What drives Carr’s?

After divesting its engineering division for £75m, Carr’s is now a pure-play manufacturer of livestock nutrition products, mostly feedblocks, with roughly half its revenues coming from the UK and the other half from the US.

This transformation has made Carr’s much more dependent on the agricultural market cycle, leading to greater seasonality in its results as seen in H1 FY25. With production sites in Silloth, Ayr, and Bury St Edmunds, Carr’s exports its specialist nutrition products globally, but the UK and US remain its key revenue drivers. 

Momentum after transition

Recent interim results demonstrate the underlying momentum in the business. In H1 (six months to February) group revenue rose 7% to £50.6m, driven mainly by a strong 15% year-on-year increase in UK agriculture sales.

Adjusted operating profit expanded even more, up 64% to £5.9m, as margins recovered from challenges seen during and after Covid.

Yet, investors considering Carr’s must look beyond the robust first half. Management’s flagged that the second half of the year will likely be softer, particularly in the US, where herd sizes and demand for feedblocks remain below historic norms.

Seasonality is pronounced, and with the company’s new agricultural focus, volatility‘s inevitable. Management’s cautious guidance suggests that the full-year will not simply double the strong interim figures.

Running the maths

I’m not going to try and guess where adjusted earnings will end up this year. However, statutory forecasts published online suggest the company’s trading at 44 times forward earnings. Remember this is a statutory basis and the discrepancy with adjusted figures. However, this falls to 13 times for 2026 and nine times for 2027 as earnings improve.

This would put Carr’s on an earnings multiple that appears modest when set against its balance sheet strength and returning capital. Moreover, the pending tender offer could return up to £70m to shareholders, a dramatic gesture for a company of its market size. The dividend story’s also promising, with the yield projected to climb from its current modest level toward 4% by 2027.

Are tariffs a catalyst?

One of the most significant catalysts for Carr’s in the medium term is the impact of US trade policy. On one hand, higher tariffs and a weakening dollar don’t bode well for Carr’s’ exports to the US. However, the market may prove to be fairly price inelastic.

However, US tariff increases on imported beef are designed to protect and stimulate domestic livestock businesses. Over time, this could benefit Carr’s materially as a larger US herd would, in theory, lead to greater demand for feedblocks and the like.

For me, this is definitely a stock to watch. It’s becoming a more agile business and I’m excited to see how it performs once that transition dust settles. It certainly deserves attention.

The post Here’s a high-potential stock to consider buying in July! appeared first on The Motley Fool UK.

Vodafone

Will people use their phones and devices less in a recession?

Overall, I do not think so. Some may, while others might shop around for a better deal on their call and data plans. But in general I expect demand to stay robust in the telecoms sector even if the economy is performing weakly.

One company that could keep doing well on that basis is mobile giant Vodafone (LSE: VOD). The company operates across a wide range of countries and has a well-known brand. It is a highly cash generative business and last year Vodafone paid out €2.4bn in dividends. At the moment, the dividend yield is 6.4%. If I bought these shares, that income could come in handy to me in a recession.

There are risks to Vodafone, though. Net debt of nearly €42bn on the balance sheet could mean the dividend is reduced at some point if money is needed for interest payments instead. But strong demand and a large customer base make Vodafone one of the recession shares I would consider for my portfolio.

Carr’s

The agricultural supplier Carr’s (LSE: CARR) has a dividend yield of 5%.

I think its business model is fairly resilient. Selling feed, equipment and fuels to customers such as farmers is a business that will tend to see robust demand in good seasons and bad. One risk is inflation hurting profitability. If Carr’s cannot pass on the increase in costs on items such as fuel to customers, that threatens to hurt earnings.

But I see Carr’s as a durable business. It has weathered a dozen recessions in almost two centuries of trading. I would consider adding the company to my portfolio ahead of the next one.

British American Tobacco

Whatever else they may stop buying when money is tight, many smokers will not sacrifice cigarettes. That is one of the defensive qualities of shares such as British American Tobacco (LSE: BATS).

The long-term demand trend for cigarettes is still downwards. That is good for people’s health but could be bad for profits at the company. Then again, its pricing power should allow British American to charge customers more, which could help support profits. The firm is also aggressively moving into non-cigarette products.

