I’d give it some serious consideration as a potential buy if I wasn’t already fully invested without any spare cash.

An attractive sector

The business operates as a provider of intelligent automation and customer engagement software. That’s promising because software is a sub-sector of the market that has produced some multi-bagging growth businesses over the past few years.

However, smaller companies do come with elevated risks. This one has a market capitalisation of just £141m and it lives in the FTSE AIM All-Share Index.

Earnings and share prices can be volatile with smaller companies. Netcall itself was posting some gut-thumping decreases in annual earnings in 2018 and 2019. There’s been a business recovery since, but it’s always possible for the company to hit a bad patch of trading in the future.

Nevertheless, today’s results are upbeat, and I like the strong-looking balance sheet, which shows a chunky position of net cash rather than net debt.

But good value can be more than just cheap or low financial numbers. The growth prospects of a business and qualitative factors can play a big part as well. Such considerations are the bedrock of the strategy employed by investing superstar Warren Buffett, for example.

Earnings growth ahead

With Netcall, City analysts expect an uplift in earnings of almost 14% for the current trading year to June 2025. That’s encouraging, and my hope is the business can keep up its growth rate in the years following as it rolls out its cloud-based service offering.

Meanwhile, Chief executive James Ormondroyd said the year just ended (to June 2024) had been one of strong performance. The positive figures in the report back up that statement, such as the 9% increase in year-on-year revenue and 7% in earnings.

There’s growing demand for the company’s cloud services and that’s driving increased revenue visibility and strong cash flow, Ormondroyd said.

The business made “significant” advances with its product offering including the launch of a new cloud contact centre solution called Liberty Converse CX. On top of that, Netcall is integrating GenAI capabilities across its broader Liberty platform.

A vibrant acquisition strategy

As well as organic progress, the company made three bolt-on acquisitions during the year, which enhance the firm’s market position and “open up new opportunities”.

Looking ahead, Ormondroyd said positive sales momentum has continued into the new financial year. There’s a “robust” pipeline and product roadmap, and the level of recurring revenue is growing.

Things are going well for the business, I’d say, and it may have a long runway of growth ahead. However, the market has noticed such attractions. With the share price near 88p, the forward-looking price-to-earnings — or P/E — ratio for the current trading year is almost 24 — that’s quite high.

Despite the valuation risk, I think Netcall is well worth deeper research and consideration and could sit well in a diversified long-term portfolio focused on growth.

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I reckon both could be worth taking a closer look at for potential growth in the future.

Here’s why I’m seriously considering buying some shares for my holdings.

Affordable housing

In case you’re not familiar with the UK housing market, let me break it down. Demand is outstripping supply. This is something that needs to be addressed as the population grows. Next, as the economic turbulence continues, many are struggling to find affordable housing.

Enter Springfield Properties, a Scottish housebuilder that specialises and focuses on affordable housing.

Inflationary pressures have hurt the business, and wider industry. For example, it had to put many projects on hold as they were just deemed too costly and not feasible. Continued turbulence is something that I’ll keep an eye on that could hurt the firm. Plus, looking at Springfield’s balance sheet, debt levels could be something to be worried about, but this is a lesser worry if it can win new contracts and perform well.

It seems as inflation has fallen, the business is now moving forward once more. Over £40m worth of new business has been signed in total over the past eight months. Things are looking up, if you ask me.

Plus, at present, Springfield shares may be seriously undervalued, providing a great opportunity to buy cheaper shares. The book value of its assets and land values came in at around 125p per share. As I write, the shares are trading for 88p.

Springfield is a prime example of a stock that could soar once volatility subsides, if you ask me.

Netcall

By now, you may have read that artificial intelligence (AI) is the next big thing. Apart from the major names in the industry jostling for dominance, there are smaller firms like Netcall making waves in the industry too.

Netcall specialises in AI-powered customer engagement software and process automation. It can count impressive businesses like Legal & General, the NHS, and Nationwide, as customers.

