NOT a food company

I’d forgive you for thinking Frenkel Topping made pizza toppings, although that train of thought does make my belly rumble. In fact, it is a financial services business specialising in independent financial services, wealth management, and asset protection. Much less exciting, I know.

Remember a penny stock is one that trades for less than £1 and has a market cap of less than £100m.

As I write, Frenkel shares trade for 53p. Over a 12-month period they’ve dropped 28% from 74p to current levels. In 2023, the shares are down virtually the same amount.

The investment case

It’s not hard for me to understand why Frenkel shares have struggled this year. Macroeconomic volatility including soaring inflation, rising interest rates, as well as geopolitical events globally, have pushed down many stocks, especially financial services stocks.

This is also a continued risk moving forward as if these issues don’t subside, Frenkel shares could struggle further. After all, people are less worried about investing for their future but more bothered about paying higher food, rent, and energy bills.

Another bearish aspect for me to note is Frenkel’s growth strategy. The business looks to acquire other firms to boost its offering. Acquisitions can be great when they work out. However, they can be disastrous when they don’t as they can be costly to dispose of and impact investor sentiment.

Conversely, one of Frenkel’s largest segments is providing financial advice and helping solicitors and barristers involved in litigation over medical negligence as well as personal injury claims. What could help Frenkel’s bottom line is its approach whereby it works both sides of the coin, helping claimants and defendants. This means its services span the whole area of cases, which could help set it apart from others and boost performance. One risk here is that changing regulation could threaten Frenkel’s involvement and propensity to benefit financially too.

Speaking of performance, Frenkel’s most recent results – an interim report released at the end of September – was positive. Revenue and profit rose by 44% and 89% respectively. Recurring revenue and cash on its balance sheet also rose. Plus, the business has an excellent track record of performance with revenue and profit growth for each of the past three years. However, I understand that past performance is not a guarantee of the future.

Finally, a dividend yield of 2.5% would help boost my passive income stream too. However, I understand dividends are never guaranteed.

My verdict

All things considered, I don’t see why Frenkel shares could head upwards in 2024. There will need to be a considerable shift in macroeconomic factors, in a positive direction no less.

However, I’m not going to buy Frenkel shares for my holdings. I think my hard-earned cash is better spent on other stocks (and pizza) with better prospects. I’ll be keeping a close eye on the business nevertheless.

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They can bring a lot more risk. But if we choose carefully, I reckon we can find ones that can break through the pound barrier — and maybe go a lot further.

Asset management

My first choice is easily the best name of today’s chosen three. It’s Frenkel Topping Group (LSE: FEN), and it doesn’t make things for pizza or cakes.

No, Frenkel Topping is an independent financial adviser and wealth manager. And its share price has had a bad couple of years. But it’s up 65% in five years.

That’s a good overall performance, considering the way so many investment-related stocks have been under the hammer in recent years.

Broker forecasts look good, with earnings growth on the cards. If they’re right, we’d see the stock’s price-to-earnings (P/E) ratio dropping to about 10 by 2025.

There’s a modest dividend too, with a yield approaching 3%. That’s not the biggest, but it looks like it’s growing.

I think the big risk is that high interest rates could drive investors away from the firm’s services.

But I could see decent long-term growth here.

Bricks

My second pick is something simpler, Michelmersh Brick Holdings (LSE: MBH). It makes bricks, as the name suggests, and tiles and things like that.

The share price has had a surprisingly rocky five years, up 7%. But since the house building market started to decline, it’s fallen.

We had a trading update on 23 November, which speaks of a resilient performance, so far.

Solid earnings forecast for the next couple of years would give us a P/E of 8.7, dropping to 8.3 by 2025. And there’s a dividend yield of more than 5%.

The dividend was cut in the pandemic, but it’s already back above pre-2019 levels.

An extended period of high mortgage rates could keep the pressure on the construction business. And that would surely have a knock-on effect on demand for Michelmersh’s products.

But for those with a positive view of housebuilding for the long term, I think this could be a great choice right now.

Investment trust

I like CT UK High Income Trust (LSE: CHI), for diversification. The share price is down 12% in five years, as funds available for investing have taken a hit since inflation and interest rates started to soar.

The trust invests mostly in UK stocks and doesn’t have a wide range of holdings. It couldn’t really, with a market-cap of just £90m.

But it does hold stocks like Shell, British American Tobacco, AstraZeneca and Vistry Group. I rate those all as good value.

It faces the same risks as those individual stocks. And perhaps more so, as I suspect investors are more likely to go for bigger investment trusts when things look brighter.

