It’s not particularly unusual for stocks in my portfolio, to be honest. If companies that aren’t household names, but may be in future, if their profits and cash are growing fast, or if they have a pretty flawless track record, I’m interested.

I didn’t see anything in September’s 2023 full-year results to discourage me from buying more shares in London-based Fonix Mobile (LSE:FNX).

Revenue jumped 21%, gross profit was up 13.9% and there’s also the huge success of its international expansion.

The move into the Irish market was a masterstroke, it seems. New client wins including with RTE, Channel 4 and Wireless Radio Ireland “underpin our growth expectations”, CEO Rob Weisz said.

Its multi-year contracts also create a high barrier to entry for potential rivals. That’s a good example of Warren Buffett’s much-favoured economic moat.

So what does Fonix actually do?

How it works

When consumers make mobile payments, for example on ticketing, or to make donations, they’re charged via their mobile phone bill. Fonix takes a cut for providing the tech to support such payments.

For example, it was behind the SMS and mobile-paid donations for BBC’s Children in Need for the 10th year running. This kind of repeat business from media clients makes it a confident hold for me.

An expanding blue-chip client list including FTSE 250 firm ITV and the FTSE 100 giant BT adds weight to that conviction.

Fonix’s payment and messaging units are 15% more profitable than a year before too. I’d say this more than offsets the small fall in sales from charity-related mobile payments.

A general measure of the health of any business is its book value. That has quintupled since 2018. And to prove that not all of Fonix’s growth is already behind it? Book value jumped 20% to £9.39m in the last year.

What’s been happening…

Fonix went public on London’s AIM market in October 2020. Because it was a UK-registered business before that, I can dig into its inner workings.

If anyone has never done this before, it’s a fun little hobby to pick up. I can Google Companies House, and search profit and revenue to my heart’s content.

Fonix’s net profit has been rising at a compound annual growth rate of 30.3%. That’s a very healthy figure for a business of this size.

…And what comes next

A long and grinding recession could depress the levels of new business the firm could win, of course. That would certainly be a downer for the share price.

Also, as I’ve mentioned before, AIM shares tend to have fewer buyers and sellers than companies on the FTSE 250 or FTSE 100. So there’s a generally elevated risk that investors won’t be able to realise the market price when it comes to selling their shares.

Exploring new international markets can be an expensive business too. Overspending here would eat into Fonix’s £8.24m of working capital. On the other hand, it has quadrupled its operating cash between 2018 and today.

I don’t think it has put a foot wrong since its 2020 listing. To me, that means 2024 could be a breakout year.

The post The brilliant UK growth stock I think will break out in 2024 appeared first on The Motley Fool UK.

Fonix Mobile (LSE:FNX) is a rather unique mobile payments enterprise that’s recently left the penny stock territory. And despite a recent pullback in share price, the underlying business seems to be thriving. Let’s take a closer look at what could be a rare combination of high-quality growth and income for long-term investors.

Tapping into the tailwinds of digital payments

Mobile payment technology is a relatively new innovation. But there are already plenty of heavy-hitting industry titans dominating the space. So how has Fonix Mobile, a £200m market-cap company, managed to stand out and capture its own slice of market share?

Instead of charging a transaction directly to a debit or credit card, someone using Fonix’s mobile payment network will see the charge added to their mobile phone bill.

This effectively turns any mobile device into a cash register that provides a lot of conveniences. So much so that there are already 18 million people using it. And this adoption continues to rise.

Total revenue for the last six months came in 14.7% higher than a year ago at £32.8m. This came paired with a 12.3% increase in net income. And since management’s dividend policy is to pay out 75% of adjusted EPS to shareholders, dividends just got bumped even higher, pushing the yield to 3.4%.

Needless to say, this level of revenue and profit growth coming from a (albeit former) penny stock isn’t exactly typical. Furthermore, with new businesses accepting Fonix’s payment solution, and old customers — like ITV — extending their contracts, the firm looks primed to continue thriving. And with the UK mobile payments market size forecast to grow at a 30.1% compounded rate reaching $867.25bn by 2027, there remains immense long-term growth potential.

Even ex-penny stocks aren’t risk-free

While accelerating growth and generous dividend policies are undoubtedly attractive, that doesn’t mean they’re guaranteed to continue in the future.