The dividend yield is 6.4%. The shares have grown 23% in value over the past year. But they are still a third lower than the level they hit in 2018. If the business continues to perform well, I think its defensive qualities could attract more investors. So there may be potential for further share price growth.

I hold British American in my portfolio and would consider increasing my holding.

The post 3 recession shares I’d buy in August appeared first on The Motley Fool UK.

Tom Rodgers: Carr’s Group

When I’m picking shares, I try to find undervalued or unappreciated companies that don’t win a lot of headlines. That’s why Carr’s Group (LSE:CARR) has pinged my radar.

Shares in the £146m agricultural and engineering business are up only 20% in the last 12 months, but the firm said in a July trading update that “order books have grown significantly” in the financial year, with higher dividends, strong cash flows and new wins in nuclear and defence. Today’s price-to-earnings (P/E) ratio of 13 looks materially undervalued to me, given the profits and net cash on offer. 

Tom Rodgers has no current position in Carr’s Group

Rupert Hargreaves: Marston’s

As the UK economy reopens, hospitality businesses such as Marston’s (LSE: MARS) are recording brisk trading.

However, the market still seems to be wary of investing in these businesses. I think this offers an attractive opportunity. Marston’s latest trading update reported that sales were 90% of 2019 levels between 12 April and 24 July. Despite this recovery, the stock is dealing 25% below its year-end 2019 price.

Of course, while sales have recovered, the firm is not out of the woods yet. Another coronavirus lockdown could send the business back to square one. Higher costs may also weigh on Marston’s growth.

Despite these risks, I’d buy this top stock in September for its recovery potential.

Rupert Hargreaves does not own shares in Marston’s.

Roland Head: Marks & Spencer

I’m feeling increasingly excited about the prospects for retailer Marks & Spencer Group (LSE: MKS). CEO Steve Rowe is prioritising food and online sales, while slimming down the store estate.

M&S’s latest numbers suggest these changes may be working. Online sales of clothing and home products rose by 53.9% last year, partly offsetting the effect of store closures. Food sales were up 6.9%, on an underlying like-for-like basis.

My main worry is that debt remains a little higher than I’d like. But borrowings are falling. With M&S stock trading on just 10 times forecast earnings, I can see value.

Roland Head has no position in any of the shares mentioned.

Zaven Boyrazian: Savills

With lockdown and travel restrictions starting to ease, Savills (LSE:SVS) is seeing a surge in buying activity from its customers. The high-end real-estate business caters to the world’s wealthiest individuals.

Over the last six months, the average selling price of Savills luxury properties was £1.9m. Thanks to increased demand, that figure is up from £1.2m compared to a year ago. With pandemic-related buying delays ending, the firm’s revenue could be about to surge for the rest of 2021 and beyond.

There’s always the threat of returning restrictions that could impede sales. However, I think the risk is worth the potential reward for this top stock in September and beyond.  

Zaven Boyrazian does not own shares in Savills.

Christopher Ruane: Games Workshop

What strikes me most about the growth story at Games Workshop (LSE: GAW) is how resilient it seems to be. By focussing on a well-defined niche, the retailer has built a competitive moat with strong pricing power. That is boosted by the company’s proprietary intellectual property. Once gamers start playing a particular game like Warhammer, they may continue for many years. Growing royalty income shows the positive business impact of this model.

A risk is that any failure to keep up with gaming fads could dent revenues.

Christopher Ruane owns no shares in Games Workshop.

G A Chester: Rolls-Royce 

The market responded positively to the recent half-year results from Rolls-Royce (LSE: RR). The company reported good progress on its cost-savings and disposals programmes. And it reiterated its expectation of turning free cash flow (FCF) positive (excluding disposals) “sometime during the second half of this year.” 

A slower recovery in flying hours than currently anticipated would hold back progress in the civil aviation division and likely the share price. However, with management also “positive on the near-term opportunities” in its defence, power systems and other businesses, I’m expecting good news on the FCF target and I see the shares continuing to advance. 

G A Chester has no position in Rolls-Royce.

Edward Sheldon: Legal & General Group

My top British stock for September is Legal & General Group (LSE: LGEN). It’s a leading FTSE 100 financial services firm that offers investment management, insurance, and retirement solutions.

LGEN posted a solid set of H1 results last month. For the six months to 30 June, operating profit was up 14% while earnings per share were up 21%. On the back of this performance, the company announced an interim dividend increase of 5%.