Looking at Netcall’s story, I can understand why it’s doing well. For example, performance has been growing nicely in recent years. Over the past five years, revenue has grown by over 60%. Plus, analysts reckon this trend of growing revenue is set to continue for the next two fiscal years. However, I’m conscious that past performance is not an indicator of the future. Plus, forecasts don’t always come to fruition.

The biggest issue I have with Netcall shares right now is the valuation. The shares trade on a price-to-earnings ratio of 34. I can understand this, as the potential for the software and AI implications could offer tremendous growth in the future. However, if growth were to slow, or a product issue were to occur, the shares could drop dramatically.

Overall, I reckon there’s lots to like about Netcall. It may not be going toe to toe with the AI big boys out there, but it’s quietly chipping away and making its own position in this burgeoning industry.

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Here, I’m going to highlight two top penny stocks on the London Stock Exchange. In my view, these shares have bags of potential.

In a strong position

First up is hVIVO (LSE: HVO).

It’s a small healthcare company that offers services for clinical trials and lab testing. Playing a vital role in the pharma industry, it serves several of the world’s largest global biopharmaceutical companies.

A recent trading update from hVIVO was very positive.

For starters, the company said that right now, it’s in its “strongest ever position” with 90% of 2024 revenue guidance already contracted, and record revenue visibility into 2025. For 2024, it expects to achieve revenue of £62m (+11% year on year)

Secondly, it advised that it’s on schedule to open a new state-of-the-art facility in Canary Wharf, London, in the first half of the 2024. This will enable the company to meet the growing demand for human challenge trials and allow it to further scale up. By 2028, it is hoping to be generating revenues of £100m per year.

I am excited about 2024 as we look forward to our move to a larger facility and the further diversification of our services.

Dr Yamin ‘Mo’ Khan, CEO of hVIVO

At present, hVIVO shares trade on a forward-looking price-to-earnings (P/E) ratio of around 23. This above-average valuation does add some risk.

Given the strong growth the company is generating right now, however, I think the overall risk/reward skew is attractive.

Taking a long-term view, I think the stock is likely to move higher.

Unlocking new opportunities

The other penny stock I want to highlight is Netcall (LSE: NET).

It’s a technology company that specialises in artificial intelligence-powered process automation and customer engagement software. Its customers include Legal & General, Nationwide, and the NHS.

This company has a great growth track record. Over the last five years, its revenue has grown from £21.9m to £36m (+64%) as organisations have embraced its automation solutions. And looking ahead, analysts expect the top-line growth to continue with a figure of £39.1m forecast for the year ending 30 June 2024 and £43.4m estimated for the following year.

It’s worth noting that management was quite bullish in a recent trading update. “We remain well positioned as we enter the second half, with our innovative product roadmap continuing to unlock new opportunities in a structurally-growing market,” said CEO James Ormondroyd.

Now, this stock has a higher valuation too. Currently, the forward-looking P/E ratio here is about 31.

I don’t think that’s unreasonable given that the technology company is growing rapidly and has a lot of recurring revenues.

But it does add some risk to the investment case. If growth slows, the stock could be volatile.

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To me, a growth share is backed by a business that’s posting big annual increases in earnings each year. And it will often have a high valuation to match. But there’s often a volatile share price to contend with.

Impressive figures

When valuations are high, so are the stakes for investors. And any slip in the growth numbers can affect sentiment, causing shares to plunge. But fast movements can occur to the upside as well. And if I can bag a true growth leader, the long-term performance of the investment can be worth the discomfort of holding. However, happy outcomes aren’t certain with any stock. 

Nevertheless, Netcall posted some impressive figures today with its full-year results report. The company provides software products and services and it’s growing its cloud-based offering fast. The firm’s Liberty software platform helps businesses to create “a leaner, more customer-centric organisation”. And customers include around two-thirds of the NHS Acute Health Trusts and companies such as Legal and General, Lloyds Banking Group, Santander, and Aon.

