Darktrace said it was in discussions with technology investment company Thoma Bravo regarding a cash offer. Talks are currently in a preliminary stage and Thoma Bravo has until 12 September to confirm its intention.

Following the Darktrace share price

Shares of British fashion brand Ted Baker also soared by 17% after a cash offer by Authentic Brands. The Forever 21 owner agreed to buy Ted Baker for 110p per share, in a deal worth around £211m.

With the pound trading near an all-time-low against the dollar, UK shares could look particularly attractive to larger US firms or private equity investors.

That got me thinking. Which British shares could be targeted next?

Top British shares

I’d look for companies that own strong brands that could fit nicely within much larger global competitors. For instance, I reckon Fevertree Drinks (LSE:FEVR) might look attractive to a drinks giant like Coca Cola or Pepsico.

Fevertree is a market leader in the premium tonics category. It operates an asset-light model that allows it to generate a double-digit return on capital employed. That’s a key measure of business quality, in my opinion.

It experienced phenomenal growth since being founded in 2005. It benefited by being a first-mover in this segment and quickly expanding its distribution network across dozens of countries.

That said, it has attracted competition over the years. So it remains to be seen if Fevertree can maintain its high profit margins and market share.

Overall though, it’s a cash-rich business with no debt. Its share price has also tumbled by 54% over the past year. I reckon it would make an attractive bid target. But even if a deal doesn’t happen, I’d still buy these shares for its brand value and quality characteristics.

Cash in the sofas

Next, I reckon furniture and flooring business SCS (LSE:SCS) is ripe for a takeover. With a market capitalisation of just £55m, it’s tiny. But it has a lot going for it, in my opinion.

It’s one of the most cash-rich companies that I’ve come across and has more cash than its market cap. That could be a highly attractive factor for a potential buyer.

Regardless of any possible attractor, I’d buy this share for its 9% dividend yield alone. Its share price has already fallen by 46% over the past year and I reckon it has priced in a significant slowdown in customer activity. It now trades at prices last seen at the height of the pandemic.

Many smaller competitors might struggle to survive in this sector as the rising cost of living impacts spending on big-ticket items like sofas. Bear in mind that in the short term, this could affect SCS too but the strength of its balance sheet suggests that it should survive. Overall, I reckon it would make a solid long-term holding for my Stocks and Shares ISA. But hopefully one day, a potential suitor will come along and SCS will soar like the Darktrace share price.

The post Darktrace share price soars 20% on takeover news! Who could be next? appeared first on The Motley Fool UK.

I always aim to add to my portfolio during market corrections. Although it’s uncomfortable to see share prices falling so sharply, over the years these situations have created some of my best long-term buying opportunities.

A bargain retailer with a 7% yield?

The first company I’m interested in is sofa and carpet retailer SCS Group (LSE: SCS). This stock hit an all-time high of more than 300p in August last year, but has since fallen more than 40% to around 185p.

I’m surprised by the size of this fall. SCS has continued to trade well through the winter, even as life has returned to normal and travel and experience spending has increased.

In its latest update, SCS reported a 17% increase in orders for the six months to 29 January, compared to a year earlier. Helpfully, the company also included a comparison with the same period in pre-pandemic 2019/20. This showed new orders are now at the same level as they were before Covid-19 started to cause problems.

The main risks I can see at this time are rising prices and pressure on incomes that could cause people to cut back on home spending. As we head into the main holiday season, people might also be planning trips abroad rather than buying new sofas.

Even so, I think that SCS now looks too cheap for me to ignore. The latest guidance from the firm is that profits should be in line with expectations. That prices the shares on less than seven times 2021/22 forecast earnings, with a 6.9% dividend yield. I’m tempted to add this penny stock to my portfolio at this level.

A defensive business in uncertain times

One area where our shopping habits don’t change much in difficult times is the supermarket. My next pick, Finsbury Food (LSE: FIF), produces a wide range of bread and cakes for retailers across the UK.

Finsbury produces staple everyday items and affordable treats. In my view, shoppers are unlikely to ditch them from their shopping trolleys, even if prices rise slightly.