In my view, LGEN shares are very cheap. At the time of writing, the stock sports a P/E ratio of about 8.5 and a yield of around 6.75%. I see those metrics as attractive.

Edward Sheldon owns shares in Legal & General Group

Paul Summers: Moneysupermarket.com

The combination of rising inflation and the relaxation of travel restrictions makes me even more bullish on the outlook for comparison website Moneysupermarket.com (LSE: MONY). The former should drive people to search for savings on regular bills. The latter should allow for a strong rebound in travel insurance.

Changing hands for 19 times earnings, MONY is a quality business that still trades at a reasonable price. As a holder of the stock already, I’m happy to collect the dividends while I wait for a recovery. The shares currently yield a chunky 4.6%.   

Paul Summers owns shares in Moneysupermarket.com

Nadia Yaqub: BP 

As an income hungry investor, I was impressed by the recent half-year results from BP (LSE: BP). The rise in the oil price has clearly helped. It increased its second quarter dividend and is carrying out share buybacks. The stock comes with a 6.5% dividend yield.

Even BP’s financial position is improving. Asset disposals have reduced its net debt position. Of course, this is only a temporary measure so that it can get back on the right track. Now that economies are recovering from the pandemic, the demand for oil should rise, which should be positive for the stock.

Nadia Yaqub does not own shares in BP

Andy Ross: Flutter Entertainment  

In August, gambling company Flutter Entertainment (LSE: FLTR) reported first-half earnings that were up by 75%. It benefited from its Stars acquisition in the US and the recommencement of sporting events.  

I think given its early lead into the US gambling market, which has only really opened up as an opportunity since 2018, the company should do well for years to come.  

It’s investing a lot in the US and as a result now has a 45% share of the US online sportsbook market. It’s also expanding via acquisition. It bought Stars in May 2020 to expand its US footprint.  

The stock price has fallen in recent months, so there’s plenty of opportunity for a recovery through September. Flutter could also be a bid target for a large US group.  

Andy Ross owns shares in Flutter Entertainment.

Jonathan Smith: SSE

SSE (LSE:SSE) is a well-known energy provider. I think it’s appealing due to the push towards renewable energy output. For example, it’s aiming to treble renewable output and cut carbon intensity by 60%, all by 2030. This should see demand for shares from ESG investors.

I like the stock also from the dividend appeal. The dividend yield currently sits at 4.99%, easily above the FTSE 100 average. Finally, the utility sector is a good defensive area. This is due to inelastic demand for the services provided. The relative stability of the SSE share price could therefore offer me some protection in case we see another stock market crash.

Jonathan Smith does not own shares in SSE.

Manika Premsingh: Persimmon

FTSE 100 house-builder Persimmon (LSE: PSN) may look like an unlikely pick considering the recent cooling off in the property market. But I think there are plenty of positives to it.

One, its recent trading updates are positive. Two, its peer Taylor Wimpey’s recent results and outlook also suggest that the housing market is still buoyant. Three, interest rates are still moderate, which can encourage house buyers. Four, economic growth is expected to pick up, which can also boost demand for houses.

Five, despite significant recovery in share price since the market crash of early 2020, its price-to-earnings (P/E) ratio is still a tad below 15 times. This makes it a relatively affordable FTSE 100 stock.

Manika Premsingh has no position in Persimmon

Chris MacDonald: BP

BP (LSE: BP) remains a key beneficiary of rising commodity prices. Despite risks to commodity price increases, including a slowing of demand expectations due to the Delta variant and the potential for more supply to enter the markets, Brent Crude still trades above $70 at the time of writing.

These elevated crude oil prices should continue to drive expectations of earnings growth for BP. Year on year growth should remain strong, given last year’s depressed base. Additionally, as travel demand resumes, and economic data continues to roll in, I think the upside with BP outweighs its risk right now. Accordingly, this is a top stock I’m considering for my portfolio in September.

Chris MacDonald does not own shares in BP.

The post Top British stocks for September appeared first on The Motley Fool UK.

Still, even though cheap stocks aren’t guaranteed to outperform, I believe owning them introduces some diversification to my portfolio. As such, here are three cheap UK shares I’d buy today. 

Cheap UK shares I like

The first stock on my list is the utility group Centrica (LSE: CNA). This company has suffered some significant setbacks in recent years, but has overcome these challenges. 