But we’re looking at a dividend yield of 6.8% here. And the shares are on a discount of 6% to net asset value.

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One on my radar is Frenkel Topping Group (LSE:FEN). This company provides specialist independent financial advice, helping solicitors and barristers involved in litigation over personal injury and clinical negligence. The stock currently trades for 64p and has a market-cap of £73.5m.

Here’s why I think this penny stock could be a good buy for me today if I had spare cash to invest.

A niche sector

Frenkel Topping has acquired a number of businesses in recent years in pursuit of its ambition to provide a full-service offer to clients, short of providing legal advice. The group works for both claimants and defendants. Its services cover all touch points of the litigation lifecycle.

The company partners with hospitals and trauma centres to support patients immediately after traumatic injuries. It also offers a range of pre-settlement services including advice on legal costs, forensic accounting, and expert witness provision. Finally, its post-settlement services cover financial advice and ongoing care management.

The market opportunities for the firm look promising. UK clinical negligence claims seeking damages of £100,000 or more have increased in recent years.

Encouraging results

Frenkel Topping’s financial highlights for FY22 contain plenty of strong numbers. Revenue increased 35% to £24.8m, gross profit rose 23% to £11.1m, and it boasts a tremendous track record on client retention with a rate of 99% for the past 14 years.

What’s more, the company also paid a dividend of 1.37p per share last year. At present, the stock offers a 2.19% dividend yield, so there’s a decent opportunity to earn passive income from an investment too.

Its core priorities for this year include integrating its recent acquisitions, increasing its assets under management, and maintaining its outstanding client retention levels.

Risks

Of course, no stock is risk-free, especially penny stocks. Frenkel Topping’s business model is vulnerable to legal and regulatory changes. The rising cost of medical negligence claims is increasing pressure on the stretched NHS budget.

Reforming a compensation system that adds billions of pounds to the health budget every year could become a government priority. Any radical policy overhaul to the current system could potentially hurt Frenkel Topping’s profits, depending on the exact nature of the changes.

In addition, this is a competitive market. The company’s client retention rate speaks for itself, suggesting it can successfully fend off competitors. However, any failures in the advice it gives could lead to reputational damage, regulatory sanctions, or legal claims against it. Should this materialise, rivals could potentially step in to claim the firm’s market share.

Why I’d buy this stock

The Frenkel Topping share price has grown considerably over the past five years, but it’s down 13% in 2023 so far, despite promising results for FY22.

Although there are notable risks, I think this could be a buying opportunity — especially if the company’s financial trajectory remains the same in FY23. If I had some spare cash, this stock looks like it could be an attractive addition to my portfolio.

The post 1 rising penny stock I’d buy today at 64p appeared first on The Motley Fool UK.

Financial services

As a quick introduction, Frenkel is a specialist financial services business based in the UK. The £88m market-cap business is a small but agile firm specialising in the burgeoning personal injury and client negligence space. It also offers wealth management services too.

So what’s happening with the Frenkel share price currently? It is worth remembering that a penny stock is one that trades for less than £1. Frenkel shares are trading for 72p, as I write. At this time last year, the stock was trading for 58p, which is a 24% return over a 12-month period.

To buy or not to buy

So what are the pros and cons of me buying Frenkel shares?

FOR: I like the look of Frenkel’s performance track record. I am aware that past performance is not a guarantee of the future, however. Looking back, I can see it has grown revenue and profit for the past four fiscal years. Its best year to date has been 2021 as sales and pre-tax profits rose by 80% compared to 2020.

AGAINST: In recent years, the personal injury and client negligence market has risen in prominence and many firms offer these services. Despite its success to date, my concern with Frenkel is that it is a small fish in a potentially large lucrative pond. It could be out muscled and outmanoeuvred by larger firms with deeper pockets.

FOR: Frenkel has grown through acquisitions as well as organic growth. These acquisitions have helped the business boost performance and drive investor returns. In fact, I noted that it has a client retention rate of 99% that it has maintained for 13 consecutive years so things must be going well. As for returns, it pays a dividend that would boost my passive income stream. The current dividend yield is just over 1%. I am aware that dividends can be cancelled at any time, however.

AGAINST: One risk I am always wary of when it comes to acquisitions is overpaying. This is especially the case for smaller firms with a smaller balance sheet to rely on. Sometimes acquisitions can be costly if overpaying. On the other hand, not all are successful and disposing of a business that failed to boost offering and amalgamate can also affect performance and investment viability.

