As well as an increase in investment, the most significant impact on earnings was a negative tax charge of £6.8m, compared to last year’s one-off tax credit of £4.2m. Impellam isn’t the only company to have had to book such a charge thanks to the reduction in the rate of US federal corporation tax from 35% to 21%. This reduction means that Impellam had to write-down the value of deferred tax assets on losses in its US business, primarily an accounting adjustment that should not impact the underlying business or be repeated next year.

Following these results, the global staffing business maintained its full-year dividend per share at 20.5p giving a yield of 4%.

Dirt cheap 

Based on the above numbers alone, I’m in no rush to buy Impellam. However, the company’s valuation tells a different story. 

Indeed, based on figures for 2017, the shares are currently trading at a P/E of 10.6. Next year, when the impact of the US tax reform has filtered through the results, earnings per share are expected to leap to 96p, implying that the shares are currently trading at a forward P/E of just 6.

To me, this valuation looks too cheap to pass up as Impellam is trading at a deep discount to both the broader market and its sector, both of which trade at a multiple of around 14 times forward earnings. What’s more, the company’s dividend is covered more than three times by earnings per share, so there’s plenty of headroom for management to maintain the payout if profits fall, or increase it further in the years ahead.

Worth the risk? 

International Personal Finance (LSE: IPF) has many similar qualities to Impellam. The international sub-prime lender is unloved by the market, but this presents an opportunity for contrarian investors who are willing to take on the risk. 

Based on current City figures, the shares are trading at a forward P/E of just 7.2 and support a dividend yield of 5.5%.

That said, the company does not come without its risks. As my Foolish colleague Kevin Godbold pointed out at the end of October last year, “the firm’s geographic footprint is shaping up as an uncomfortable place to be because regulatory changes and pressures are attacking the business.” Nonetheless, management is working hard to adapt the group to the changes being brought in by regulators. 

At the beginning of March, CEO Gerard Ryan told news agency Reuters that as long as any caps on lending rates are “set at a reasonable level” the company can “operate very effectively within that.” In other words, the group isn’t just going to roll over. It will work with regulators and borrows to continue to offer attractive products that produce profits.

With this being the case, I believe the stock’s current valuation is too low and could offer an attractive return for investors who are willing to take a leap of faith. 

The post Two seriously undervalued dividend shares I’d buy today appeared first on The Motley Fool UK.

Due to unexpectedly strong market conditions and market share resilience of its Suboxone film product, net revenue for the 2017 full year is now expected to be in a range of $1.09bn to $1.12bn, a target which tops its previous guidance of $1.05bn to $1.08bn. Additionally, adjusted net income is now forecast to rise to $265m to $285m, well above its previous guidance of $200m to $220m, because of expected lower legal and R&D costs.

Meanwhile, the company is making significant progress with its development pipeline. It is set to launch new trials and is moving closer to bringing new treatments to market. This should help to underpin additional growth in future years, while reduced costs could lift margins. 

Indivior, which focuses on specialist anti-addiction medicines, was spun-off from consumer goods group Reckitt Benckiser back in 2014. And ever since its demerger, the share price has been plagued by concerns about patent issues and litigation costs. Following today’s guidance however, I reckon these risks may have been overstated.

It remains attractively valued as it trades on a price-to-earnings ratio of 10.3 — and this suggests shares in the company could have considerable upside potential as investor sentiment looks set to improve.

Impellam

Also reporting today was recruitment and staffing solutions specialist Impellam (LSE: IPEL). Shares in the company fell by as much as 8% today, as investors contrasted its fortunes with those of its rivals.

Although first-half revenues grew in line with peers, with an increase of 2.4% to £1.08bn in the six months to 30 June, operating profits fell 30% to £15.4m. This was on the back of challenging trading conditions, the impact of off-payroll working legislation (IR35) in the UK Doctors and Nursing market, and increased investment.

