And this growth has continued through 2017 with the company reporting a stellar full-year trading update this morning. Revenue rose 19% year-on-year thanks in large part to new hotel developments beginning trading.

But management wasn’t just relying on new rooms to drive rises as strong economic growth and a rebound in tourism across Europe drove like-for-like revenue up 10%. The aforementioned economic tailwinds and weak sterling also helped increase like-for-like revenue per available room, a key industry metric, by 11.5% to £92.4.

However, despite another solid year under its belt, I’m not in any rush to buy shares of PPHE. The main reason is one outside management’s control, namely the macroeconomic environment across Europe. While animal spirits appear to have been unleashed in the EU, PPHE has a high reliance on London and emerging issues such as slow wage growth, rising inflation and the Brexit process all create a bit too much uncertainty to make me comfortable owning such a cyclical business.

This is especially true because, unlike its larger and almost completely franchised peer Intercontinental Hotels Group, PPHE owns some of its hotels outright in addition to managing others and franchising out some. When property markets are booming as they have over the past few years, this provides a nice earnings uplift as property valuations rise, but should the market crater, the reverse would also be true.

Add in a non-bargain valuation of 18 times earnings, a gearing ratio of 57.2% as of June, and I see a few reasons for bearish investors to behave cautiously as regards PPHE, despite continued double-digit revenue growth.

Lawyers making a bundle

Instead, I’ve got my eye on fast-growing, Neil Woodford holding Burford Capital (LSE: BUR). The group has a pretty unique business model for a listed company in that it provides funding for commercial litigation and then takes a cut of any proceeds from the case.

This business model has proven a hit with corporate clients who hate to spend big on lawyers for cases that can drag on for many years and cost many millions in legal fees. But this patience has worked out incredibly well for Burford with the group’s income rocketing over the past five years from $19.5m in H1 2013 to $175.5m as of H1 2017.

Looking forward, there are good signs rapid growth can continue as Burford continues to raise additional funds through re-investing earnings, issuing debt and growing its investment management side of the business. In fact, in calendar year 2017 the company invested $1.3bn in new commitments, more than triple the figure in 2016.

While earnings are likely to be lumpy, particularly in 2017 as a single case returned an astonishing five times return on the sale of just a 25% stake in the outcome, I think Burford’s market-leading position in a growth industry, proven management team and strong financial position make it very attractive company over the long term.  

The post Why I’d sell this growth stock for a Neil Woodford-backed flyer appeared first on The Motley Fool UK.

Impressive growth

Mid-range hotel operator PPHE Hotel Group (LSE: PPH) operates the Park Plaza, art’otel and Arena hotel brands. In total the group has 39 hotels in Europe, the Middle East and Africa.

Business appears to be good. Like-for-like revenue has risen by 13.1% to £232m during the nine months to 30 September. Revenue per available room (RevPAR) has risen by 12.2% to £91.7 over the period, helped by a 2.7% increase in occupancy to 76.7%.

The fourth quarter is usually the strongest period of the year, excluding Croatia, and management says it’s confident of meeting full-year expectations.

Why I’d buy

PPHE Hotel’s shares don’t seem especially expensive to me. The stock currently trades at 1.1 times its book value of 986p, on a 2017 forecast P/E of 16. A dividend yield of 2.2%, covered three times by earnings, is expected this year.

Although this valuation may not seem cheap, the company is delivering steady growth and is expected to report a 20% increase in earnings per share next year.

In addition to operating hotels that it owns, the group is also making use of lease and franchise opportunities to deliver faster growth and reduce capital expenditure. This is a strategy that’s been pursued very successfully by some other groups, notably FTSE 100 firm InterContinental Hotels.

PPHE has outperformed the FTSE 100 by 43% over the last year. I believe there could be more to come.

Long-term growth

Another company that’s outperformed the FTSE this year is Morgan Advanced Materials (LSE: MGAM). This company uses ceramics, carbon and composite to make a wide range of products, including insulators, technical ceramics and equipment for foundries.

After several years of flat performance, the outlook appears to be improving. The group’s return on capital employed (ROCE) — an important measure of profitability — rose from 11.8% to 16.4% last year.

A high ROCE is generally attractive to investors, as it increases a company’s ability to fund its own growth without needing to borrow cash. A figure of more than 15% is generally considered to be very good.

Morgan appears to be taking advantage of this growing profitability by increasing spending on research and development. This should help to build the foundations needed for new product ranges and long-term growth.

Another attraction for shareholders is that a high ROCE also tends to correspond with strong free cash flow generation, which supports dividend payments.

Is the price right?

Morgan Advanced Materials currently trades on a 2017 forecast P/E of 14.5, with a prospective yield of 3.5%. These figures seem reasonable to me for a growing business.

If the company can deliver the expected double-digit earnings growth next year, I’d expect the shares to continue performing well. In the meantime, the dividend yield of 3.5% is higher than the FTSE 250 average of 2.7%, providing a worthwhile income.

The post 2 under-the-radar income stocks that should beat the FTSE 100 appeared first on The Motley Fool UK.

Strong brands

Highlights include like-for-like revenue almost 16% higher than a year ago and normalised profit before tax moving up a little over 10%, which the directors matched with a 10% hike in the interim dividend.