I think pricing power could be an important consideration over the coming months, unfortunately. The war in Ukraine has pushed up energy costs and commodity prices, notably wheat, which is a key ingredient for Finsbury.

Fortunately, I think Finsbury is in good shape to handle inflationary pressures. The company says it was able to pass on price increases during the second half of 2021. This is expected to result in higher profits in early 2022.

Although this improvement may now be smaller than originally hoped for, I think Finsbury’s share price already reflects this risk. The stock has fallen by nearly 20% since the start of the year, leaving the company trading on a modest eight times forecast earnings. There’s also a useful 3% dividend yield, which looks safe to me.

I already own Finsbury shares, but I’d be comfortable buying more at current levels.

A play on gold

The price of gold has risen 7% over the last month to more than $1,900 per ounce. Although I’m not generally a gold investor, I can see the attraction of owning the metal during uncertain times.

I’m thinking about adding some exposure to my portfolio by buying shares in pawnbroker H&T Group (LSE: HAT). H&T is exposed to the price of gold through jewellery retail and its scrap gold business, which operate alongside its core pawnbroking business.

One risk here is that H&T’s operations have quite a lot of moving parts. Profits from trading gold might rise, but other areas of the business may underperform. Even so, I think this company is well positioned to deliver an improved performance in 2022.

The company says that gold trading volumes improved during the final quarter of last year. Second-hand watch and jewellery sales “exceeded expectations” over the Christmas period, with retail sales in general now back to pre-pandemic levels.

Broker forecasts suggest H&T’s earnings will rise by as much as 50% this year, with further gains pencilled in for 2023. These estimates price its shares on nine times 2022 earnings, with a potential dividend yield of 4.4%. I’m tempted to buy a few for my portfolio.

A penny stock Peter Lynch would buy?

In his book ‘One Up on Wall Street’, famed US growth investor Peter Lynch advised investors to buy what you know. He pointed out examples of high street brands that had gone on to become huge successes, long after they appeared in his local neighbourhood.

I think this remains a useful tip today. One consumer stock I’m considering is discount retailer Shoe Zone (LSE: SHOE). This group sells through stores and online and is focused on the cheaper end of the footwear market.

Although Shoe Zone sells some branded names, the majority of its stock is made directly for the firm by contract manufacturers. This locks in attractive profit margins, despite Shoe Zone’s low pricing points. I’ve bought a few pairs of shoes from my local store and have no complaints, for the price.

I should point out that Shoe Zone survived a near-death experience early in the pandemic. The company’s online presence was lagging and a number of its stores became unprofitable.

One risk I can see is that the group’s recovery will hit a limit and that profits will come under pressure again from rising costs. I believe much of the firm’s stock is made in China so increased shipping costs and delays could cause problems.

However, so far, I think founders John and Anthony Smith have delivered an impressive turnaround. They’ve improved online performance, closed 50 unprofitable stores and updated others to more profitable formats.

Shoe Zone’s share price has doubled since October. The shares aren’t a screaming bargain anymore, but I still think they look good value. A price/earnings ratio of 12 doesn’t seem too high to me for a business that has been very profitable in the past. I’m tempted to start buying this penny stock for my portfolio.

The post 4 bargain penny stocks I’d buy in March appeared first on The Motley Fool UK.

With the benefit of hindsight, I’d do things a little differently. Here, I want to explain how I’d invest £3,000 today if I was starting from scratch.

Before I start, a quick health warning. Investing in the stock market can be a great way to build wealth, but the future value of shares is always uncertain. Share prices can fall and there’s no protection if things go wrong.

For this reason, I’d always make sure I had at least three-six months’ income saved in cash before I put money into the stock market.

How I’d start investing in stocks

Three thousand pounds is not a huge amount in stock market terms, but I think it is enough to build a decent starter portfolio.

What I’d do is invest £2,000 in an investment trust. This would give me exposure to a ready-made portfolio, run by professional management.

The one I’d choose is City of London Investment Trust (LSE: CTY). This trust invests in good quality large companies, with a bias towards dividend stocks. City of London’s largest holdings including drinks giant Diageo, British American Tobacco, Tesco and insurer Phoenix Group.