Fonix Mobile is a cash-generating machine. But only when transactions are flowing through its payment network. And with the latest UK inflation data revealing further increases in food and energy prices, discretionary consumer spending is facing increasingly strong headwinds.

But a potentially more severe threat is the stock’s overdependence on a few key customers. While management is slowly expanding its pool of merchants, earnings remain highly dependent on just 10 of them. And should any decide to jump ship, it could severely harm the firm’s cash flow.

Obviously, that’s quite a big weakness to carefully consider. And it could take a long time for this small enterprise to diversify its merchant pool sufficiently to eliminate this threat.

However, the company is delivering accelerating double-digit revenue, profit, and dividend growth while trading at a relatively cheap P/E ratio of just 23. Therefore, I feel it’s a risk worth taking with a small position within my growth portfolio. And it’s why I’m tempted to snatch up some shares once I have more capital at hand.

The post 1 cheap ex-penny stock set for huge potential growth and dividends! appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Concurrent Technologies

What it does: Concurrent designs, builds, and supplies central processing unit boards, computer inter-connections, and computer systems to a variety of industries, mainly telecoms, aerospace, and defence.

By John Choong. On the back of a terrible year for chip manufacturers, Concurrent Technologies (LSE:CNC) shares could be about to ride the rebound with the rest of the industry. Its bigger peers like TSMC and AMD have signalled a bottom in the decline of chip demand, with growth expected from H2 onwards.

Concurrent’s latest trading update pretty much supports this sentiment. Management reported a record order book worth more than £31m. As such, the board is expecting to see significant revenue growth this year as it plans to increase its production capacity, and get its free cash flow back to positive levels.

Although its current and near-term forward multiples don’t exactly scream a bargain, it’s worth noting that those metrics only have a one-year time horizon. But because I plan to invest over a longer period, I’m looking beyond that. And given its earnings potential, buying the small-cap stock now could present quite a decent upside.

John Choong has no position in any of the shares mentioned.

EKF Diagnostics

What it does: EKF Diagnostics is a leading global medical manufacturer that specialises in point-of-care testing equipment and central laboratory devices.

By Edward Sheldon, CFA. There are a few reasons I’ve chosen EKF Diagnostics (LSE: EKF) here.

One is that the company is expected to generate solid revenue and profit growth this year. For 2023, City analysts expect revenues to climb 8% year on year and net profit to rise nearly 60% year on year.

Another reason is that the healthcare diagnostics industry is relatively recession-proof. EKF’s products are used in hospital and research laboratories, doctor’s offices, and blood banks in more than 100 countries. I’d expect demand for its products to remain stable if economic conditions deteriorate from here.

Of course, as a small-cap stock, EKF Diagnostics could be a volatile investment. I’d expect its share price to fluctuate a fair bit. However, with the stock currently trading well below its all-time highs, I like the risk/reward proposition on offer.

Edward Sheldon has no position in EKF Diagnostics

Everyman Media Group 

What it does: Everyman is the owner of the eponymous UK cinema chain. 

By G A Chester. The share price of Everyman Media Group (LSE: EMAN) is some 35% lower than this time last year. And its market value has halved from its level before the pandemic. 

Yet the company has just reported 2022 revenue over 20% higher than in the pre-pandemic year. Plus EBITDA (earnings before interest, tax, depreciation and amortisation) ahead of market expectations — a recovery taking it back to near its pre-pandemic level. 

This premium cinemas chain ended 2022 with 38 venues. Management told us its “cognisant of the difficult macroeconomic environment and consumer backdrop,” but said performance in the new financial year has been encouraging. And with plans to open a further five venues in 2023, and both the volume and quality of new film releases expected to increase this year, the directors said they “continue to have significant confidence in the future.” A risk here is if this confidence turns out to be over-optimistic, of course. 

G A Chester does not own shares in Everyman Media Group.

Fonix Mobile

What it does: Fonix is a unique consumer-friendly mobile payments business targetting the media, gaming, ticketing, and transport sectors.

By Zaven Boyrazian. As we move toward a cashless society, digital payment companies like Fonix Mobile (LSE:FNX) are riding on impressive tailwinds. The business provides a relatively unique mobile payment solution whereby small transactions can be completed, and the cost added to a user’s mobile phone bill. And it’s proving to be exceptionally popular.