The company’s biggest market is the UK, which delivered around 60% of revenues during the period, The Netherlands contributed 18%, Croatia 10%, Germany and Hungary 10%, and 2% came from management services. Reported revenue came in at £141.8m during the first half of the year, generated from around 9,000 rooms in 39 hotels that are either owned, leased, managed or franchised. Most of the firm’s hotels are branded Park Plaza or art’otel, with the latter name owned outright by PPHE. Meanwhile an exclusive licence from Carlson Hotels — one of the world’s largest hotel groups – allows the firm to develop and operate Park Plaza Hotels & Resorts in Europe, the Middle East and Africa. 

Expanding fast

For most hotel firms trading conditions have entered what looks like a ‘purple patch’ and PPHE is taking full advantage with a vibrant expansion programme. Deputy chief executive and chief financial officer Chen Moravsky highlights in today’s report the offering of shares in the firm’s Croatian subsidiary called Arena Hospitality Group, which raised around €106m to accelerate growth in Central and Eastern Europe. PPHE retains a 51.97% controlling interest in a move that I think emphasises the firm’s creative approach to financing growth. Other fund-raising events include a sale and leaseback of the recently opened Park Plaza London Waterloo hotel.

Around 706 rooms were added in London during the period and the development pipeline includes two new hotels expected to add 500 rooms by the end of 2019. City analysts following the firm reckon earnings will decline 11% during 2017 and increase by 21% during 2018. Growth is on the agenda and I think the stock is worthy of your further research.

Great expectations

I’d rather take my chances with PPHE than hybrid estate agency Purplebricks Group (LSE: PURP).  Back in June with its full-year results, Purplebricks announced revenue 151% higher compared to the year before at £46.7m. That’s a cracking rate of revenue growth and looks exciting if it can be sustained. Around 93% came from the UK and the rest from Australia, but the firm has its sights set on the American market too.

However, the firm is still making a loss, and at today’s share price of 463p, the £1,257m market capitalisation is almost 27 times the revenue figure. We can compare that to traditional estate agent Countrywide, which has a revenue figure running at just over twice its £322m market capitalisation. The difference between the two firms’ valuations is striking and the market seems to be pricing in an outcome in which Purplebricks disrupts and devastates the estate agency industry while cleaning up on profits along the way. It may happen, but it hasn’t happened yet and the current valuation appears to leave little room for setbacks, so I’m avoiding the shares.

The post 1 mid-cap stock I’d buy over Purplebricks Group plc appeared first on The Motley Fool UK.

Last month, Gulf Marine lowered its EBITDA guidance for 2016 to $100m-$110m from the $115m-$120m it had forecast in March. There was no further reduction to the guidance in the company’s half-year results today — something the market had perhaps feared — and the shares are up 8% at 46p, as I’m writing.

The table below shows how Gulf Marine thrived through 2015, despite the tough oil backdrop, and how trading has deteriorated in H1 2016 and is set to worsen markedly in H2.

* Based on company full-year EBITDA margin guidance of “in the high 50% range.” I’ve used 58%.

** Based on company full-year EBITDA guidance of $100m-$110m.

If Gulf Marine meets full-year guidance, which includes an EPS range of 14.5-15.5 cents, we’re looking at a bargain price-to-earnings ratio of about four.

However, net debt stood at $371.4m (plus finance lease obligations of $41.5m) at the half-year end, and the company expects this to rise to $395m (plus $40m) by the end of the year. This dwarfs Gulf’s market cap of around £160m ($210m), which is on the face of it, a major concern.

However, management expects net debt to begin falling next year, as a period of heavy capex comes to an end, and has shown its confidence in the financial outlook by maintaining the interim dividend today, which gives a running yield of 3.4%.

So, on one hand we have a deteriorating near-term trading and debt outlook, and, on the other, a management confident of riding it out, a very cheap earnings rating and a handy dividend yield. I see Gulf Marine as an attractive opportunity for investors looking for a stock at the higher end of the risk/reward spectrum.

Buy on a profit warning?

The market was less enamoured with today’s half-year results from PPHE Hotel Group (LSE: PPH). The shares dived 9% to 732p when the market opened, although they’ve recovered a little to 742p, as I’m writing.

The Park Plaza and art’otel group said that trading for 2016 remains in line with the board’s previous expectations. But it added: “Due to slightly delayed hotel openings, for which pre-opening expenses have been incurred without a significant amount of revenue contribution to offset such expenses, the Board expects that this timing difference may result in the Group’s results being behind market expectations.”

Revenue for the first half of the year was up 9.2% on the same period last year, but occupancy was down and EBITDA declined 7.4%. There were few bright spots among the group’s predominantly European operations, but the board is excited about a pipeline of renovation projects and new hotel openings.

Analyst forecasts ahead of today’s profit warning put the company on a P/E of 11 with a prospective dividend yield of 2.5%. But earnings downgrades will push the P/E up, and I’m taking a cautious view on the outlook for the group, particularly with the increased terrorist activity we’ve been seeing in Europe, because PPHE’s hotels are largely located in major gateway cities and regional centres.

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