Despite all the scary general economic headlines lately, Netcall experienced “continued strong trading throughout the year”. The company’s trading year ended on 30 June. And year-on-year revenue came in 12% higher with a 30% rise in revenue from cloud services.

The improvements in turnover dropped down to the bottom line with a 44% uplift in adjusted earnings per share. And there was a strong cash performance as well with net funds rising by 97% to £13.4m.

A growing market opportunity

Chief executive Henrik Bang reckons Netcall has a “significant and growing market opportunity”. And that arises because there’s an increasing trend of organisations implementing digital strategies and business models. 

The company’s growth rates are on the rise. And Bang said the trading momentum has continued into the start of the new trading year. There’s a growing order book and higher recurring revenues. And the directors have “confidence” in Netcall’s continued success.

The future for the business appears to be in the cloud. There’s “significant” momentum from the firm’s cloud services revenue stream. And it now accounts for around 90% of new product bookings.

But although earnings are ramping up, it hasn’t always been like that. Prior to 2020, the company posted several years of declining earnings. But It seems that Netcall has found its growth mojo now. And the move to cloud-based services appears to be a big driver of the improved situation.

A full valuation

However, strong ongoing growth is never certain or guaranteed with any business. Nevertheless, City analysts have pencilled in an uplift in earnings of around 33% for the current trading year to June 2023. And with the share price near 81p, the forward-looking earning multiple is around 32.

That valuation looks well up with events, to me. So, there’s no margin for error. If Netcall experiences lower rates of growth ahead, I could lose money on my shares. Nevertheless, I like the growth story. And I’m keen to hold some of the shares for the long term to see what happens.

The post Why Netcall shares could be a genuine London-listed growth opportunity appeared first on The Motley Fool UK.

But it still leaves a few whose shares are priced at under 100p, with updates coming our way in October.

Software tech

Netcall (LSE: NET) is due to release full-year results on 5 October. The software tech stock has climbed strongly over five years. But in the past 12 months it’s been pretty flat, currently standing at 80p.

Netcall is only making modest profits, and the shares are on a fairly lofty valuation. We’re looking at a forecast price-to-earnings (P/E) ratio of over 30. But with analysts forecasting solid earnings growth, that could come down.

In July’s trading update, the company said it expects to post a 12% rise in revenue, with a gain of approximately 20% in adjusted EBITDA. In particular, Netcall’s cloud offerings should see a revenue increase of 30%.

We’re clearly looking at a growth candidate here, and the shares are not obviously priced cheaply. But I reckon it could be one to watch.

Space investments

Have you ever fancied investing in space technology? I’ve always thought it a bit fanciful, and seriously risky. If I ever went for it, ideally I’d like to spread the risk by going for an investment trust.

And there is one, Seraphim Space Investment Trust (LSE: SSIT), which describes itself as “the world’s first listed SpaceTech investment company“. It will release its full year results on 17 October.

The shares haven’t done brilliantly over the last 12 months, dropping 50%. With a share price of 61p and a market-cap of a little below £150m, Seraphim is pretty small as investment trusts go.

The company’s July update was really all about assets and acquisitions, with net assets of £250m at 31 March.

We have no idea of current net asset value (NAV), so it’s hard to evaluate the share price today. But we should have a NAV update with October’s results. I’d definitely need to see that before making any decisions.

Gold miner

Finally, down to Earth and digging for gold. I’m talking about Centamin (LSE: CEY), on a share price of 86p.

It’s declined by 5% in the past 12 months, and by 40% over five years. Meanwhile, gold is up around 40% over five years as investors seek its safety.

A gold miner is not just a play on the gold price itself. Providing the cost of production is low enough, a miner can make profits even when gold is falling, and that doesn’t happen if we buy the metal itself.

That’s where I think the risk lies. In the first half, Centamin declared a cash cost of production of $931 per ounce produced. But its all-in sustaining costs reached $1,446 per ounce sold.

That might be squeezing margins a bit tightly. Before I’d make any decision, I’d probably wait for full-year results. But a Q3 report due on 20 October should help.