Over 18 million people in the UK actively use Fonix’s payment solution, translating into a five-year average revenue growth rate of 25%, with operating margins steadily expanding.

Worryingly, the small-cap stock’s top 10 merchants are responsible for 85% of Fonix’s gross profits. Needless to say, that’s a fairly large client concentration risk.

But given that the firm hasn’t lost a single merchant from its platform in the last five years, these relationships seem pretty sticky. And given the potentially explosive long-term gains, opening a small position in my portfolio could prove highly lucrative in the long run despite the high risk.

Zaven Boyrazian does not own shares in Fonix Mobile.

hVIVO

What it does: hVIVO is a contract research organisation (CRO) that tests vaccines using human challenge clinical trials.

By Ben McPoland. The Covid pandemic has ushered in a wave of research and development spending focused on infectious and respiratory diseases. One company benefiting from this is hVIVO (LSE: HVO), a world leader in designing and running human challenge clinical trials.

Indeed, the firm conducted the world’s first such trial for the coronavirus back in 2021. These studies involve exposing healthy volunteers to the actual pathogen a vaccine is being tested for by biopharmaceutical companies. Its clients include four of the top 10 global biopharmas. 

Management expects record revenue of £50.6m for 2022, representing 30% growth year on year. That’s with minimum EBITDA margins of 17%. Its order book is bulging, up 65% year on year with contracted revenue reaching £76m by the end of December. 

Yet the small-cap stock is down 55% since reaching 38p back in April 2021. With a market cap of £113m or so, investors can expect share price volatility. 

Ben McPoland owns shares in hVIVO.

Income and Growth VCT

What it does: Income and Growth is a venture capital trust that invests in a range of early stage companies.

By Christopher Ruane. Over the past year, shares in Income and Growth (LSE: VCT) have fallen 17%. I think that makes now an attractive moment for a long-term investor like me to buy the shares, which I would do if I had spare cash to invest.

The trust aims to pay an annual dividend of at least 6p per share. Although dividends are never guaranteed, last year it exceeded the target with an 8p per share payout. That means the shares currently yield over 10%. I find that very attractive, while recognising that the dividend may jump around quite a bit from year to year.

Investing in growing companies at an early stage has helped it fund lucrative shareholder distributions. If the trust’s holdings suffer in the recession, that might hurt earnings. But over the long term, I think exposure to growth stories could help the trust profit – and hopefully pay large dividends.

Christopher Ruane does not own shares in Income & Growth.

Keystone Law Group

What it does: Keystone is a full-service law firm with 400+ lawyers that embraces technology and modern working practices.

By Charlie Carman. Keystone Law Group (LSE:KEYS) is an AIM-listed company, whereas the vast majority of law firms are limited liability partnerships. Accordingly, Keystone offers a rare opportunity for investors to gain legal industry exposure in their portfolios.

The half-year 2023 interim results make for positive reading. The firm delivered revenue of £36.8m, which represents a 9.3% increase over H1 2022.

In addition, operating cash conversion of 101% and the absence of debt bodes well for the dividend. The last interim dividend was 5.2p per share.

The firm also continues to attract talent as experienced lawyers increasingly look for flexible career opportunities beyond the traditional law firm model.

Granted, there’s a risk client legal expenditure could come under pressure in an economic downturn. Nonetheless, Keystone shares have halved in value over the past 12 months, and I’d like to enter a position while I can still buy the shares in this small-cap stock at a bargain price.

Charlie Carman does not own shares in Keystone Law Group. 

Ramsdens Holdings

What it does: Middlesbrough-based Ramsdens Holdings is a diversified financial services provider and retailer.

By Paul Summers. In contrast to most UK stocks, Ramsdens Holdings (LSE: RFX) enjoyed a very good 2022. As I type, the share price is up 25% over the last 12 months. There might be more gains ahead.

Recent trading has been encouraging. Jewellery retail gross profit rose 15% in the three months to December. The pawnbroking book also saw further growth. That’s not surprising in the current climate.

There’s a dividend stream from this small-cap stock, too. Right now, Ramsdens is down to yield 4.4%. This payout is also likely to be easily covered by profit. So, there’s a high probability of it being paid. 