A penny stock I would buy

All things considered, I would happily add Frenkel Topping shares to my holdings. Its performance track record and impressive client retention levels coupled with its buy and grow acquisition business model attract me towards buying the stock. The fact it pays a dividend is a bonus.

If Frenkel can continue in the same vein, I wouldn’t be surprised to see performance, shares, and returns grow in the longer term.

The post Is this burgeoning penny stock a buy or 1 to avoid? appeared first on The Motley Fool UK.

If I was investing £3,000 in a Stocks and Shares ISA right now, I’d consider splitting it between two cheap penny stocks.

Under pressure

First, I’d consider fast-fashion retailer boohoo group (LSE:BOO). From 2015 to 2020, boohoo’s share price gained a whopping 1,300%. It became a popular and fast-growing business aimed at 16-24 year olds. But the pandemic brought a string of challenges that resulted in a 73% fall in its share price over the past year.

This is a billion-pound British business that has suffered several setbacks in recent years. It faced stronger competition from Chinese rival Shein, and it battled high shipping costs that has plagued many global companies during the pandemic. Longer delivery times negatively impacted the fast-fashion proposition.

More recently, it reported that customers were returning more items, which added pressure to its profit margin.

Why buy this penny stock?

With so much negative news, why do I want to buy this stock? I reckon these shares have become so cheap that all of these points have been factored into the share price. The stock market looks ahead and tries to anticipate how a business will fare in the coming months and years.

Although the next few months could remain weak amid a fragile economic climate, the long-term picture looks much brighter.

A bright future ahead

During the pandemic, many clothing retailers struggled. And boohoo managed to buy many popular brands that were on the edge of bankruptcy.

It also expanded into older demographics with the purchase of Debenhams and Karen Millen. These additions could be a game-changer if I take a long-term view.

When the dust settles, and the economy recovers again, boohoo could be in an enviable position. By then, I’d expect the share price to be much higher though. That’s why I’d consider buying these penny shares now.

Bags of potential

With a market capitalisation of just £88m, my next penny stock pick is a small company called Frenkel Topping (LSE:FEN). It’s a specialist financial services company that operates in the personal injury and clinical negligence space.

In contrast to boohoo, this business is performing very well. Sales and pre-tax profits both jumped by 80% in 2021 versus the prior year. More recently, trading in the first three months of this year has also been “robust”.

Encouraging strategy

For the 13th consecutive year, it has a client retention rate of 99%. That’s impressive and suggests to me its customers are happy with Frenkel’s work.

Its management has a buy-and-build strategy, which means it aims to buy complementary companies to add to its platform. If done well, this method can add great value over time. So far, I’m encouraged by what I’ve seen.

That said, there’s much competition in this industry, so it will need to keep working hard to provide value to its clients. Buying other businesses carry risks too. It will have to ensure it doesn’t overpay.

Overall though, I’m impressed by this little company and would buy these shares for a long-term holding.

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Fast-growing penny stocks

One fast-growing penny stock is Frenkel Topping (LSE:FEN). It provides financial services advice, particularly for clinical negligence and personal injuries. With a market capitalisation of just under £100m, it’s firmly in the small-cap group. Small companies can often provide the best opportunities to grow, in my opinion.

Frenkel is currently growing assets under management at 15% per year. This is much higher than most independent financial advice firms, in my opinion. Its growth strategy is underpinned by acquisitions. This market is fragmented and there are many smaller players. Frenkel is aiming to be a full-service provider in this niche area by buying up these small firms, often owned by advisers approaching retirement.

It looks like the strategy is working. Recent trading is strong and earnings continue to grow. It demonstrates good quality with a return on capital employed of 10% and a 19% profit margin.

There are a few points to bear in mind, however. It operates in a competitive industry so it will need to keep up with service levels and pricing. Reputational damage could also be a challenge to recover from in this business. Overall, I’m warming to this penny stock and would consider a small holding for my Stocks and Shares ISA.

Much to like

My next penny stock pick is also in the financials sector. It’s financial advisory firm Finncap (LSE:FCAP). With a market capitalisation of £65m, it’s even smaller than Frenkel. Finncap has a strategy of “building a broader financial advisory firm – focused on servicing the needs of the business of tomorrow.” It looks like it’s working so I’ve been keen to take a further look.

There’s much to like about Finncap, in my opinion. It looks like a well-run business that’s growing. Recent trading is encouraging. In the six months ending 30 September, revenues grew by 55% and profits rose by 67%. The record half year included 39 transactions with a total deal value of around £2bn. Looking forward, the deal pipeline looks great too. There are several potential IPOs and equity fundraisings due to be completed over the coming months.