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I’ve been looking for stocks to buy. And one recent addition to my portfolio is waste-to-product company Renewi (LSE: RWI).

With the share price near 785p, the FTSE Small Cap business has a market capitalisation of around £622m. And that’s well above my self-imposed lower limit of £100m.

Room to grow

I like investing in small-cap companies because they often have more room to grow over time. However, I’m not keen on the extra risks and volatility that often come with the tiniest stock market constituents.

On 14 July, Renewi released an upbeat first-quarter trading statement. In the three months to 30 June, revenue and earnings were ahead of the prior year just as the directors had previously expected.  

One risk is that the business has a history of lumpy earnings with rises in some years and declines in others. And City analysts expect that pattern to continue. There’s also a fair amount of debt on the balance sheet.

However, revenue looks set to continue its steady rise. And I reckon the firm operates in an attractive sector, given the environmental concerns of the modern world.

Meanwhile, the forward-looking earnings multiple is running around 10 for the trading year to March 2024. I think that valuation looks fair rather than cheap.

At the other end of the scale, I bought some shares in the FTSE 100 banking and financial services company HSBC (LSE: HSBA). With the share price near 517p, the market capitalisation is around £105bn.

Earnings look set to surge

Bank stocks can act as early predictors of recessions and downturns. Their share prices are often among the first to plunge. However, HSBC has been range-bound for most of 2022. And my bet is the price would probably have already plunged if it was going to in the current economic environment.

Earnings have been holding up well. And after a single-digit decline in 2022, City analysts predict a strong double-digit advance in 2023.

It’s always possible for any company to miss its estimates. But I’m hopeful that the market will look more favourably upon HSBC if the economic and geopolitical storm clouds clear in the years ahead. Meanwhile, the valuation looks attractive to me with the dividend yield running just above 5% for the current year.

The third recent addition to my share account is software specialist Netcall (LSE: NET). With the share price near 85p, the market capitalisation is around £131m. And the business can be found in the FTSE AIM ALL-SHARE index.

Fast growth, racy valuation

This is a fast-growing proposition with a racy valuation to match. City analysts expect earnings to shoot up by more than 30% in the current trading year to June 2023. And the forward-looking earnings multiple is running near 34.

I accept that a high valuation brings additional risks. If the company runs into an operational setback and misses its estimates, the share price could plunge. However, on 20 July, Netcall issued a trading update with the headline: “Strong demand driving results above FY22 market expectations”.

There are no guarantees of a positive long-term investment outcome with any of these companies. But, for the time being, things look positive. 

My plan is to hold the stocks for years as the market recovers and operational progress unfolds in each enterprise.

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Long live the King

Revenues at Kingspan Group (LSE: KGP) are climbing strongly amid growing concerns over the climate emergency. The building products business — a big player when it comes to insulation materials — saw sales leap 44% in the nine months to September, latest financials showed.

Kingspan has a huge opportunity to make big profits as interest in foam insulation rises. Analysts at BCC Research think the global market will be worth $29.5bn by 2025, up more than $7bn over a five-year period. I like Kingspan’s wide geographic footprint that should allow it to capitalise fully on this fast-growing industry too. The penny stock operates in more than 70 countries.

A word of warning however. Demand for Kingspan’s product could take a hit if incentive schemes to encourage people to insulate their homes end. Indeed, the UK government is said to be considering rolling back a £1bn levy that helps fund home insulation work.

A penny stock for the pandemic

Concerns over the Covid-19 crisis have dialled down several notches in recent weeks. Worries about the ferocity of the Omicron mutation have dropped on a raft of positive medical data. But it’s far too early to claim that the pandemic is over.

It’s why I still believe buying UK healthcare shares like BATM Advanced Communications (LSE: BVC) is a good idea. And news in recent days that a new Omicron variant is under investigation illustrates why. It seems that living alongside Covid-19 will be the new norm, as many scientists now predict. So I expect the sort of Covid-19 testing equipment that BATM manufactures to remain in high demand.

