite being “mindful of some uncertainty in the UK real estate market.”

However, I’m taking the warning shots from the property market seriously because I think the decline could gain traction during 2019. If that happens, Henry Boot’s real-estate-facing operations will suffer, which means the share-price decline could continue. I’m less optimistic about the immediate outlook for the firm than I was a year ago so would rather mitigate some of the cyclical and single-company risks by investing in an index tracker fund instead. Perhaps one that follows the fortunes of the FTSE 100 index or the FTSE 250 index.

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First, I have to acknowledge there are positive things about Barratt. It issued a strong trading update last month. Its current share price of 540p is cheap compared with 700p less than a year ago. And its low earnings rating and high dividend yield appear to indicate tremendous value for investors today, if the shares were to return to that 700p level.

Why so cheap?

Barratt has a 30 June financial year-end and is due to release its annual results on 5 September. Analysts are expecting earnings per share (EPS) of 66.1p and dividends (including a special) of 43.7p. The price-to-earnings (P/E) ratio is 8.2 and the dividend yield is 8.1%. This valuation is either too cheap to ignore or too good to be true.

An argument for too cheap to ignore is that the shares are temporarily depressed due to Brexit worries and that the cheap valuation offers a wide margin of safety should Brexit go less than smoothly. However, I’m more inclined to think that the market is beginning to price-in the next crash in the time-honoured boom-and-bust housing cycle.

When Barratt’s shares reached 700p last year, the price-to-tangible net asset value (P/TNAV) was 2.1, which is the sort of valuation we find at the top of the cycle. At the bottom, we tend to find the stock at a discount (P/TNAV below 1). Despite the decline in the shares, Barratt’s current P/TNAV of 1.5 suggests they could have a lot further to fall, when the next bust comes over the horizon.

Rising interest rates and Barratt’s elevated P/TNAV lead me to view its current cheap P/E and high dividend yield less as too cheap to ignore and more as too good to be true. As such, after a decade of terrific returns, I’d be inclined to sell the shares and bank profits at this stage.

A stock to hold?

If I were looking to hedge my bets and retain some exposure to the housebuilding sector, Henry Boot (LSE: BOOT), which released its half-year results today, is a stock I’d be happy to hold.

The group has a strategic land arm and a housebuilding joint venture, but also has several other businesses: commercial property development, construction (public and private sector), plant hire, and a long-term contract with the Highways Agency to operate and maintain the A69 trunk road between Carlisle and Newcastle.

The shares are trading 3.5% higher at 280p on the back of today’s results but are still well below their 52-week high of near to 350p. The company reported a 20% rise in EPS for the six months ended 30 June and the board lifted the interim dividend by 14%. The trailing 12-months EPS and dividend are 34.7p and 8.4p, respectively. The P/E is 8.1 and the dividend (covered over four times by earnings) gives a yield of 3%.

Boot has reduced its borrowings significantly over the last year. It now has, as management said today, “a prudent level of gearing which, in our view, is vital at this stage of the economic cycle.”

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And I don’t believe this growth is set to come to an end any time soon. City analysts are expecting earnings growth of around 5% for 2018, and a similar rate for 2019 as Numis continues to win clients.

Indeed, Numis recently toppled JPMorgan Cazenove from its long-held position as the most popular stockbroker in the City, adding 70 corporate clients to its books since 2010 as JPMorgan’s roster fell by a quarter.

Beating the market 

In a trading update today, Numis said it has “delivered a strong first half” and is expecting “to report revenue and profits significantly ahead of the comparable period.” Capital Markets and M&A activities have been strong thanks, in part to “higher average deal fees” while Corporate Broking & Advisory has “delivered revenue materially higher than the first half of the prior year.“

It looks to me as if Numis is firing on all cylinders and is well on the way to meeting City growth forecasts for the year. That said, it did warn today that first-half performance is “below the record performance achieved in the second half” of 2017, although the introduction of the MiFID II regulation earlier this year is responsible for some of the disruption. Numis is not alone here as MiFID II has caused confusion across the financial services industry. 

Still, it looks to me as if it is on track to report another strong year. But despite the firm’s outlook, and record of growth, shares in the company still look cheap. 

Undervalued growth 

Last time I covered it, I calculated that the stock was trading at a cash-adjusted forward P/E of 10.2 and it does not look as if much as changed. 