That said, no investment is a sure thing. Any chinks of light in the economy could see existing holders take profit and move on. 

Then again, the valuation of 10 times earnings isn’t exactly excessive. So, as a possible hedge against further economic pain, I reckon Ramsdens remains a tempting option.

Paul Summers has no position in Ramsdens Holdings.

UP Global Sourcing Holdings 

What it does: UP develops and sells branded kitchen and laundry products. Its brands include household names such as Salter, Beldray and Russell Hobbs. 

By Harshil Patel. UP Global Sourcing Holdings (LSE:UPGS) sells its homeware products via supermarkets, discount retailers and online. Its business is growing. Led by a competent management team, it has managed to grow profits steadily over several years. 

Looking forward, future growth is likely to come from overseas. International sales grew faster than UK sales last year. And there is potential to expand across Europe.  

Most of its sales come from a handful of its brands. As such, UP is likely to keep its focus on them. That should bring additional benefits by building scale and keeping development costs low. 

Bear in mind that it is currently reliant on its operations in China, and any post-Covid disruption could be an area to watch.  

That said, if I had some spare cash, I’d certainly buy this small-cap stock. It’s a profitable business with a resilient balance sheet. With a price to earnings ratio of just 10, and a dividend yield of 5%, the shares look cheap to me.  

Harshil Patel does not own shares in UP Global Sourcing Holdings. 

The post Best British small-cap stocks to buy for February appeared first on The Motley Fool UK.

But every once in a while, a diamond in the rough can emerge. And one company that’s caught my attention this month is Fonix Mobile (LSE:FNX).

A new mobile payments solution

As the war on cash rages on, new digital payment methods are emerging across the country. And mobile payments are quickly gaining steam – a tailwind that Fonix Mobile is currently capitalising on.

The penny stock offers a unique mobile payment solution for small transactions of up to £40. Whenever an individual uses its payment system, the money isn’t taken directly from a bank account but instead added to their next mobile phone bill. It’s effectively like a mini credit card without the massive interest fees on a few days’ late payment.

Fonix’s solution has proven to be immensely popular. After partnering with almost all major telecommunication companies, such as Vodafone, 3, EE, Sky, and O2, the firm now has 123 mainstream merchants supporting its payment method. Some of its clients include the BBC, BT Sports, ITV, and English Heritage.

With a diverse range of applications, the company has attracted over 18 million users – or 27% of the British population. Subsequently, revenue and operating income have grown annually by an average of 25% and 35% over the last five years.

Penny stocks are risky

As impressive as the group’s accomplishments have been to date, the risk profile is undeniably high. Fonix generates revenue by charging small fees on each transaction. Therefore, an economic recession doesn’t exactly create the ideal operating environment.

But this is ultimately a short-term problem. My main concern is the state of its client list. Those 123 merchants doesn’t equate to a particularly long list, even if it is slowly expanding. Yet just 10 of these clients facilitate 85% of Fonix’s revenue stream.

Suppose just one of these businesses decides to cut ties? In that case, it could severely compromise the company’s cash flows and send the penny stock firmly in the wrong direction.

However, seeing that this business hasn’t lost a single client in the last seven years is encouraging. But this dependency doesn’t exactly provide the best leverage when it comes to renewing merchant contracts.

The bottom line

Fonix’s innovative payment method isn’t easily replicated and does provide a notable competitive moat against any potential disruptive start-ups. And the immense popularity of its platform among consumers will undoubtedly attract more merchants in the future. At least, that’s what I think.

The risk associated with this penny stock is high. But that’s to be expected when venturing into this region of the stock market. And providing Fonix can continue to make good on its long-term strategy, the next decade could be a stellar period of growth for this enterprise.

That’s why I’m tempted to open a small position within my personal portfolio once I have more capital at hand.

The post 1 ‘nearly’ penny stock I’d buy and hold for the next decade appeared first on The Motley Fool UK.

So, if you’ve entered a competition, paid for car parking, or donated to a good cause using your mobile phone (to name just a few examples), it’s possible that Fonix allowed you to.

In an increasingly-cashless and mobile-dependent society, this ‘nearly’ penny stock looks in good shape to thrive. The number of customers on its books grew 13% year-on-year during the 12 months to June 2021.