It’s never good to see profits fall, but I remain somewhat upbeat about the group’s long-term prospects. Certainly, the company is some way off its best and it is likely to take years rather than months before it returns to being so, but Impellam’s problems have mainly been isolated to its UK healthcare business. Trading elsewhere, particularly outside of the UK, has been much more favourable, and the group has a strong pipeline of client implementations ahead.

Reassuringly, its cash generation also remains good. Net debt fell from £95.3m to £92.1m, while cash generation dropped by less than 5% to £21.9m. And despite its near-term earnings weakness, management stuck to its stated policy of keeping dividend cover at between four to five times adjusted earnings per share, and kept its interim dividend at 7p per share.

And since Impellam trades on a price-to-earnings ratio of just eight, it seems to offer excellent value for money. What’s more, its yield of 3% marks it out as a tempting income play.

The post 2 value stocks to consider in an expensive market: Indivior plc and Impellam Group plc appeared first on The Motley Fool UK.

Results announcement

Reporting on Monday was building services company Bilby (LSE: BILB). The company announced full-year results which showed that it has made progress when compared to the prior year. As part of its growth strategy, the company acquired DCB for a maximum consideration of £4m, as well as Spokemead for a maximum consideration of £8.7m. They have enabled the company to expand its range of services, which may help it to broaden its customer base and geographical reach.

Furthermore, the company achieved significant contract momentum in the second half of the year. This should help to underpin additional growth in future years, while investment in operational systems and efficiencies during 2017 enabled it to increase its cash reserves to £1.9m by the end of the year. This should provide additional capital which could be used for more growth over the medium term.

In terms of its growth potential, Bilby seems to have a bright future. It is expected to report a rise in its bottom line of 10% in the current year. This puts it on a price-to-earnings growth (PEG) ratio of 0.9, which indicates that its share price could see a recovery following a 45% fall in the last year. Certainly, it is a smaller company which, by its very nature may be high risk. However, the returns on offer may also be impressive.

Low valuation

Also offering strong earnings growth potential is strategic planning and management services provider Impellam (LSE: IPEL). It is forecast to increase its bottom line by 8% in the current year, followed by further growth of 10% next year. Despite this above-average growth rate, the company trades on a discount valuation. For example, it has a price-to-earnings (P/E) ratio of just 7.7, which suggests its share price could rise significantly even after gaining 127% in the last five years.

As well as high growth potential, Impellam also has a relatively sound income outlook. It currently yields 2.8% from a dividend which is covered around 4.5 times by profit. This indicates that it could increase shareholder payouts at a much faster pace than profit growth, while maintaining high investment in the business for long-term growth. With inflation moving higher, this could prove to be a fillip for the company’s investors. As such, buying the stock now for the long run could be a shrewd move owing to its potent mix of income, value and growth appeal.

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The upwards re-rating was long overdue, in my opinion, as the debt purchaser and manager has been exhibiting impressive earnings growth, its dividend has been building up from a modest beginning, and the shares have never been on a stretching P/E multiple.

Successful expansion overseas (it now has operations in Portugal, the Netherlands, France and Italy) has probably been the trigger for the recent bull run, and impressive 2016 results will have added to the optimism after chief executive Lee Rochford described it as “a landmark year“.

Cracking growth

Revenue rose by an impressive 42.6%, with underlying earnings per share up 28.5%. Mr Rochford told us the firm is confident of delivering “high teens EPS growth and a progressive dividend policy… over the medium-term,” offering the best of both worlds — growth and income.

In fact, we’re looking at PEG ratios of only 0.4 for this year and next, when anything under 0.7 is usually seen as a key growth indicator, with the shares dropping to a P/E of under 10 on 2018 predictions.

On top of that, dividend hikes that are way ahead of inflation should take the well-covered yield to 3.8% by 2018 — and at this rate, it could be exceeding 5% almost before we know it.

The current year is off to a great start too, with first-quarter revenue up 45% over the same period last year, and underlying pre-tax profit up 37%. And organic purchases of £77.4m across the firm’s markets should hopefully set it up for continuing healthy profits.

I see strong growth potential coupled with rising dividends, from shares which, at 404p, look cheap.