With the City expecting the firm to earn 27p per share for 2018 and a net cash balance of £96m at the end of September 2017, I calculate that the shares are currently trading at a cash-adjusted forward P/E of 10.1, a valuation that looks too good to pass up. 

Keeping it in the family 

Another growth stock I believe that you should include in your ISA is property company Henry Boot (LSE: BOOT). 

Property construction is a cyclical business, and generally, these companies do not make for good long-term investments.

However, Henry Boot has been in business for 132 years and is still family managed. The secret to the firm’s longevity seems to be its conservative business model. As my Foolish colleague, Roland Head pointed out last week, the company’s net debt declined from £32.9m to £29m last year, giving a gearing level of just 11%, indicating to me that this business has a robust balance sheet designed to weather market downturns. 

Henry Boot also reported last week that group sales for fiscal 2017 rose 33%, while pre-tax profit climbed 40% to £55.4m. Chairman Jamie Boot said the firm has a “strong pipeline” for 2018 with positive customer sentiment continuing to support sales growth. Since 2013, profits have risen 280%. 

Nevertheless, despite the bright outlook and conservative balance sheet, shares in the company trade at a relatively depressed 10.7 times forward earnings. In my opinion, the shares deserve at least a market average multiple of 13.7.

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This may sound dull, but consistent, steady growth can generate surprisingly large profits for patient investors. And it’s much easier to make money this way than trying to time your investments in volatile, high-risk stocks.

Today I’m looking at two firms that have been very consistent in recent years.

A strong pipeline

Property and construction firm Henry Boot (LSE: BOOT) has been in business for 132 years, and is still chaired by a member of the Boot family.

The group’s sales rose by 33% to £408.5m, while pre-tax profit climbed 40% to £55.4m, according to full-year accounts published today. 2017 earnings of 32.1p per share mean that profits have now risen by 280% since 2013.

The group’s management upgraded 2017 profit guidance in October and again in January, as several projects were completed more quickly than expected. This strong momentum is expected to continue in 2018.

Chairman Jamie Boot said today that although the firm “is mindful of the cyclical nature of our marketplace,” current expectations are that economic conditions “will be similar to 2017 for the next two years.”

Mr Boot said that the firm has a “strong pipeline” for 2018 and that customer sentiment remains “positive”.

A dividend-growth buy?

The group’s long history suggests to me that its management has a prudent approach to managing market cycles and controlling risk. Today’s results seem to confirm this view. Net debt fell from £32.9m to £29m last year, giving a gearing level of just 11%.

The shares trade today on a 2018 forecast P/E of 11, with a prospective yield of 2.8%. That seems reasonably attractive to me, although it’s worth noting that at 300p, the stock trades at a 50% premium to its book value of 203p per share. As a result, I’d rate this as a dividend-growth buy, but not a value investment.

Up 25% in one year

One company I rate highly as a potential alternative to Henry Boot is construction and infrastructure services group Morgan Sindall Group (LSE: MGNS).

Like Boot, this £558m firm has repeatedly outperformed market expectations over the last year. Broker consensus forecasts for Morgan’s 2018 earnings have risen by 30% to 131p over the last year.

The group’s shares have doubled over the last five years, but strong profit growth means they still look reasonably affordable, on 9.5 times forecast earnings and with a prospective yield of 3.9%.

A class act

One reason for this cheap rating is that the market is wary of the risk that the construction cycle could slow. A reduction in activity levels could cause profits to fall rapidly. But like Boot, Morgan Sindall has a strong balance sheet and a confident outlook.

The group’s order book rose by 6% to £3.8bn last year, with particular growth in partnership housing and property services. Both of these divisions operate mainly in the social housing and the rented sector, where demand for property is strong at the moment.

I believe Morgan’s diverse mix of business and its strong focus on cash generation make it one of the very best operators in this sector. The shares have fallen by around 15% since November. I think this could be a good buying opportunity.

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Strong trading activity

The firm’s attractions are many, not least of which is the modest-looking valuation and a dividend that has risen almost 69% over the past five years. Today’s share price around 338p throws up a forward price-to-earnings (P/E) ratio close to 13 for 2019 and the forward dividend yield runs at almost 2.6% with the payment covered nearly three times by anticipated earnings. The valuation enjoys decent support from underlying assets with the price-to-tangible-asset value sitting near 1.9. I think that’s an encouraging showing on value metrics.