Fonix is also looking to take its expertise onto mainland Europe too to help give profits growth an extra boost. Its first foray onto foreign shores will see it launch in Austria in the near future.

I’d buy Fonix even though its dependence on a handful of key customers creates a risk to future profits.

In its 2020 financial year, the UK share generated 83% of gross profits from its top 10 clients. The loss of one or more of these businesses to a competitor could clearly have significant ramifications for profits. Fonix shares go for 167p a pop right now.

Another ‘nearly’ penny stock I’d buy

Everyman Media Group (LSE: EMAN) is another cheap UK share that’s attracting my attention right now. Unlike Cineworld, which is buried in debt and faces colossal competition from the likes of Netflix (more on this later), I think this cinema operator has a chance to thrive as Covid-19 restrictions are rolled back.

Box office takings are soaring in Britain right now. Vue was the latest large chain to release promising ticket sales data in late July. Then it said that UK admissions recently stood at 70% of the average recorded in the three years prior to Covid-19. This was despite capacity restrictions and social distancing when theatres reopened.

There are, of course, significant threats to cinema operators like Everyman. The Covid-19 crisis is far from over and any significant surge in infection rates could close the industry down again.

And, as I mentioned earlier, the US streaming giants like Netflix, Amazon and Disney provide significant competition for the cinema industry. Black Widow star Scarlett Johansson’s move to sue Disney as simultaneous streaming of the film decimated box office takings provides perfect evidence of this.

However, I think Everyman is in good shape to fight off the streamers. Its cinemas don’t just offer the chance to grab the latest mainstream movie. Its boutique venues offer a unique experience where visitors can also watch an independent or classic movie with a glass of red and some gourmet food.

Priced at 141p per share, this ‘almost’ penny stock is another great low-cost UK share I’d buy right now.

The post 2 ‘nearly’ UK penny stocks to buy appeared first on The Motley Fool UK.

Fonix Mobile

Mobile payments and messaging firm Fonix Mobile (LSE:FNX) enables businesses from the media, charity, digital services and gaming sectors to charge users’ mobile bills. An example would when people donate to the BBC’s Children in Need campaign.

Right now, trading is good. Revenue and gross profit rose by 25% and 22% respectively over the second half of 2020. A pipeline of clients means more growth is expected in 2021.

In addition to being in a rapidly expanding area, Fonix also boasts staggeringly high returns on capital employed (ROCE). Companies that can do this consistently tend to create huge value for shareholders. No wonder star fund managers like Terry Smith and Nick Train pay so much attention to this metric. 

Naturally, investors need to be cautious. Fonix only arrived on the market last October so it’s still early days. I also question just how much of an ‘economic moat’ it really possesses. Still, the performance of the share price over the last year (+82%) does suggest investors are willing to give management the benefit of the doubt, for now.

tinyBuild

US-based video games company tinyBuild (LSE: TBLD) is another new AIM stock that could do well for investors over time. Its mission is to create long-term partnerships with developers and monetise popular titles across different forms of media. The puzzle game Hello Neighbour is one example of this.

Gaming remains a hot sector that should continue growing rapidly for the foreseeable future. Like all stocks however, there can be no guarantees tinyBuild will perform. Its shares also trade at 49 times forecast earnings. That kind of valuation will only seem reasonable to the most optimistic market participants.

A relatively small ‘free float’ (the number of shares available for investors to buy in the market) also implies the price may be volatile going forward.

On a positive note, tinyBuild’s founders still have big holdings, which should mean their interests are aligned with those of their investors.  The firm also boasts a strong balance sheet — one of the things I look for when buying small-cap shares.

Ilika

Ilika (LSE: IKA) is a final AIM stock I think has big potential. It’s focused on developing solid state batteries for applications such as the Internet of Things and electric vehicles. These have a number of benefits over traditional lithium-ion batteries, such as faster charging, longer life and non-flammability. As such, mass adoption seems to be a case of ‘when’ rather than ‘if’.

Notwithstanding this, Ilika is still loss-making. This probably makes it only suitable for risk-tolerant investors. Investors must also reflect on how well the shares have performed over the last year (+500%!) and whether a lot of hope is priced in.

Should markets shift into reverse gear as a result of ongoing concerns over inflation, blue sky stocks like Ilika could be hit harder than most. Then again, this might be the perfect time to begin building a position if buyers are content to be patient for the spoils that could lie ahead.