To bear in mind

That said, Finncap operates in a cyclical industry. And although the current market conditions are favourable, that won’t always be the case. I’d have to be aware of when business starts to slow in the next downturn. Also, its shares are relatively illiquid. That could result in sharper share price movements, in either direction.

In addition to its growing business, I like that it has a strong balance sheet. It also offers a relatively generous dividend yield of 4.7%. This gives me a certain cushion of safety. Overall, I like what I see and would consider buying these penny stocks for a part of my portfolio.

The post 2 ‘dirt-cheap’ penny stocks to buy for 2022 appeared first on The Motley Fool UK.

Strong trading

Frenkel Topping Group (LSE: FEN) is enjoying strong gains on Tuesday following the release of fresh trading news. Up 4% on the day, the financial advice firm is now 19% more expensive than it was at this point last June.

Frenkel has continued to trade robustly in the year to date and chief executive Richard Fraser said the UK financial share has enjoyed “strong organic growth” in the first five months of 2021. Acquisitions have also been performing well, he added, while the business has kept winning assets under management (AUM) mandates in the period.

AUM was up 6% on 30 April from four months earlier, at £1.07bn, due to “net inflows and encouraging levels of new business wins.”

Building its international footprint

The Grafton Group Units (LSE: GFTU) share price has also risen strongly today, taking gains over the past 12 months to an impressive 82%. It’s up by mid-single-digit percentages in Tuesday business.

The builders’ merchant has soared, thanks to the sunny outlook for the British and Irish construction sectors. Fresh acquisition news on Tuesday has helped the UK retail share gain even more ground.

Grafton will pay €199.3m to pick up Scandinavian peer IKH in a deal that’s expected to complete in July. It described IKH as “one of the largest workwear and personal protective equipment (“PPE”), tools, spare parts and accessories technical wholesalers and distributors in Finland.”

Grafton chief executive Gavin Slark also that the move “[will] strengthen the group’s operations in the mainland European market in line with our international development strategy.”

Another busy UK share making M&A moves

National Express Group’s (LSE: NEX) share price is also rising on Tuesday following an acquisition announcement of its own. Up 2% on the day, the coach and bus operator has now risen 20% in value over the last 12 months.

The UK transport share has been heading southwards in recent weeks on government plans to delay lifting Covid-19 restrictions. But news today that it’s to acquire Transportes Rober in Spain for €13m has helped lift investor mood. National Express already operates in the country through its ALSA division.

National Express said the takeover “represents a further step in consolidating the regional and urban bus markets, a strategy which ALSA has successfully executed in Galicia, the Basque Region and Leon among others.”  Transportes Rober has operated the urban bus contract in Granada for more than 20 years.

National Express also announced today that its trading performance across the group continues to improve and is slightly ahead of management expectations. It added: “We have continued to win new contracts… notably in corporate shuttle both in North America and the UK.”

The post These UK share prices are rising strongly! Here’s why appeared first on The Motley Fool UK.

With that in mind, here are two companies with high dividend growth potential. Buying them now could be a shrewd move.

Long-term potential

Reporting on Wednesday was Frenkel Topping (LSE: FEN), a specialist independent financial advisor and asset manager focused on asset protection for vulnerable clients. The company has recently been undertaking a detailed review following changes to its management team. It now believes that the potential addressable market available to the company is broader than that which it has previously targeted. It has therefore made investments in its cost base in order to restructure the business.

This could provide the business with higher sales and profit growth potential in the long run. Certainly, it will lead to reduced profitability in the short run, and that could be why the company’s shares are down 10% following the update. However, with a larger potential market from which to seek new business, the company’s future could be brighter following its strategic review.

In terms of its income prospects, Frenkel Topping currently has a dividend yield of 2.5%. While this may seem relatively low, the shareholder payouts are covered around 2.4 times by profit. This suggests that there could be significant growth in dividends in future years. With the company now having a larger market to target, its financial performance could improve in the long run.

Increasing dividends

Also offering the potential for higher future dividends is wealth management specialist Old Mutual (LSE: OML). It is currently undergoing a major restructuring which will see it split into four separate entities. This is being undertaken in order to improve its efficiencies through the prospect of lower costs. It also means there are asset disposals, the latest one of which was for the company’s Single Strategy division for £600m.

With a dividend yield of 3.2%, Old Mutual offers a real income return at the present time. However, in the long run its dividend growth rate could be relatively high. Its shareholder payouts are currently covered three times by profit, which suggests that they are highly affordable and very sustainable.

