A fallen angel from the pandemic

The company in question is the City Pub Group (LSE:CPC). It was formed back in 2011 and has a portfolio of 43 pubs mostly around Southern England. Many of its locations are in or around London.

The current share price is 85p, giving a market cap of £90m. However, the stock has been significantly higher in the recent past. Just before the pandemic, the share price was over 200p. This is the first reason why I feel it’s not out of the question for the stock to double in the future. But of course, I can’t judge the future from the past.

Following on from this relates to how the business can get back to pre-pandemic levels of trade. In 2019, profit before tax was £2.2m. Last year, it was £0.2m. Critically, it made a profit after two years of pandemic losses. The trading update to early June highlighted sales up 20% versus last year, leading me to think profitability should also be rising.

The share price is correlated to financial results. Therefore, I expect revenue and profits to continue to recover and hit similar figures to 2019 over the coming couple of years. If this happens, the share price should be close to the pre-pandemic price.

Doing well in the current environment

The stock is already up 22% over the past year. This comes during a period where investor sentiment hasn’t been that positive. Concerns around high inflation, high interest rates and a gloomy UK economy have all meant that the stock market hasn’t performed that well.

Add to this the fact that during times of uncertainty, penny stocks (with higher risk) are often shunned in favour of more defensive stocks.

So the share price outperforming despite all of this bodes well for the future. Within the next couple of years, I’d expect sentiment to improve. This should link to inflation coming down even further and maybe even interest rate cuts. If this happens, I’d expect City Pub Group stock to fly even higher.

Rallying 22% during a damp period in the market is impressive. For example, the FTSE All Share index is down 5% in a year. Yet during good times, I wouldn’t put 30-50% annual gains out of the question. Let’s not forget that during summer 2018, the stock jumped 55% in five months thanks to a strong company performance.

However, a mixture of persistent inflation and an underperforming UK economy would be two key risks to my overall view.

Inorganic expansion plans

Further expansion is another reason that could boost the price. Thanks to a 52% shareholding recently acquired in the Mosaic Pub and Dining Group, operational control of nine extra pubs is coming on-line.

This, along with plans for pubs in Wales, could help to drive revenue higher over the next year. If this filters down to higher profit, I don’t see why the stock can’t get back to pre-pandemic levels.

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City Pub Group

High operating costs are a significant problem across the UK leisure sector. Wagamama owner The Restaurant Group’s decision earlier this month to close dozens of sites illustrates the huge pressure of elevated labour and energy costs on companies’ bottom lines.

Yet I still believe The City Pub Group (LSE:CPC) is an attractive share to buy. The pub industry is steadily recovering following the earthquake of Covid-19 and is tipped for sustained growth.

Auditors Gerald Edelman expect revenues across the pubs and bars industry to rise at a compound annual growth rate of 2.2% between 2023 and 2028. However, I think City Pub could grow sales faster than this.

This is thanks to its focus on the faster-growing premium end of the sector. Gerald Edelman also notes that there has been “a shift in consumer preferences towards premium products such as craft beers and premium lagers” in Britain.

The firm’s hybrid model of drinks and food could also help it to enjoy robust revenues growth. Market research firm IBISWorld says that food accounts for 29% of total industry revenues, just behind first-placed beer at 29.1%.

Investing in leisure shares could be risky in the near term as consumers tighten their belts. Yet I believe City Pub could be well protected from the cost-of-living crisis.

This is because of its focus on market towns and cathedral cities in Southern England. Spending levels in these more affluent areas tend to be less affected by broader economic conditions.

Today this AIM share trades on a price-to-earnings growth (PEG) ratio of just 0.3. Any reading below one indicates that a stock is undervalued. This makes it one of the best cheap leisure shares out there in my opinion.

FRP Advisory Group

As the UK economy toils, the number of businesses experiencing financial difficulties is unfortunately booming.

Latest data from the Insolvency Service showed corporate insolvency cases soar 17% year on year in February. The Federation of Small Businesses predicts that 370,000 small companies could close or be forced to downsize or restructure when help for energy bills is reduced in April, too.

Firms of all shapes and sizes are struggling in the current climate. One way that investors can protect themselves today is to buy FRP Advisory Group (LSE:FRP) shares. The business provides a range of financial services in fields including restructuring and administrations.

Revenues here rose during the six months to October. And the AIM firm said last month that “the medium-term outlook for all of our markets remains positive“, illustrating the momentum it is currently enjoying.

Today FRP shares trade on a forward PEG ratio of 0.9. It also carries a meaty 4% dividend yield, cementing its place as an attractive value stock to buy.