The post 3 AIM stocks with massive potential appeared first on The Motley Fool UK.

Rupert Hargreaves: Frasers

As the country slowly moves out of lockdown, I think Frasers (LSE: FRAS) could be one of the big winners. Formerly known as Sports Direct, the company is one of the UK’s most successful retailers. As the UK reopens, I expect sales and profits to rebound.

Led by the outspoken CEO Mike Ashley, Frasers has also been snapping up distressed retail assets throughout the crisis. I think these deals could help turbocharge the group’s recovery in 2021.

That said, the main challenge facing the business right now is the potential for another wave of coronavirus. This could set back the group’s growth plans.

Rupert Hargreaves does not own shares in Frasers.

Nadia Yaqub: Saga

I reckon things look promising for Saga (LSE: SAGA). The company’s customer base is the over-50s, which are typically loyal and have more money to spend. The UK vaccine roll-out for this demographic has so far been successful.

Saga recent results were dismal. But I think the fact that it has seen a 20% increase in cruise bookings indicates there is pent-up travel demand. I’m not really worried about the company’s debt pile. I reckon once travel restrictions are eased, Saga’s revenue and profitability could bounce back soon.

Nadia Yaqub does not own shares in Saga.

Jamie Adams: Auto Trader

After delivering a stellar 35% return over the last year, the Auto Trader (LSE: AUTO) share price has plateaued in 2021.

Fears of declining advertising spend and semiconductor shortages are playing on investors’ minds.

However, following a recent report from the Interactive Advertising Bureau in the US, ad spend has never been higher worldwide. Auto Trader’s dominant position in the auto industry’s advertising market will benefit from increased spend from sellers as well as a potential car sales boom as people spend their lockdown savings.I see this growth stock’s recent dip as a buying opportunity in April.

Jamie Adams owns shares in Auto Trader.

Royston Wild: Trifast 

I think that fastenings manufacturer Trifast (LSE: TRI) is an excellent UK growth share to buy today. City analysts are expecting the business to report annual earnings growth of 26% in the financial year to March 2022. 

I think Trifast is a particularly-good buy today as it’s due to release a pre-close update for fiscal 2021 on Thursday, April 22. Last time the UK share updated the market in February it said that “trading levels continue to strengthen” and that it consequently expected revenues for the full year to be “slightly ahead of current market expectations.” Be warned, though, that a sudden worsening in the Covid-19 battle could cause severe supply disruptions that might derail this recovery. 

Royston Wild does not own shares in Trifast.

Harshil Patel: boohoo group 

Boohoo group (LSE:BOO) is determined to expand its business over the coming years with its powerful online-only platform in the fast-fashion sector.  

Over several years, it has consistently produced double-digit earnings growth. Both organically and through acquisitions. Recently, the group acquired several brands including Warehouse, Debenhams, and Dorothy Perkins. 

There are further signs of expansion from recent purchases of a new large warehouse in Daventry and a new freehold office building in Soho for its London-based brands. 

Overall, it offers a return on capital of 27% and net cash on its balance sheet. All at an undemanding price-to-earnings ratio of 33.  

Harshil Patel owns shares in boohoo group.

Zaven Boyrazian: Alpha FX

Alpha FX (LSE:AFX) is a currency hedging and international payments solution business that serves over 600 clients, including ASOS and Holland & Barrett.

Its services have proven to be incredibly popular, especially its relatively new global enterprise payment network. Revenue generated by this segment in 2020 grew by 417%!

Currency risk management is currently the larger contributor to overall revenue. And performing such services requires an incredibly high level of skill since the slightest mistake could lead to substantial losses.

But given its successful track record and enormous growth opportunity in international payments, Alpha FX is a stock I want to buy more of for my portfolio.

Zaven Boyrazian owns shares in Alpha FX.

Christopher Ruane: B&M

Discount shop chain B&M (LSE: BME) had a stellar 2020. But so far in 2021 shares have only added 5%.

I think many investors are wary that the chain, which saw a big sales boost in lockdown, could suffer from reopening. There is a risk that new shoppers won’t be loyal to the chain, in a highly competitive retail environment.