Brexit effect?

The recruitment business might not seem a likely source of growth opportunities, but I’m liking Impellam (LSE: IPEL) right now. Specialising in upmarket appointments on short-term or permanent contracts, the company has been able to grow its earnings per share by 70% between 2013 and 2016, while boosting its dividend yield similarly over the same period.

The share price has easily kept up with that, more than doubling since the end of 2013, to 783p. But since last April’s peak, it’s fallen back a little overall, and that’s created what I see as a bargain P/E — forecasts for this year suggest a multiple of only 8.3, and that would drop even lower to 7.6 on 2018 predictions.

Dividend yields should be approaching 3% by then, with cover by earnings of more than 4.5 times, so that’s not remotely stretched. 

Strong year

The year just ended showed a 21% rise in EPS with the dividend up by the same margin, after revenues grew by 20%.

Some of that was due to acquisitions, which Impellam appears to be good at managing. It’s turning the company more outwards and increasingly global, from being essentially Europe-focused. The firm spoke of “significant progress in expanding the scale and breadth” of its operations in the US, Australia and the Middle East.

I see that move as good from a sentiment point of view as well as for the bottom line, as I can’t help thinking that Brexit worries must be weighing heavily on the shares’ low rating at the moment. I don’t know when any re-rating might come, but I can see a rewarding decade ahead for Impellam shareholders.

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Hope on the horizon

The loss of investor confidence isn’t without reason. The company’s operating profits sunk 28% lower year-on-year in 2016 and warned that it didn’t expect a return to profit growth until 2018. The cratering share price also meant relegation from the FTSE 100 and unsurprisingly led to three year CEO Andy Parker being forced out of the job.

The incoming chief will inherit a business that is currently being slimmed down and reorganised. This is a much-needed step for such a sprawling company that tackles everything from collecting BBC TV license fees to mortgage application processing for the Co-operative Bank. Asset sales will also be needed as the company had £1.7bn in net debt at year end, which was a worrying 2.89 times EBITDA.

There is hope on the horizon, though. The group order backlog at year end was stable year-on-year at £3.8bn. The catastrophe that was 2016 will also allow the new CEO to make tough decision about which parts of the business to sell and which to keep. A more focused Capita that concentrates on the high margin private sector white collar work for which it made its name could be an attractive investment.

Although the company’s share may look a bargain at 9.4 times forward earnings I’d hold off making any share purchases until the new CEO can fully explain the company’s new route forward.

A stellar small cap

At the opposite end of the spectrum is relatively tiny staffing firm Impellam (LSE: IPEL). Where larger rivals have floundered shares of the company have returned over 110% in the past five years thanks to a narrowly-focused business model and a series of wise acquisitions.

Impellam’s core business is staffing higher end jobs such as doctors, lawyers and accountants on short term or permanent contracts. This has proven popular with clients and over the past five years the group’s sales have risen over 75%, to £2.1bn annually.

Much of this growth has come through acquisitions and on this front there is very good news. The company’s latest big purchases have extended the group’s reach into major markets such as Australia and the US. And these purchases are showing results already as revenue grew 20.4% year-on-year and a focus on profitability improved EBITDA margins by 21.1% over the same period.

Impellam also has the firepower to continue buying up smaller competitors thanks to a healthy balance sheet where net debt was down to 1.36 times EBITDA. With its shares trading at a very cheap 6.6 times forward earnings I’ll definitely be following this stellar small cap closely in the coming quarters.

The post This top small cap is walloping its larger rival Capita plc appeared first on The Motley Fool UK.

Redde is planning to publish its official results for the six months to December 31 at the end of February 2017 but based on trading to date, the group is expecting to report solid year-on-year sales growth. Organic growth and its acquisition of fleet accident management company FM (acquired during October 2015) have both helped to drive sales growth. Management is so confident about the company’s outlook, the board decided to announce today that it expects to declare an interim dividend of not less than 4.9p per share, an 8.9% increase on its interim dividend in the prior financial year of 4.5p.