I am concerned by the amount of competition in the Covid-19 testing space. But I think the potential size of the market of the long term still makes the penny stock an attractive buy today. Besides, the steps it is taking to expand into new geographies also gives it an opportunity to capture significant sales (its RAPiDgen antigen test was approved for sale in Russia just before Christmas).

Call me up

Strong recent trading over at Netcall (LSE: NET) is encouraging me to give this tech firm a close look too. The business — which makes software that allows companies to automate their operations — saw revenues soar 10% in 2021, predominantly as demand for its cloud-based services took off. The rapid pace at which businesses are digitalising their operations is yielding big returns at companies like this.

My main concern with buying Netcall shares is the company’s high valuation. Today, the penny stock trades on a forward P/E ratio of 43 times. It’s the sort of rating that could prompt a sharp share price reversal if signs of explosive profits growth appear in danger. That said, it’s my opinion that Netcall merits such a premium, given the investment businesses are increasingly making to automate their processes.

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That’s a very nice 110% gain, and the shares have even been a bit higher. The price reached 89p at the end of September before dropping back a little. So what’s happened? Is there more to come, and am I too late to get in on this growth story?

The dream 12 months kicked off just ahead of full-year results released on 13 October 2020, and the shares have kept on up ever since. But move forward a year to 6 October with results time again, and we see the opposite’s happening. Since the market closed the day before, the Netcall share price has lost 6%.

Revenue rose by 8% to £27.2m, in line with expectations. And, perhaps more significantly, cloud business revenue increased 26% to £8.3m. Adjusted EBITDA is up 21% to £5.34m, and pre-tax profit up 98% to £0.99m. And the dividend’s also up 48% to 0.37p.

Netcall ended the year with cash of £14.5m (up 14%), against borrowings of £6.86m (up 1.6%). Many a penny stock shareholder would be envious of that.

Cloud-based transition

Chief executive Henrik Bang said: “We are pleased with the solid performance for the year driven by demand for our cloud-based Liberty offering, resulting in 26% growth in cloud business revenue and a significant increase in profitability as Netcall continues the transition to a cloud business mode.”

Might the transition word suggest reasons for hesitancy? I mean, we do often see it used to mean something’s gone wrong, and a company needs to make some changes sharpish. So what is being transitioned?

Netcall provides software for companies to automate their process and their customer services. It does seem to be popular, and the cloud transition thing just looks like a natural technical progression to me. So I’d say the shift to this cloud-based Liberty platform looks good.

The company reported adjusted diluted EPS of 1.43p (up 47%). On that basis, the current Netcall share price gives us a P/E of 56. And that seems a bit high.

Perhaps the push beyond penny stock status won’t be here just yet. Still, if we should get another year like this one and another 47% EPS growth, the P/E would come down to 38. And for what I see as solid growth potential, that would start to look reasonable.

Penny stock surge?

But Netcall shares have had false starts several times over the past five years. And though the price has more than doubled over the past year, it’s only about 5% higher than the peak it reached in 2018. Earnings in 2018 were higher than this year too, and took a dive by June 2019. Maybe there’s more to this transition thing after all.

I do think I’m seeing attractive growth potential here, and I suspect I’ll lose out buy not buying. But the current valuation, coupled with the volatility in both earnings and share prices, means I don’t see enough safety margin.

I’ll wait and see if the earnings growth of the past couple of years proves sustainable.

The post This penny stock has doubled in a year. Am I too late to buy? appeared first on The Motley Fool UK.

That said, there’s nothing wrong with me buying a quality stock I think might rise in value in the short term, provided I’d be happy to hold it for several years at least. Over this sort of timescale there’s a good chance the company could still make me terrific returns, even if its share price sinks in the near term.

With this in mind, here are two top UK shares I’m thinking of buying in October.