However, the company’s retail prowess and compelling customer proposition already led to it performing well before lockdown. I expect to see strong numbers from the chain again this year.

Christopher Ruane does not own shares in B&M.

Kevin Godbold: Fonix Mobile

Mobile payments and messaging services provider Fonix Mobile (LSE: FNX) arrived on the FTSE AIM market in October 2020. However, the growth stock was first established in 2006. And prior to its admission to AIM the business delivered fast-paced, profitable growth.

Looking ahead, City analysts expect low, double-digit percentage earnings growth in the current trading year to June 2021 and for the year after that. And with the share price near 182p, the forward-looking earnings multiple is just below 24. However, the stock has been rising since listing. And at £182m, the market capitalisation has already doubled. Nevertheless, I reckon the growth proposition looks resilient here.

Kevin Godbold owns Fonix Mobile shares.

G A Chester: Gamma Communications 

A suite of products across instant messaging, video conferencing and other media, combined with ‘always-on’ and ‘work-from-anywhere’ connectivity, make Gamma Communications (LSE: GAMA) a leader in the fast-growing unified communications as a service (UCaaS) market. 

Furthermore, the company has recently established footholds in mainland Europe with several strategic acquisitions. The UCaaS market in Europe is behind the UK but heading the same way. While there’s no guarantee Gamma will be able to replicate its UK success on the Continent, the growth opportunity is huge. As such, I think a rating of 35 times last year’s earnings could prove cheap. 

G A Chester has no position in Gamma Communications.

Edward Sheldon: ASOS

My top British growth stock for April is online fashion retailer ASOS (LSE: ASC).

ASOS posted a fantastic set of half-year results earlier this month. For the six months to 28 February, group revenue was up 25% at constant currency to £1,976m, while diluted earnings per share (EPS) were up 198% to 81.9p. As a result of this performance, the company increased its guidance for the full year.

Since the company posted these results, its share price has fallen. I view this share price weakness as a buying opportunity. There are risks to the investment case, of course, however, with the forward-looking P/E ratio in the mid-30s, I think it’s a good time to be buying the stock.

Edward Sheldon owns shares in ASOS.

Jonathan Smith: The Hut Group

The Hut Group (LSE:THG) is a British e-commerce business. It owns brands such as MyProtein and LookFantastic that have large online revenues. It also helps other businesses improve marketing capabilities due to real-time customer data, with past clients including Honda and Nestle.

THG went public last year and is trading well above the IPO level. In a recent trading update, 2020 revenue was shown to be 41.4% above 2019 levels. In guidance given, management expect 2021 revenue to be 30-35% above 2020 levels! This positive momentum that the business has makes me want to get in on the action.

Jonathan Smith has no position in The Hut Group.

Roland Head: Auto Trader Group

The pandemic has accelerated the development of online car retailing. I don’t see this trend reversing, at least not completely.

I’d tap into this growth by investing in classified listing business Auto Trader Group (LSE: AUTO). I expect this business to perform well as the UK returns to normal (hopefully) in 2021.

Auto Trader’s dominant market share means it’s an essential service for most used car dealers. The business generates very high profit margins — 65% last year, even with the impact of the pandemic.

Auto Trader shares never look cheap, but I think the stock’s forecast P/E of 26 is fair. I’d buy these shares in a Stocks and Shares ISA for long-term gains.

Roland Head has no position in any share mentioned.

Paul Summers: boohoo Group

boohoo (LSE:BOO) has been in the headlines for all the wrong reasons recently. Nevertheless, I’m confident the steps taken to rectify issues with suppliers will see the fast-fashion growth stock emerge as a bigger and better company in time. 

Shares remain below the highs hit in mid-2020. With people looking for new clothes to wear out to fully ‘unlocked’ bars, however, this gap will likely close before long. Factor in a raft of recent acquisitions (e.g. Debenhams) and a bulletproof balance sheet, and a normally-frothy forecast P/E of 33 actually looks great value for the growth on offer.

Paul Summers owns shares in boohoo Group.

Tom Rodgers: Open Orphan 

Human challenge vaccine and antiviral clinical trial operator Open Orphan (LSE: ORPH) is starting to spin out non-core assets from its main business, adding extra value for shareholders. And with the share price around 50% higher in the last month, more investors are starting to see the potential here.