However, this trust is not just a FTSE 100 clone. Its portfolio also includes FTSE 250 dividend stocks and overseas firms such as Microsoft, and Swiss-based Nestle.

City of London shares currently offer a dividend yield of 4.8%. This is usefully higher than the FTSE 100 yield of around 4%. I also consider the trust’s payout to be exceptionally safe — it has increased its dividend for 54 consecutive years. That’s one of the longest records in the UK market.

What to watch

I feel confident I could put my money into City of London Investment Trust and probably never need to sell. But one risk that concerns me is that the trust’s focus on income could mean its share price growth underperforms the wider market during periods of strong growth.

Another possibility is that the trust will alter its strategy or increase its fees — both could leave shareholder returns lagging a cheaper index tracker fund.

However, these risks would not stop me buying City of London Investment Trust. On balance, I think it would be an ideal way for me to create a starter portfolio with limited cash.

Here’s how I’d invest the final £1k

I’ll admit City of London Investment Trust is quite boring. It’s never likely to make headlines or deliver the kind of rapid gains possible with a successful growth stock. 

Personally, I’ve got no problem with this. Where my money is concerned, I don’t want too much excitement. But as an active investor, I do want to have a chance of beating the market and finding big winners.

For this reason, I’d use the final £1,000 of my £3,000 budget to invest in small-cap growth stocks. The smallest amount I’ll invest in a single stock is £500, to limit the impact of trading costs. With £1k, I’d be able to add a couple  stocks to my portfolio.

So here I’m going to look at two small-cap stocks I’m interested today.

#Small-cap 1: a genuine bargain?

My first pick is currency exchange specialist Argentex (LSE: AGFX). This £100m company specialises in providing forex services to companies and wealthy individuals. After a difficult period in 2020, this business appears to have returned to growth.

Revenue rose by 33% to £15.7m during the six months to 30 September, while pre-tax profit was up 22%, at £3.3m. Profit margins are high, at around 27%. Argentex also converts most of its income to cash, supporting a useful forecast dividend yield of 2.6%.

Founder and chief executive Harry Adams owns 12.3% of Argentex stock. Therefore, I reckon his interests should be well-aligned with those of shareholders.

The main risk I can see is this sector is increasingly competitive. There are a number of smaller companies who are cutting the cost of foreign exchange and fighting to take market share from the big banks.

There’s no guarantee that Argentex will be a long-term winner. But the stock looks cheap to me on 11 times 2022 forecast earnings. If it can hit earnings growth forecasts of 34% for the current year, I think the shares could rise sharply. This is a stock I’d like to add to my portfolio.

#Small-cap 2: a UK consumer favourite

Sofa and carpet retailer ScS Group (LSE: SCS) benefited from a surge of pent-up demand last year and delivered very strong sales.

The company says that new orders have now returned to pre-pandemic levels after last year’s post-lockdown surge. But ScS’s order book of £132m at 20 November is still nearly double the level seen before the pandemic. This suggests to me that profits should be strong this year as the order book is gradually delivered.

One attraction for investors here is that ScS does not have to pay upfront for its stock. Instead, it collects a customer deposit and then orders from its suppliers. Customers must pay for their products before delivery, but ScS does not normally pay its suppliers until the end of the month following delivery.

As a result of this model, the retailer generates a lot of cash. At the end of the last financial year (July 2021), the group reported net cash of about £50m, excluding customer deposits.

The main risk I can see is that when ScS next reports, we’ll find an order slowdown since last year has continued. With travel likely to reopen this summer, people may choose to spend on holidays instead. Rising inflation could also be a problem, as it may put household finances under pressure.

As I write, its shares are trading on just eight times forecast earnings, with a forecast dividend yield of 5.9%. I think the shares are probably cheap at this level, especially given the company’s net cash position. So ScS is a stock I’d consider buying today.

The post Here’s how I’d invest £3,000 if I was starting from scratch today appeared first on The Motley Fool UK.

A top UK share

The shares are cheap and have got even cheaper. September was not particularly kind to the Vertu Motors share price. That decline potentially lays the groundwork for a bounce-back in October. On a P/E of six and with much of its value backed by physical property, there could be a good margin of safety with this share.