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Proven innocent

Litigation Capital Management (LSE:LIT) is a company that does what it says on the tin. The firm provides financing for businesses and individuals to pursue litigation claims. It makes money by taking a cut of any of the cash recovered from successful claims. This can be quite a chunky amount, ranging from between 15% and 40%, depending on the level of finance.

The share price is currently at 71p, having fallen 34% over the past year. However, the stock is up 42% over a broader three-year timeframe. The moves do reflect a key risk of investing in small-caps — volatility!

Fundamentally, I don’t feel the move lower over the past year is that justified. In recent months, the business has done well with cases being won. An example was the victory with Carillion against KPMG, that yielded a seven-figure sum for Litigation Capital Management.

Going forward, I think the market cap (and share price) for the business is heading higher. As a case in point, the latest results through to the middle of 2022 showed a cash figure of £41.6m. Yet the current market cap is only £86m. When I add on other assets and forecast revenue growth, I feel this won’t remain a small-cap stock in years to come.

Time for more than a pint

The second company is The City Pub Group (LSE:CPC). It owns and operates 43 pubs, mostly around the South of England. It has a solid portfolio within central London, including notable locations in places such as Paddington, Chelsea and Fulham.

The business has bounced back from the struggles of the pandemic. In comparison to H1 2021 revenue of £8.9m, the same period in 2022 yielded revenue of £26.1m. This allowed it to flip from a loss of £2m in H1 2021 to an adjusted profit of £1.3m in 2022.

In the most recent trading update for 2023, figures are running ahead of expectations. I think the outlook is rosy for the summer and beyond. The pubs are mostly in affluent areas, where the cost-of-living crisis isn’t as pronounced. This should help spending to remain elevated.

Granted, high cost inflation is a concern. The rising price of food and drink will cut profit margins, and this could drag 2023 profits down. However, I think most of this could be offset from higher revenue.

The share price is down 4% over the past year. If we get a strong summer of trading, followed by the UK economy outperforming next year, I think the share price could rise significantly. I want to buy both stocks when I have some spare cash.

The post I’ve spotted 2 small-cap stocks with big-cap potential appeared first on The Motley Fool UK.

Accrol Holdings

Buying shares in companies that make supermarket own-brand goods could be a good idea today. Toilet and kitchen roll manufacturer Accrol Holdings (LSE:ACRL) is one such business on my investing shortlist.

People are increasingly switching down from more expensive brands as the cost-of-living crisis endures. Kantar Worldpanel notes that “sales of these lines are up by 13.2% this month, well ahead of branded products at 4.6%”. It added that this is “a trend that shows little sign of stopping”.

Accrol’s revenues soared 64% in the six months to October as shoppers tightened their purse strings. And I believe the small-cap share is more than just a good stock to buy in the current climate. Value retail is tipped for further strong long-term growth as consumers become savvier with their cash.

Rising costs pose a danger to the firm’s bottom line. But the prospect of booming volumes still makes this an attractive investment, in my book.

City Pub Group

The pub industry suffered a tough 2022 as Covid-19 turbulence remained and consumers cut back on spending. Revenues at businesses such as City Pub Group (LSE:CPC) could remain under pressure as the cost-of-living crisis endures too.

Yet recent strong trading suggests the business could continue to defy the broader slowdown. Sales at the business — which operates 44 premium pubs in South England and Wales — rose 25% in the first four weeks of 2023, beating expectations.

City Pub has two big weapons in its arsenal. Its estate is largely located across more affluent parts of the country. It is also focused on selling food and drink at the higher end of the market. The kind of customers it attracts are therefore less likely to cut back on nights out during economic downturns.

As an investor, I’m also attracted by it strong balance sheet. This should give it the firepower to execute more growth-boosting acquisitions.

Van Elle Holdings

The UK will have to rev up housebuilding activity in the coming decades. The government has set a target of 300,000 new homes a year to meet the needs of a growing domestic population.

This is why I think Van Elle Holdings (LSE:VANL) could be a great stock for long-term investors like me to own. The business is a ground engineering contractor that carries out piling work and installs foundations at residential sites.

I also like this penny stock because of its expertise in critical infrastructure including roads, rail, utilities and flood prevention. Spending in these areas remain stable during economic upturns and downturns, giving the penny stock excellent earnings visibility.

Van Elle has terrific momentum today and reported record first-half revenue in the period to October. Sure, a failure of its systems is a constant risk that could damage future business wins. But, on balance, I think it could prove an outstanding buy.

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I think they could deliver spectacular investor returns over the next decade.

Surface Transforms

The global sports car market looks set for rapid growth as the number of high net worth individuals soars. But investing in a motor manufacturer carries high risk as the market is super competitive.