If it can hold this momentum, the £295m market cap business will become one of AIM’s 100 largest companies when the index is reconfigured in May 2021. Now profitable month-on-month and with around £20m cash on its balance sheet, all eyes are on FY20 results, likely coming in June 2021.    

Tom Rodgers holds shares in Open Orphan

Andy Ross: Calnex Solutions 

Calnex Solutions (LSE: CLX) specialises in testing and measurement services for telecommunication (5G) networks. Given the UK has just had its 5G spectrum auction, investor interest in telecoms service providers ought to be high.  

With a market capitalisation of only around £100m, the company is smaller and should be able to grow quickly. Especially as results have been good. A trading update in February showed a probably bright future, as it revealed that revenue for FY21 would be ahead of market expectations.  

The main risks with this share are twofold. One is that as it reports in US dollars, a weaker dollar could hurt profitability. The other is its valuation. The P/E ratio is around 29. Overall, though, I think it’s a top British growth stock.  

Andy Ross does not own shares in Calnex Solutions.

Kirsteen Mackay: Pets at Home Group  

I think Pets at Home Group (LSE:PETS) will continue to grow throughout April. That’s because the UK is beginning to re-open, and people are getting out and about in the sunshine with their dogs. Pet purchases exploded in the pandemic and the trend does not appear to be subsiding. The BBC even reported a pet food shortage across supermarkets last month. Pets at Home has a price-to-earnings ratio of 33, earnings per share are 13p and it offers a dividend yield of 1.6. 

Kirsteen Mackay does not own shares in Pets at Home Group.

The post Top growth stocks for April 2021 appeared first on The Motley Fool UK.

The brilliant thing about investing in a Stocks and Shares ISA is that all of my capital gains and dividends are free from tax. If I was to buy these shares outside of a Stocks and Shares ISA, I could be forced to pay tax when I come to sell. There is a tax-free allowance of £12,300 for capital gains. But if my investments are above this limit, then I’d have to pay tax.

So to my two top UK shares for April 2021.

Open Orphan

Open Orphan (LSE:ORPH) is a popular healthcare stock: not a biotech but a pharmaceutical services business. That means it doesn’t engage in the risky and costly R&D of drug development. Instead it provides all the background data management and clinical trial services for vaccine and antiviral giants worldwide. Its clients include the likes of Pfizer and Johnson & Johnson.

It is most famous for helping to run the world’s first Covid-19 human challenge trials, winning a £46m UK government contract in October 2020. It also plans to spin off at least four major assets into separate companies. These include selling its novel disease data platform Disease in Motion to wearables giants like Google and Fitbit. Because I already own ORPH, I’ll get shares in each of these new companies in my Stocks and Shares ISA when that happens.

Because it is listed on AIM, it’s a relatively riskier buy than a company on the FTSE 250 or FTSE 100. Companies on this market have less stringent financial reporting requirements than on the higher tier. 

Executive Chair Cathal Friel recently put a $1bn (£720m) valuation target on Open Orphan. That would give the business a share price of around £1.10, 266% higher than today’s 30p price.

Fonix Mobile

The next share I’d like to buy for my Stocks and Shares ISA in April is Fonix Mobile (LSE:FNX). This £160m market cap business focuses on mobile payments and mobile messaging. It has some very big blue-chip names as clients, including ITV, Channel 5, and Bauer Media.

It’s a relatively recent float on AIM, which does present risks. Companies only a few months from their IPO date can rise quickly on buzz and hype alone.

Digging back through Fonix Mobile’s financial statements before it went public, I can see that the company had already produced tens of millions in revenue. Profit before tax was up 49% in 2017 and 83% in 2018. And in its most recent full year to June 2020, revenues were up 29% to £40m with profits 53% higher at £7.1m. I can see that it produced a 260% return on equity and a 286% return on capital. So I know that Fonix Mobile is using its cash extremely well to grow. 

In its half-year report to 31 December 2020 CEO Rob Weisz noted that Fonix would also pay its first-ever dividend. It’s not huge, at 1.7p per share. But given the company’s stonking growth? I can see Fonix Mobile chucking off cash for shareholders for years to come. 

The post 2 fast-growth UK shares for my Stocks and Shares ISA in April appeared first on The Motley Fool UK.