The company’s price-to-earnings (P/E) ratio of 10.4 suggests that there is a wide margin of safety on offer for new investors. This means that there could be significant upside potential in the long run. In the near term there could be some weakness as investor sentiment may decline to some degree ahead of what is a major change for the business. But with a low valuation, cost-cutting drive and rising dividend, it could be a strong performer in future years.

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Investors reacted to the news that Frenkel has, following the completion of a strategic review, decided to withdraw plans to put itself up for sale.

The business — which provides asset protection for vulnerable clients — said that having launched a review at the start of April, it has “decided that it is in the best interest of shareholders, employees and clients to continue as an independent company, pursuing its existing business plan.”

In particular, Frenkel noted the improved prospects brought about by the proposed changes to the Ogden Discount Rate, amendments that it says “will materially alter the landscape of the industry.”

Frenkel noted that “the effects of the Ogden Review are now starting to translate into higher levels of damages available to our clients and this should accelerate the growth of AUM for the group.”

As a consequence Frenkel advised that it “is not in active discussions with any third party in relation to a corporate transaction, such as a merger with or sale of the company and as such the Formal Sale Process has now been terminated.”

On the right track

And today’s positive half-year numbers go some way to vindicating Frankel’s decision to keep going it alone.

Frenkel advised that it expects profit from operations for the six months to June to have rocketed to £1.2m from £300,000 in the same period last year, while revenues are also anticipated to have increased to £3.7m from £2.8m previously.

Furthermore, assets under management are expected to have clocked in at £770m, up from £745m last year. It has designs on hitting the magic £1bn marker on an organic basis.

The City certainly believes it is a hot growth stock to watch, and anticipates earnings expansion of 302% and 37% in 2017 and 2018 respectively. These projections make the Manchester business very attractive value for money, a forward P/E ratio of 14.6 times falling below the widely-considered value watermark of 15 times.

And a sub-1 prospective PEG reading of 0.1 underlines Frenkel’s brilliant value relative to its growth prospects.

Catwalk star

Fashion favourite Supergroup (LSE: SGP) may not be packing the same sort of value as Frenkel, but I reckon those seeking excellent long-term growth need to check out the London label.

The number crunchers have pencilled in earnings expansion of 13% in the years to April 2018 and 2019 respectively, following on from an expected 17% rise last year. And these punchy projections come as no surprise given the exceptional progress the Superdry owner continues to make across the globe.

The business saw revenues explode 20.6% in fiscal 2017, to £501.6m, underlining the success of its store rollout programme and improvements to its e-commerce proposition. So while Supergroup trades on a slightly-toppy forward P/E ratio of 16.4 times, I reckon this remains great value given the company’s stunning top-line momentum.

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High yield

Updating the market on Wednesday was currency management provider Record (LSE: REC). It announced a tender offer to return up to £10m to its shareholders via the purchase of a maximum of just over 22m ordinary shares which represent 10% of the share capital of the company. Each investor in the company is entitled to tender up to 10% of their shareholding at the tender price of 0.4479p per share. There is the potential for a greater proportion to be tendered by an individual investor, depending on the number of shares tendered by other shareholders in total.

As well as the return of capital to investors, Record also has a healthy dividend yield of 5.1%. This is expected to reach as much as 7.2% next year as dividend growth of over 40% is forecast in 2018. This has the potential to significantly improve investor sentiment in the company, and it could lead to a higher share price in future.

With Record trading on a price-to-earnings growth (PEG) ratio of 1.8, it seems to offer attractive value for money for the long term. Certainly, it is a smaller company which carries significant risks and volatility due in part to its area of operations. However, for investors seeking a high yield, it could be worth a closer look.

Dividend growth

Also offering a bright future from an income perspective is fellow financial services company Frenkel Topping Group (LSE: FEN). The provider of financial services advice is expected to return to strong profit growth over the next couple of years, with its bottom line due to rise by 37% in the next financial year. This means higher dividends could be on the cards, while its PEG ratio of 0.3 remains highly enticing even after a share price rise of 38% in the last year.

Although the company’s dividend yield currently stands at just 1.8%, dividend growth is expected to be around 25% per annum during the next two years. This is expected to push the company’s yield to as much as 2.7% by 2018. But even then, Frenkel Topping’s dividend is set to be covered 3.1 times by profit. This suggests that further rapid dividend growth could be on the horizon, which may make the stock even more attractive.

Given this potential, now could be the right time to buy it ahead of inflation-beating income prospects. While its yield may be relatively low today, it could easily surpass inflation over the medium term.

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