So I’d rather invest in companies that make components for these car builders. Surface Transforms (LSE:SCE) is one such business I have my eye on, a penny stock that manufactures ceramic brakes for high-performance vehicles.

The business is steadily ramping up capacity to better exploit this fast-growing market, too. By 2026, it hopes to have £150m worth of sales capacity, up from the £50m that it hopes to have in operation by the second quarter.

Bear in mind, though, that earnings could disappoint in the near term should broader production issues among major car producers continue.

European Metals Holdings

The business of mining is extremely unpredictable and earnings forecasts therefore are fragile. Exploring for mineral deposits, developing mines, and finally pulling raw materials from the ground is highly complicated business.

But I’m still tempted to invest in European Metals Holdings (LSE:EMH). This mining company is in the process of developing Czechia’s Cinovec lithium project, said to be Europe’s largest resource of the metal.

This creates huge earnings potential. Long-term lithium demand is tipped to soar as sales of electric vehicles (EVs) takes off. The element is a key material in car batteries.

On top of this, I like the geographic position of this particular lithium stock. As the map below shows, it’s on the doorstep of some of the world’s biggest motor manufacturers.

Last week Cinovec was classified by the European Union as a strategic project, too. This gives it priority access to funding from the bloc. All things considered I think now’s a great time to buy this penny stock.

City Pub Group

UK leisure stocks face an uncertain 2023 as the cost-of-living crisis endures. This includes City Pub Group (LSE:CPC), a pub chain that operates 44 establishments across Southern England and Wales.

That said, I believe its focus on the premium end of the pub market could help it weather the storm. More affluent consumers have more money to spend during economic upturns and downturns.

In fact latest financials came as massive reasurrance to investors. City Pub Group saw like-for-like sales growth accelerate to 7.8% compared with 2019. Results would have been even better had it not been for rail strikes.

Brits are spending higher proportions of their income on leisure activities like going out for a pint or a cocktail. I think this penny stock could be a great way to capitalise on this theme.

The post 3 penny stocks I’d buy today and hold for 10 years! appeared first on The Motley Fool UK.

A rock-solid penny stock

Sometimes boring can be mega attractive. This is why I’m a big fan of Assura (LSE: AGR). As owner and operator of primary healthcare properties in the UK, its day-to-day business isn’t exactly gripping.

But from an investment perspective this makes it a terrific stress-free stock to buy, at least in my opinion. Even as the Covid-19 crisis worsens again, this penny stock doesn’t have to worry about earnings taking a battering. This remains the case, whatever social, economic or crisis comes along.

It’s possible that changing healthcare policy in Britain might affect demand for Assura’s properties going forward. But as things stand, government need for primary healthcare facilities is rising, not receding. And I expect demand for healthcare properties to rise as the country’s population steadily ages.

Cooking up a storm

A few years back The Restaurant Group (LSE: RTN) was in a heck of a state. No-one was going into its unfashionable eateries like Frankie & Benny’s and Chiquito, in spite of the vast sums it was spending to refresh its menus and improve its brands.

However, it finally seems to be turning the corner,  thanks in large part to its acquisition of super-popular noodle chain Wagamama. And according to its November trading update, the business is outperforming the broader market.

With Britons spending more of their disposable incomes on leisure activities like eating out the future may finally be looking rosy for The Restaurant Group. This is why I’m considering buying this turnaround stock today.

But remember that the mid-table restaurant market has been littered with casualties like Gourmet Kitchen Burger and Jamie’s Italian in recent years. The Restaurant Group will have to keep pedaling wildly to keep the recovery going amid high levels of competition.

Another top buy for my ISA

I’m also thinking about adding City Pub Group (LSE: CPC) to my Stocks and Shares ISA. Like The Restaurant Group, this penny stock could be a great way to exploit rising expenditure on social activities. It operates around 45 pubs and bars in Southern England and Wales.

All of its premium sites offer a high-end experience to drinkers, allowing it to stand out against branded pubs and to capitalise on a fast-growing part of the market.

My main concern with buying City Pub shares is the spectre of ballooning Covid-19 cases in the UK. The emergence of the Omicron variant has pushed the number of people dining out in the UK to their lowest level since mid-May, a recently-released study shows.

I think City Pub has plenty of long-term potential, though I am aware that profits could take a whack in the near term.

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I’ve been focusing on these smaller businesses as I think they have more potential. Smaller companies took a bigger hit than their larger peers at the beginning of the pandemic, but I believe their recovery will be more substantial. 

Of course, there’s no guarantee this will happened. It’s only my opinion. As such, this strategy’s unlikely to be suitable for all investors. Still, I’m comfortable with the level of risk involved.