Over the next few years, I think the company can stage a recovery. After reorganising the operation and selling off non-core divisions, it’s now better placed to make a comeback. 

City analysts forecast a net profit of £191m this year, followed by £356m in 2022. Based on these numbers, the stock’s trading on a forward price-to-earnings (P/E) multiple of 8. Based on this valuation, I’d buy the company for my portfolio of UK shares.

But while the stock may look cheap, I think it’s important to keep an eye on competition. Previously, Centrica has struggled to grow as cheaper competitors have stolen market share. This is the most significant risk facing the company today.

Defensive market

Alongside Centrica, I’d also acquire agriculture and engineering group Carr’s (LSE: CARR) for my basket of cheap UK shares. I think the agriculture side of this business is the most exciting.

This division develops and sells a range of branded animal nutrition products. This market is relatively defensive, and demand will only increase as the country’s population and the number of animals required to feed it grows.

The group’s figures for 2020 show the defensive nature of the business. Earnings per share declined by just 3% last year, despite the pandemic. 

Right now, the stock is trading at a 2022 P/E ratio of 12.3. It also supports a 3.1% dividend yield. I think these figures look attractive as Carr’s benefits from the UK economic recovery. Considering its growth potential, I think it deserves a higher multiple. 

One challenge the company could face is rising costs. Higher input costs in its feed and engineering businesses could reduce profit margins if they can’t be passed on to customers. 

Builders market

The final company I’d acquire for my portfolio of cheap UK shares is bathroom and construction components supplier Norcros (LSE: NXR). With the UK is currently experiencing a building boom, Norcros is reaping the benefits.

According to the City analysts’ projections, which are based on the company’s own forecasts, earnings per share are expected to increase 44% in its current financial year. If the firm hits this target, the stock is currently selling at a forward P/E of 9. 

Of course, these are just projections. There’s no guarantee the company will hit this target. Nevertheless, I think they highlight its potential. The stock also offers a dividend yield of 2.9%, at the time of writing. 

Like Carr’s, Norcros also faces the challenge of trying to navigate rising costs. These could hold back growth if the company can’t pass them on to consumers, or if rising prices put consumers off buying. 

The post 3 cheap UK shares to buy appeared first on The Motley Fool UK.

All are strong businesses, with attractive long-term growth prospects, in my view. Their shares remain temptingly cheap. They’re at discounts of between 16% and 29% to their pre-pandemic 2020 highs. Let me tell you more about them, and see if you agree with my positive assessment.

Bargain UK small-cap stocks #1

Alliance Pharma (LSE: APH) owns the marketing rights to around 80 consumer healthcare brands and prescription medicines. The group had been producing strong sales and profit growth before the pandemic. However, the shares are currently 16% below their pre-pandemic high.

Alliance’s prescription medicine sales will be adversely impacted this year by delays in routine treatments, due to Covid-19. Also, some of its consumer healthcare brands have been hurt by lockdowns. For example, its eye-health supplement MacuShield hasn’t been done any favours by temporary closures of bricks-and-mortar retail outlets and opticians.

However, analysts expect strong growth at the group to resume next year. With products like Kelo-cote — the fastest-growing top five global scar treatment brand — in its portfolio, I reckon Alliance is cheap. It’s valued at 13.7 times forecast earnings, while a prospective 2.2% dividend yield is also decent for a growth company. Its balance sheet is in good shape too, with only a modest level of debt.

Bargain UK small-cap stocks #2

Carr’s Group (LSE: CARR) has an agriculture division supplying animal feeds, supplements and farm machinery. It also runs a UK network of rural stores, providing a one-stop shop for the farming community. Its other division is engineering. This serves a diverse range of industries, including defence, nuclear, oil and gas, and renewable energy.

Last week, the group issued results for its financial year ended 29 August. It reported a number of adverse impacts from Covid-19, such as engineering project delays and restricted access to customer sites. Group revenue was down 2% and underlying earnings fell 18.5%.

Meanwhile, its shares are currently 22% below their pre-pandemic high. This values Carr’s at just 10.5 times its pandemic-depressed earnings. There’s also a 3.8% running yield on its maintained divided. The group has modest debt, and significant growth opportunities within both its divisions. As such, I reckon this is another bargain UK small-cap stock.

