Beyond the usual metrics, I also like to dig into the balance sheet. Debt levels, cash flows and margins all give a clearer view of how sustainable a company’s growth really is.

With that in mind, two FTSE shares I like the look of this month are Petershill Partners (LSE: PHLL) and EnQuest (LSE: ENQ). Both look undervalued relative to their earnings power, although each comes with its own set of risks.

Here, I explain why I think both stocks are worth keeping on the radar in September.

Petershill Partners

Petershill Partners is an investment firm that provides capital and strategic support to alternative asset managers. It is not a household name, yet its numbers caught my attention.

The share price is up only 7.5% over the past year, but earnings have grown 162%. That gives Petershill an eye-catching earnings yield of 25%. I could only find one other UK-listed investment trust with a higher yield. Add to that an extremely low P/E ratio of 4 and the combination looks tempting.

The market doesn’t appear to have priced in this growth just yet, so there could be potential for the share price to follow. That said, it would be unrealistic to expect earnings to continue expanding at that pace. Analysts have pencilled in a forward P/E ratio of 14, but this may also be factoring in some share price growth rather than a collapse in profitability.

One risk is that earnings from investment firms can be lumpy, especially when dependent on performance fees. Market downturns could also reduce valuations of the underlying assets Petershill manages.

What gives me confidence however, is the company’s free cash flow (FCF) margin of almost 60%. While that’s not unusual for an investment firm, it is high for one trading at such a low valuation. 

If nothing else, Petershill has ample cash to plough into fresh opportunities, so I think it’s a good stock for investors to think about in September.

EnQuest

EnQuest is a small-cap oil and gas producer operating in the North Sea and Malaysia. It became profitable again in 2024, posting earnings of £73.39m and achieving a net margin of 7.88%.

The balance sheet also looks healthier. Over the past four years, EnQuest has cut its debt almost in half, from £1.5bn to £798m. Profitability is decent, with return on equity (ROE) standing at 18.5%. Most striking is the forward P/E ratio of just 2.8, which suggests high expectations of continued earnings growth.

Expansion plans are also noteworthy. In August, EnQuest signed production-sharing contracts with the Indonesian government to enter the Gaea and Gaea II exploration blocks in Papua Barat. This followed similar agreements in July to develop the Merpati Field offshore Brunei.

Oil and gas companies are exposed to notable risks and EnQuest is no exception. It faces volatile commodity prices, regulatory pressures and geopolitical uncertainty in unstable regions.

Still, with debt trending lower and fresh projects under way, I think it is another promising FTSE share to consider this month.

The post 2 undervalued FTSE shares to consider in September appeared first on The Motley Fool UK.

One share that stands out to me at the moment is Petershill Partners (LSE: PHLL). While the name might not be familiar to every investor, there’s a lot going on beneath the surface that I think is worth exploring.

A financial look at Petershill

Petershill was established by Goldman Sachs back in 2007 as a means to provide investors indirect exposure to the lucrative private equity market. It floated on the London Stock Exchange in 2021 and currently manages around $8.5bn in assets.

Unfortunately for early investors, the share price hasn’t been kind. Petershill lost around 10% of its value shortly after listing, and today sits 35% lower than where it started three and a half years ago. However, that decline is exactly why it’s popped up on my radar.

The shares currently change hands for just £2.27, which looks remarkably cheap when stacked against earnings. Its price-to-earnings (P/E) ratio’s only 3.82, and its price-to-book (P/B) ratio’s just 0.6. On paper, this suggests the market might be significantly undervaluing the company’s earnings power and underlying assets.

Dividends and profits

Turning to income, Petershill sports a dividend yield of 5.2%, well covered by a low payout ratio of 19.5%. This means there’s plenty of room for dividends to keep flowing even if profits take a modest knock. That said, it doesn’t have a long history of paying or growing dividends. While the payout’s been rising at roughly 3% a year since 2022, there’s no guarantee this trend will continue.

Looking under the bonnet, Petershill seems solidly profitable. Its return on equity (ROE) sits at 16.46%, and it boasts an astonishing operating margin of 299.5%, highlighting the high-margin nature of alternative asset management. Free cash flow margins are also strong at 59.2%, supporting dividend payments and operational flexibility. On the balance sheet side, it’s reassuring to see a healthy £4bn in equity against only £464m in debt.

Risks and forecasts

Of course, no investment is without risk. Petershill operates in the private equity space, which tends to be more opaque and can be vulnerable to downturns if economic conditions sour. There’s also concentration risk – if the private equity sector underperforms, it could hurt overall profits.

Even so, analysts remain optimistic. The consensus view is for the share price to rise around 20% over the next year, helped by the fact Petershill has beaten earnings and revenue expectations for three years running. Forecasts suggest this momentum should continue.

So is it a buy?

All things considered, Petershill looks like one of the cheaper income plays on the FTSE 250 right now. A 5% yield supported by healthy cash flows, plus rock-bottom valuation multiples, is hard to ignore. 

Personally, I’d want to keep an eye on how its private equity investments perform in a potentially softer economic climate. But for income seekers willing to accept the unique risks of alternative asset management, it’s a compelling option to consider for a diversified dividend portfolio.

The post Down 35% with a 5% yield! Is this the cheapest dividend stock on the FTSE 250? appeared first on The Motley Fool UK.