So here are two penny stocks I’d buy for my portfolio today as recovery investments. 

Penny stocks on offer

The first stock on my list is the pub operator Marston’s (LSE: MARS). With 1,500 pubs across the country as well as a 40% holding in Carlsberg Marston’s Brewing Company, the group is a bellwether for the UK hospitality industry. 

According to its latest trading update for the 42 weeks to 24 July, business across its estate since the economic reopening has been “better than our expectations.” Between 12 April and 24 July, sales were 90% of 2019 levels.  

These figures show the company still has some way to go until it’s fully recovered, but it’s definitely heading in the right direction. That’s why I’d buy it for my portfolio of penny stocks.

And as consumer confidence continues to improve, I think shares in Marston’s should begin to reflect this improving confidence. 

However, a significant risk hanging over the company’s potential is the threat of another lockdown. This could destabilise its recovery and would almost certainly hurt consumer confidence, delaying the group’s return to normality. 

Customers return

Another hospitality business I’d buy for my portfolio of penny stocks is City Pub (LSE: CPC). While not technically a penny stock, this firm’s market capitalisation of £121m certainly places it in the small-cap bracket. That’s why I’m interested in the enterprise as a recovery play. 

The last time the company updated the market was ahead of its annual general meeting at the end of June. At that point, management informed investors that trading was 90% of 2019 levels at the 42 pubs it had reopened. 

Considering this update and assuming the firm has seen the same high demand as Marston’s in July, I don’t think it’s unreasonable to assume the group is well on the way to recovery. This is why I’d also buy the shares for my portfolio of penny stocks. 

However, like Marston’s, the most considerable risk to City Pub’s recovery is Covid. Another lockdown or a new variant could decimate both trade and consumer confidence. In these situations, I’d be forced to reconsider my opinion of the business and its recovery potential over the next few years. 

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This is a strategy I plan to follow, but it might not be suitable for all investors. Penny shares can be incredibly volatile, and these smaller businesses lack the checks and balances in place at larger companies. Therefore, the risks of investing are significantly higher. 

Still, I am comfortable with the risks involved. That is why I have been considering buying the small-cap stocks highlighted below for my portfolio in August. 

Penny shares on offer

The first company is pub operator Marston’s (LSE: MARS). This enterprise has been on my radar for some time because I think the business is a well-managed operation that has always appeared to be undervalued by the market. 

And I think now could be the perfect time to buy the stock as it benefits from the reopening. According to City analysts’ projections, which are based on the company’s own forecasts, losses are projected to decline from £360m in 2020 to £65m this year. Marston’s could be profitable in 2022, analysts suggest, with income of £57m pencilled in for the year. 

Based on these projections, analysts believe the stock is trading at a forward P/E of 10.2. I think this looks attractive considering the company’s growth potential. 

That said, the business does carry a lot of debt, which could hold back its recovery if interest rates rise substantially in the years ahead. 

Debt reduction 

I would also buy Revolution Bars Group (LSE: RBG) for my portfolio of penny shares for the same reasons. As the economy reopens, I think the bar operator will see a substantial recovery in sales and earnings.

The company is projecting an earnings before interest, tax, depreciation and amortisation loss before lease adjustments of £12.5m this year. If the reopening continues as planned, analysts think the group will break even in 2022 and return to growth in 2023. 

Revolution has also taken advantage of the current market environment to raise money from investors. This has enabled it to substantially reduce borrowings to just £5m. A stronger balance sheet should help support the group’s recovery.

But while I am optimistic about the company’s prospects, I am wary that it was struggling to earn a profit even before the pandemic. This implies Revolution may struggle to return to profit even after the crisis has receded. 

Outperforming

I would also buy City Pub (LSE: CPC) for my portfolio of penny shares. While not technically a penny stock, its market capitalisation of just £123m gives it similar qualities. 

This premium pubs operator, which owns locations across the country, primarily in cities, is forecast to lose money for the next two years.

However, with the group’s latest trading update reporting that sales since reopening are running at 90% of 2019 levels, I think there is a chance the stock could outperform expectations. 

One challenge this company could face is the home working revolution. If workers are allowed to work from home forever, city centre activity may never return to pre-crisis levels. This would hurt City Pub’s growth prospects.

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The group has 48 pubs dotted around the south and east of England. If they do not have a beer garden, from May 17 pubs can begin serving pints again indoors.

Most of its outlets are in good locations to entice domestic tourists, especially in areas of Central London like Covent Garden.

Other pubs are situated on the coast like in Brighton, or in cultural hotspots such as Oxford.