Last but not least

Technology company Tracsis (LSE: TRCS) also issued its annual results last week. It reported a 2.5% fall in revenue for its financial year ended 31 July, with underlying earnings down 13.9%.

Its rail technology and services division was generally unaffected by the pandemic. Indeed, it increased revenue by 17%, helped by prior-year acquisitions. However, its traffic and data services division saw an 18% fall in revenue. This was due to some large events and transport data collection projects being either cancelled or postponed.

Tracsis’ shares are trading 29% below their pre-pandemic high. They’re valued at 24.2 times the earnings just reported. However, with almost £18m cash on the balance sheet and no debt, the cash-adjusted earnings multiple falls to 21.7. I think this is cheap for a small-cap technology stock on temporarily depressed earnings. Management remains confident in the medium-to-long-term growth prospects for all parts of the group.

The post Why I think these 3 UK small-cap stocks are bargain buys for 2021 appeared first on The Motley Fool UK.

They’re a diverse bunch, being an agriculture and engineering group, a media firm, and a pubs and hotels company. But I see all three as high-calibre enterprises, currently offering great value for long-term investors.

A resilient small-cap stock

Down 11% year-to-date, Carr’s Group (LSE: CARR) shares haven’t been as badly hit as many small-cap stocks. This is no surprise after a trading update last month. It said: “The group continues to trade through the Covid-19 pandemic with no material financial impact seen to date.”

Its agriculture division is performing ahead of expectations. Its engineering division has seen some temporary interruption to nuclear and defence projects, as well as an indirect impact from the weak oil price. Nevertheless, “overall trading remains in-line.”

In other good news, it said: “Cash levels [are] ahead of the board’s expectations.” Furthermore, it announced it will be paying its first interim dividend (deferred earlier this year) and a second interim payout.

At a share price of 137p, the running yield is 3.5%. The price-to-earnings (P/E) ratio for its current financial year is 12, falling to 10.8 next year. This is cheap for a resilient small-cap stock, in my opinion.

Good value for long-term growth and income

Publisher Bloomsbury (LSE: BMY), whose shares are down 29% year-to-date, issued a trading update last month. For the four months to 30 June, it said it had “experienced strong trading … with year-on-year sales growth of 18% during a period of unprecedented disruption caused by the coronavirus pandemic.”

At the height of lockdown, the company did an equity fundraising. It also decided to pay its final dividend as a bonus share issue. This will dilute earnings per share.

On the other hand, Bloomsbury has substantial cash. It has a successful track record of acquisitions and is considering opportunities. I reckon it could pick up good assets at cheap prices in the current environment.

At a share price of 207p, its forward P/E is 18.2 and its prospective dividend yield is 3.8%. I think we’re looking at a good-value stock for long-term growth and income.

Small-cap stock on the rocks

Shares of pubs and hotels group Fuller, Smith & Turner (LSE: FSTA) have been hardest hit of the three companies. They’re down 38% year-to-date. Of course, this has been one of the industries most severely impacted by Covid-19.

In its annual results last month, the company said it wouldn’t pay a final dividend. It’s a measure of the severity of the impact of the pandemic – but also the quality of Fuller’s underlying business – that this is the first time it has reduced its annual dividend in over 70 years.

More than 75% of its managed pubs and hotels, and almost all its tenanted inns, have now reopened. Nevertheless, we can write off the current year.

Looking ahead to next year, though, I reckon the shares are cheap at 600p. The P/E is 14.2 and the prospective dividend yield is 2.8%. This is another quality business to buy for the long term, in my book.

The post 3 UK small-cap stocks I’d buy today for the long term appeared first on The Motley Fool UK.

Trifast generates the lion’s share of its profits from Europe and Asia, and it has a wide global footprint to effectively service the needs of its customers. Indeed, it makes a point of working closely with each of its clients to build bespoke fastening solutions and has set up hubs close to original equipment solutions (OEMs) for this very purpose.

Today, Trifast packs an undemanding forward price-to-earnings (P/E) ratio of 14 times. It also packs a chunky 3.9% corresponding dividend yield too. Profits are likely to come under pressure as the global economy enters a period of slowdown. Still, this is a small-cap that’s too good to miss at current prices. I’d happily buy it for my own ISA right now.