For the financial year ending 30 June 2017, City analysts are expecting Redde to report year-on-year earnings per share growth of 2%. However, based on today’s update City forecasts could be revised higher as the company now looks set to exceed expectations. 

That said, even if Redde does exceed City expectations for growth this year, the company’s shares already look fully valued. Shares in the company are trading at a forward P/E of 16.2, so earnings growth of 16% per annum or more is needed to make the shares look cheap. Still, after today’s dividend hike Redde’s shares support a highly attractive dividend yield of 6.6%. 

Overall, for income seekers who are not too bothered about Redde’s valuation, the company could be an attractive buy. 

Cautious outlook

As Redde rises, shares in Impellam (LSE: IPEL) are sliding today after the company announced it expects earnings for 2016 will broadly meet market expectations despite disruptions suffered in the UK healthcare market. 

It seems as if the market is concerned about Impellam’s use of language here. “Will broadly meet” is hardly the most inspiring statement and implies earnings will actually come in lower than expectations for the full year. If earnings were on track to meet full-year targets, the press release would have most likely used different terminology. 

Still, City analysts have pencilled-in earnings per share growth of 14% for Impellam this year, but the market is making it clear it doesn’t believe the company can hit this target. Indeed, shares in Redde trade at a discounted seven times forward earnings, a low multiple for a firm expected to report 14% earnings growth this year and 8% earnings growth for 2017. Put simply, it looks as if the market isn’t expecting fireworks from the company anytime soon. 

However, if you’re looking for a cheap stock that’s been neglected by the market, Impellam may be for you. 

Like many of its recruiter peers, Impellam has fallen out of favour with the market due to concerns about the company’s growth outlook after Brexit. If you believe the group has what it take to weather the storm, the shares might offer value. 

The post Today’s small-cap winner and loser: Redde plc and Impellam Group plc appeared first on The Motley Fool UK.

Looking ahead, it’s expected to record an increase in its bottom line of 18% in the current year, followed by a further rise of 29% next year. Clearly, this rate of growth represents a step change for Vodafone following the fall in its bottom line of 9% last year. It seems to be at least partly because of the investment that Vodafone has made in its network and also in acquisitions across Europe. And with the Eurozone experiencing a period of quantitative easing, Vodafone’s vast exposure to Europe could be about to gain a boost for not just the next two years, but over the long run too.

As a result of this, now seems to be an opportune moment to buy a slice of the business. Its yield of 5% marks it out as a top-notch income play, which now has excellent capital growth prospects in addition to a superb yield.

Growth already pencilled-in

Also posting share price gains of late has been Gooch & Housego (LSE: GHH), with the photonic technology provider recording a rise in its valuation of 18% in the last year. While this has been good news for the company’s investors and Gooch & Housego has been able to grow its earnings by at least 11% per annum in the last three years, it now appears to be rather expensively priced. As such, its share price could come under a degree of pressure.

In fact, Gooch & Housego now trades on a price-to-earnings (P/E) ratio of 22.3 and while it’s forecast to post further growth in each of the next two years, its earnings are set to rise at a rather modest pace. For example, growth of 2% this year and 6% next year is being pencilled-in by the market and this may fail to act as a positive catalyst on Gooch & Housego’s share price over the medium term.

Geographical diversification

Meanwhile, recruitment and staffing solutions specialist Impellam (LSE: IPEL) could deliver exceptional returns in the long run. A key reason for this is its high degree of geographical diversification, with it operating in the UK and rest of Europe, Asia, Africa and North America. This means that its profitability is unlikely to be hit hard by weakness in one particular region and with there being a real possibility of Britain leaving the EU, geographical diversification could be a useful ally in the coming months.

With Impellam forecast to increase its earnings by 13% next year, investor sentiment could improve. That’s especially the case since it trades on a price-to-earnings growth (PEG) ratio of 0.5, which shows that there’s considerable upside potential.

The post Are Vodafone Group plc, Gooch & Housego plc and Impellam Group plc set to post stellar returns? appeared first on The Motley Fool UK.