The magic touch

Profits at Bloomsbury Publishing (LSE: BMY) soared during 2020 as Covid-19 lockdowns prompted a surge in reading. It’d be a mistake to think this surge was a flash in the pan though. The publisher upgraded its full-year guidance back in June, thanks to continued strong trading. And it subsequently announced at its AGM that sales rocketed 28% in the four months to June.

I think the UK share could release another set of impressive financials when half-year results come out on 27 October. In fact, I’d buy Bloomsbury shares with a view to holding them for a long, long time. Its Consumer division, led by the evergreen Harry Potter franchise, continues to go from strength to strength. And the company’s recent foray into the field of academic publishing is already paying off handsomely too.

I’m also encouraged by Bloomsbury’s hunger for acquisitions, a strategy that recently saw it snap up Head of Zeus and Red Globe Press.

However, an M&A-led growth strategy leaves a company in danger of overpaying for an asset, perhaps even acquiring what ultimately proves to be a dud.

But I’m encouraged by Bloomsbury’s track record on this front, though past performance is, of course, no guarantee of future success.

A top UK tech share to buy

I think Netcall (LSE: NET) could be another great UK share to buy in October. The tech business has already rocketed 120% in value over the past 12 months. I think more gains could be recorded once full-year results are unpacked on 6 October.

Netcall provides software that helps companies automate their processes and engage their customers more effectively. It’s therefore in great shape to exploit the increased amount of spending by businesses on digitalising their operations. Demand for Netcall’s cloud-based product is particularly strong and recurring revenue here shot 16% higher in the 12 months to June.

Netcall hiked its full-year expectations when it released its interims in February. I think the firm’s continued strong momentum could prompt further upgrades in the weeks and months ahead too. The company drew attention to its “strong pipeline and… substantial market opportunity” last time out.

I’d buy this share, even though a stuttering economic recovery could damage earnings in the near term.

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Compared to blue chips, penny shares can be riskier investments, but they can also be better growth investments. That is why I like to keep a mix of both blue chip stocks and penny stocks in my portfolio. 

Here are two companies I am looking to add to my portfolio at some point in the future and would invest at least £5k in. 

Penny stocks I would buy 

The first company on my list is Netcall (LSE: NET). This is a software provider that offers intelligent automation and customer engagement software. Netcall has experienced rapid growth like many other tech businesses over the past 18 months. 

Based on the firm’s targets, City analysts expect the enterprise to report sales of around £27m for fiscal 2021, up 17.4% from the level reported for the 2019 financial year. 

The company confirmed this in a recent trading update. The update also added that cloud computing is now Netcall’s largest division. Recurring revenue from this arm expanded 26% for the year to the end of June 2021.

Netcall also informed the market that the company has a robust order backlog. I reckon this will help support growth in the months and years ahead. 

I think the company’s recent growth highlights its potential. That is why I would buy Netcall for my portfolio of penny shares. 

However, while I believe the company has potential, I am also aware that with revenues of just £27m, it is a tiny business in the world of technology.

Competitors like Microsoft generate tens of billions of dollars in profits and can spend enormous sums on research and development. It may never be able to compete with these enterprises, which will always be a risk to Netcall’s growth potential. 

Rising demand 

As well as Netcall, I would also buy Finncap (LSE: FCAP) for my penny stock portfolio. The investment adviser and broker has more than doubled in size since 2016, and I think it has a lot of potential as the demand for wealth management services expands. 

As the wealth of the middle class in the UK grows, the demand for wealth management services is increasing. The sector is also experiencing consolidation. Costs are rising across the industry, forcing companies into each other’s arms as they try and push down costs and achieve operating synergies. 

This is both a challenge and an opportunity for the group. A larger peer could acquire Finncap. Or it could be squashed by competitors who can offer more for less. 

Despite this obvious risk, I am impressed by Finncap’s growth track record. With £5m of net cash on the balance sheet, I think the firm is well funded for its next stage of growth, which could begin to unfold during the next few years. 

These are the reasons I would buy the broker for my portfolio of penny stocks right now. 

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