The 5.5%-yielding small-cap

Devro is another small-cap that’s exceptionally cheap, given its bright long-term growth picture. I’m particularly encouraged by the tremendous sales potential in its Asia Pacific territory, a region in which it’s invested heavily in its sales and manufacturing processes over the past decade.

The sausage casings maker stands to gain from exploding meat consumption on the continent in the coming decades. A report from consultancy Asia Research & Engagement suggests that, thanks to “growing wealth and urbanisation rates,” meat and seafood consumption in Asia Pacific will balloon by 33% by 2030, and by a stunning 78% by the middle of the century.

Today, Devro trades on a forward P/E ratio of 11 times. It carries a mighty dividend yield of around 5.5% too. I reckon it’s worthy of serious attention from value chasers.

Farming star

Rising population levels along with those increasing personal incomes bode well for Devro. And the same can be said for Carr’s Group, a manufacturer of animal feed in Europe and the US. It provides other agricultural services to help farmers put food to plates.

Carr’s Group has been investing heavily in its engineering division in recent years too. It offers product for a variety of industries, but it’s the field of nuclear decommissioning and defence in which it offers plenty of profits opportunity over the next decade and beyond. One of the biggest steps it’s made in this area is the acquisition of NW Total Engineered Solutions last year for just under £10m.

The small-cap trades on a forward earnings multiple of just 10 times right now. A 4.3% dividend yield also offers lots for income investors to get excited about. I reckon this is another brilliant small-cap to snap up today.

The post These 3 dividend-paying small-caps are on sale! I’d buy them for my ISA today appeared first on The Motley Fool UK.

The immediate trigger seems to be Donald Trump’s travel ban on people entering the US from the 26 European countries of the Schengen area. And there’s the bigger fear that the coronavirus pandemic could turn out a lot worse than anticipated. But as one commentator noted, our health is more important than the stock market. And markets always bounce back anyway.

With that latter thought in mind, I think we’ll have a few months of great buying opportunities ahead of us. But we still need to select our stocks carefully. Here are two crashing shares I won’t touch.

Profit warning

Carr’s Group (LSE: CARR) shares lost 35% of their value Thursday morning, after having resisted the coronavirus-led FTSE 100 sell-off. Until Wednesday, Carr shares were only 4% down over a three-week spell that saw the Footsie lose 25%.

The fall is due to a profit warning from the agriculture and engineering group, ahead of first-half results. The firm’s agriculture division has faced “challenging” markets in the UK and the US, while its engineering division has been hit by delays in expected orders from Japan and China. Whether the latter is related to the coronavirus threat, the company did not say.

But the statement did say: “As a result of the continuing challenging agricultural environment, both in the UK and overseas, together with a delay to engineering contracts in Asia, the board anticipates the group’s performance for the current financial year to be significantly below its expectations.”

Significantly below expectations is never good, and cost reduction measures are on the cards now. Carr’s is a smaller company with rising net debt, and that suggests a level of risk that will keep me away.

Biggest crash

The biggest early crash on Thursday came from Finablr (LSE: FIN), which posted a huge 60% drop.

So far in 2020, the share price of the payments and foreign exchange platform provider has fallen 95%. That’s a dreadful result for investors who bought at flotation as recently as May 2019.

The day’s drop is a direct response to an update that said: “Finablr is currently taking urgent steps to assess accurately its current liquidity and cashflow position.” The firm blames a number of factors, one of which is “travel restrictions imposed to limit the spread of Covid-19, which have reduced demand for its foreign exchange and payment services.”

But the biggie is the firm’s relationship with the troubled NMC Health, mired in suspicions of fraudulent activity after the Muddy Waters shorting attack. The connection? The founder, major shareholder, and co-chair of Finablr is a Dr. B.R. Shetty, the ex-chair of NMC and at the centre of that company’s troubles.

I’ll need an extra long bargepole for this one.

The post 2 stocks I’d avoid while the FTSE 100 is crashing below 5,500 appeared first on The Motley Fool UK.

To me, Carr’s (LSE: CARR) is more attractive. The firm operates in the agriculture sector suppling things such as feed blocks and farm machinery. It also runs a chain of rural stores in the UK serving the farming community. In the engineering division, the firm makes bespoke equipment for the nuclear, petrochemical, oil & gas, pharmaceutical, process, and renewable energy industries.