After the recent Carillion debacle, it’s tempting to view any firm trading in a similar area with suspicion and Henry Boot overlaps a little with Carillion’s previous construction activities. However, the difference in tone between the companies’ updates is enormous. During the last two months of 2017 Henry Boot saw strong trading activity in line with the trends witnessed earlier in the year. Deal completions were strong during 2017 and the pipeline of opportunities for 2018 and beyond is “buoyant”. The only slight negative is that the year-end valuation of the firm’s property portfolio came in below the directors’ expectations, despite gains on industrial properties. The directors put that down to a reduction in the values of mixed-use secondary retail properties.

Rapid project delivery

Nevertheless, chief executive John Sutcliffe pointed out that Henry Boot benefitted from strong demand for its residential schemes in 2017 and delivered several projects “more rapidly than anticipated,” which sounds like the opposite kind of operational performance to what Carillion delivered in its death throes. Mr Sutcliffe said of 2018 that he expects “a trading performance for the current year slightly ahead of management expectations.”

Institutional asset manager City of London Investment Group (LSE: CLIG) also updated the market today for the first half of its trading year to 31 December. The figures are good with funds under management up more than 8% at £3.9bn since the firm’s June year-end.

The main attraction of CLIG for me is the gargantuan dividend. Today’s 440p share price means the forward yield runs in excess of 6.5% for the year to June 2019, and we can pick up some of the firm’s shares on a forward P/E ratio of a little under 11. Given the company’s good trading, I think this valuation is undemanding. The directors reckon good operational performance in the first half of the trading year is down to “a combination of strong net asset value performance, discount narrowing and opportunistic participation in event-driven US situations.”

Interestingly, unlike Ashmore Group that reported to the market yesterday, CLIG underperformed with its emerging market strategy “due to widening discounts and an underweight to the Chinese IT sector which posted very strong returns.”  It’s hard for most investors to get every decision right. Yet the directors remain confident and pushed up the interim dividend by 12.5%.

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The Sheffield-based land development, property investment, and construction firm had already lifted its targets back in May, but now tells us it anticipates 2017 performance to be “materially ahead of the board’s existing expectations.“

In these times when we seem to be getting profit warnings almost every day, this is a welcome change.

Saying that “2017 has proved to be an outstanding year where almost every deal we hoped to complete has done so,” the company told us that trading has been strong across its range of businesses, and that accelerated completions and deliveries in the second half lie behind the day’s good news.

Some projects previously scheduled for next year will be brought forward now and some may be completed before year-end, so the firm is cautiously leaving its 2018 expectations unchanged. But with presumably free capacity next year on the cards, I’d be hoping more work can be found to fill any gap.

Terrific record

Henry Boot shares are now up 150% over the past five years, to 330p, and it’s not hard to see why. Since 2012, earnings per share (EPS) have more than trebled from 7p to 21.5p last year. And over the same period the dividend has been lifted by 49% to 2016’s 7p — and that was three times covered by earnings.

The yield has remained fairly flat due to the rising share price, but effective yields based on buying price have accelerated nicely.

We’re looking at a forward P/E multiple of around 11 now, and that looks cheap to me.

Information is key

Idox (LSE: IDOX) is another small-cap growth stock I like the look of. The information management company has seen its shares climb 63% over five years, and they’ve five-bagged over the last decade.

That, unsurprisingly, is on the back of steadily rising EPS. Although there were modest dips in 2013 and 2014, and since 2012 we’ve seen growth of only around 7%, forecasts for this year and next indicate a further rise of 23% by the end of 2018, and that would put the shares on a P/E of 12 — which looks low to me for a stock with growth potential.

The dividend might not look great with yields of only around 2%, but it was hiked by 47% between 2012 and 2016, and analysts predict a further 28% uplift by 2018.

Future cash

That’s strongly progressive and it makes Idox look like my favourite kind of long-term dividend candidate. The annual payment is around four times covered by earnings, which suggests that once the company matures from its early growth phase (and presumably pulls back on acquisitions), it has the potential to turn into a very nice cash cow with attractive dividend yields.

The company offers its services to the public sector and also to highly regulated businesses in the corporate sector, and the latter can be a hard nut to crack as it really does require expertise for strict adherence to the rules — I see that as a defensive aspect.

Over the past year, the share price has been flat, leading to what I see as an under-rated stock on P/E measures. Debt was fairly modest at £28.2m at the interim stage, and I see Idox as a long-term buy.

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