Visit Britain has forecast an uptick in spending of 79% on ‘staycations’ compared to last year reaching £67.1 billion. While this is only 67% of the outlay on domestic tourism in 2019, the expected increase in footfall ought to be beneficial to City Pub Group outlets.

After the first lockdown last year, its watering holes performed well (the Norfolk based pub The Hoste being one example to benefit from tourists).

The group’s trading statement released in January revealed how badly the pandemic hit them, as revenue was down from £60 million in 2019 to £25.7 million last year.

Yet there are positives in the way which the group has reacted to Covid-19 headwinds.

Staff retention is high with all but eight staff having been furloughed, and costs at head office and all other venues have been reduced.

Compromises have been reached with landlords, where minimal rent costs have been agreed, and rent concessions have been negotiated throughout the lockdown period.

An equity fundraise was sanctioned by the group, just as coronavirus arrived in the UK in March 2020. A total of £22 million was raised, with £10 million allocated to reduce bank borrowings.

The group placing itself on solid financial ground during the pandemic, allied with lockdown easing and a successful vaccine roll-out, is why I am interested in investing in City Pub Group shares.

Pub shares march upwards

Currently its typical that shares in pub companies have increased hugely since last autumn when prices were low.

City Pub Group shares increased from a nadir of 53p in November, rising to 144p in February, and since then have been no lower than 122p per share.

Competitors such as Revolution Bars Group and Whitbread have also experienced a similar share price trajectory, despite broadly deteriorating liquidity positions in the sector.

During the summer, I believe City Pub Group shares should continue to rise as pubs open indoors, perhaps reaching pre-pandemic levels.

Yet it’s doubtful to me whether they can double again in the next six months, as winter approaches, and the pub bubble begins to burst…

Social distancing rule is key

All social distancing restrictions could be lifted on June 21, which would be a huge tonic to the pub industry.

Events such as the World Snooker Championships and music’s prize night, the Brit Awards, are being played out at near and full capacity with no social distancing.

This suggests that the government is serious over ending the two-metre rule.

Yet scientists are wary over this inviting further surges of infections, by ending social distancing.

And vaccine ‘passports’ to enter a pub is a contentious issue for the industry, potentially discriminating between age groups.

Whether pubs can operate at full capacity any time soon remains uncertain.

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Here are three companies I’d buy ahead of the next stage of lockdown easing in May. 

UK shares to buy 

As commuters start to go back into the office and national travel resumes, I’d buy FirstGroup (LSE: FGP) as part of a basket of UK recovery shares. Throughout the pandemic, the public has been advised to avoid public transport, but I think this could be an excellent opportunity to buy the shares. 

As the world moves towards a more sustainable future, public transport demand is only likely to grow. I think this means that companies like FirstGroup could see increasing demand for their services.

Of course, it could also be years before the business returns to growth. Consumers may continue to shun public transport immediately after the pandemic. There’s also the risk of another wave of coronavirus. Despite these risks, I would buy the stock for my portfolio of UK shares today as a long-term recovery play. 

Food to go 

As well as FirstGroup, I’d also buy the manufacturer of convenience foods Greencore (LSE: GNC) for my portfolio of recovery stocks. Greencore relies on commuters for a large percentage of its food sales. Therefore, as the number of commuters has plunged over the past 12 months, so have the group’s revenues. 

But as commuting numbers start to increase again, I think the company could see rising sales. It may also benefit from the fact that some businesses have exited the market during the pandemic. This could allow Greencore to capture their share, which may allow it to grow back bigger. This is the best-case scenario. 

In the worst-case scenario, another wave of coronavirus could set the company’s recovery back years. Its weakened balance sheet may not be able to take another shutdown without more support. If Greencore does have to raise more cash from investors, it could send shares in the FTSE 250 business plunging lower. 

Nonetheless, I would buy the company today for my portfolio of UK shares, considering its recovery potential. 

Reopening trade 

As pubs around the UK start to reopen after months of being closed, I would buy the City Pub (LSE: CPC) group too. After a rough 2020, this business is expected to turn a small profit of £600k this year. That’s not much, but it could be a considerable improvement on last year’s projected loss of nearly £8m. 

City Pub has been building out its pub estate over the past few years. As it has acquired and built out new premises, sales rose from £15m in 2014 to £60m for 2019. That said, it could take some time for the business’s revenues to return to this level. However, I think its track record of growth suggests that when things are back to normal, management will drive City Pub in the right direction. 

As such, I’d buy the stock for my portfolio of UK shares. The enterprise’s principal risks are rising costs that could slow its recovery and another wave of Covid. Both of these headwinds could work against the firm’s bounce-back. Therefore, this recovery play might not be suitable for all investors. 

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