A growing dividend

The financial and trading record looks steady. Earnings have been moving up a bit each year and the dividend has risen around 40% over the past five years. With the share price close to 142p, the forward-looking earnings multiple for the trading year to September 2020 is just over nine and the anticipated dividend yield is a smidgeon below 3.5%. That strikes me as a similar dividend yield to Tesco’s but for a lower valuation. And, on top of that, anticipated earnings should cover the dividend just over three times, which looks robust to me.

In today’s full-year results report, Carr’s reported a flat revenue performance for the period with adjusted earnings per share up 5% compared to the equivalent period the year before. The directors pushed up the total dividend for the year by 5.6%. Chair Chris Holmes said in the report the performance was “moderately ahead” of the directors’ expectations. And that outcome was achieved despite unseasonable weather “significantly” affecting trading in the agriculture division.  

Holmes said the firm made acquisitions “across both divisions” during the year and plans to develop Animax into “a centre of excellence for innovation and product development for the wider Agriculture division.” The business became part of Carr’s in its September 2018.

Meanwhile, in the engineering division, the order book is “strong” and the acquisition of NW Total in June 2019 provides the firm with opportunities in the nuclear defence market.

A positive outlook

Growth appears to be on the agenda, although the company reckons that confidence among UK farmers is being affected by the uncertainty about Brexit. However, the directors are confident about the outlook for the full year. And that’s despite challenging weather conditions and a slower-than-expected start to the new trading year in the engineering division because of “contract phasing.”

City analysts following the firm expect a mid-single-digit percentage advance in both revenue and earnings for the current trading year to September 2020. This investment won’t shoot the lights out with growth, but I reckon Carr’s looks attractive as a long-term dividend investment with the potential to keep growing in the years ahead.

The post Forget Tesco! I’d invest in this cheaper steady dividend-grower instead appeared first on The Motley Fool UK.

A new look

Five years ago, Tesco was bloated, laden with debt, and hated by many of its suppliers. Chief executive Dave Lewis has changed all of this. He’s cut £1.3bn of costs, improved the firm’s business practices, and ditched some of its overseas operations.

To help fuel long-term growth he’s acquired fast-growing wholesaler Booker and set up a partnership with French supermarket group Carrefour. Debt levels have tumbled and the group’s profit margins and cash generation have improved sharply.

Lewis says that the firm has now met most of its turnaround goals. He’s “very confident that we will complete the journey in 2019/20.”

Two new opportunities

My colleague Kevin Godbold believes Tesco’s growth may slow as its turnaround completes. I’m not so sure. Last week’s results suggested to me there are at least two routes open to boost profits and shareholder returns.

A recent report in The Sunday Times suggested the company is working on a loyalty scheme similar to Amazon Prime. Tesco hasn’t denied this. The suggestion is that the firm’s Clubcard offering could be expanded to tempt shoppers to sign up to the group’s banking and mobile phone services. I think this could be big.

The second opportunity is for the firm to increase shareholder returns. Tesco’s strong cash generation and low debt levels suggest to me it may soon be able to return spare cash to shareholders through share buybacks or special dividends.

In my view, the outlook remains positive. Trading on 14.5 times 2020 forecast earnings with a 3% dividend yield, I view Tesco stock as fairly priced. I remain a long-term buyer.

Dull but profitable?

Like Tesco, small-cap Carr’s Group (LSE: CARR) operates a fairly dull business in a mature sector of the market. This £140m group has two divisions, agricultural supplies and engineering, with a focus on remote handling equipment for the energy industry.

Carr’s doesn’t attract much attention, but the firm’s shares have risen by more than 300% over the last 10 years. By contrast, Tesco stock is still worth 25% less than it was 10 years ago.

I see Carr’s as a stock you could safely buy and forget for another decade. The firm’s half-year results, published today, confirm that view. Adjusted pre-tax profit rose by 4.5% to £11.4m during the six months to 2 March and the interim dividend will rise by 4.7% to 1.125p per share.

Although demand for agricultural feed was lower than usual due to the warm winter, the group’s engineering division turned in a strong performance with “significant improvement in UK manufacturing” and a “major USA $8.5m contract win” for a remote handling customer.

Carr’s shares have dipped slightly today and currently trade on 10.5 times forecast earnings, with a 3.2% dividend yield. The group has stable profits and a strong balance sheet. I see this as the kind of ‘boring’ stock that could help you retire early.

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