The industry is experiencing exceptional prices, which is a potential ongoing opportunity as semiconductors needed for new cars remain in short supply. This is boosting second hand car values and therefore car dealers like Vertu.

According to broker Liberum, sales at Vertu will go from £2.55bn this year to £3.90bn by 2023. That to me looks like very solid top line growth for such a cheap company. The company will also move from a net debt to a net cash position in those years.

The group’s property, according to the analysts at Liberum, is worth 61p a share. The analysis has an 80p target price. With the shares trading at the time of writing at about 52p, that’s a pretty comfortable margin of safety, I feel. 

I like the management team too. The CEO has been with the company since it was formed. He, along with the chief financial officer (CFO), knows the business and the market inside out and both are well placed to handle the risks facing the car dealership business.

On the downside, the market could continue to punish the shares because it sees the company as being in a market in long-term decline. Operating margins are also very slim, leaving relatively little room for error if costs increase.

Also, returns on capital aren’t particularly high, so compared to other industries this isn’t an obviously massively profitable market. Yet Vertu itself is consistently profitable. That’s why I may add to my holding.

Results incoming      

SCS Group (LSE: SCS), the furniture retailer, is another cheap share that I think could do well in October. Its final results are out on 5 October. If these exceed expectations, then it could really help the stock recover from recent falls and set the tone for how the shares do through October as valuations by analysts are upgraded. Of course, the results could also disappoint and the shares could fall further.

Yet the ongoing trend towards home improvement as people work from home is what makes me believe the results could be strong. Plus the retailer has previously revealed it expects to be ahead of market expectations in the full-year results, so that supports my view.

As does the performance at DFS Furniture, which has also been upbeat. Its full-year revenues were up 47.4%. And it said it was experiencing strong demand. So there’s a precedent of strong financial performance from a rival. 

Assuming that SCS can deliver a really good set of results, this could see the shares do well in October. But with the share price likely to reflect the results, I’ll wait to see them before deciding whether to buy or not.

The post A top share that could do very well in October appeared first on The Motley Fool UK.

Rupert Hargreaves: Braemar Shipping Services 

Braemar Shipping Services (LSE: BMS) is an international shipbroker and shipping services provider. Its exposure to seaborne trade suggests the company is highly leveraged to the global economic recovery. Indeed, analysts reckon group earnings per share will increase 40% this fiscal year. 

Based on these projections, the stock looks cheap trading at a forward price-to-earnings (P/E) multiple of 12.8. 

The company’s valuation and growth potential are the reasons why I’d buy Braemar as a recovery stock in July. 

That said, if the economic recovery fails to live up to expectations, Braemar may be one of the first to suffer. As such, this investment has quite a high level of risk. 

Rupert Hargreaves does not own shares in Braemar Shipping Services.

Edward Sheldon: Keystone Law

My top small-cap stock is Keystone Law (LSE: KEYS). It’s an innovative, platform-based law firm that’s disrupting the UK legal industry. Last year, it won ‘Law Firm of the Year’ at The Lawyer Awards.  

Keystone has generated strong revenue and profit growth in recent years and I expect it to continue doing so in the years ahead. In the short term, the company should benefit as the UK reopens and economic activity picks up. In the long run, the expansion of its platform should drive top- and bottom-line growth higher.

One thing to be aware of is that the stock’s valuation is quite high. This adds risk to the investment case. Overall, however, I think the risk/reward proposition here is attractive.

Edward Sheldon owns shares in Keystone Law

Harshil Patel: Cake Box Holdings 

Cake Box Holdings (LSE:CBOX) is a specialist retailer of fresh cream cakes. It’s a franchise business and delivers most of its growth by opening new stores.  

So it’s encouraging to see a strong pipeline of new locations. It currently has 157 franchised stores and another 18-24 are expected this year. It’s also trialing several kiosks with a national supermarket. 

At some point, locations could become saturated and an optimum number of stores will be reached. That said, there’s currently plenty of eligible franchise applicants and potential locations to keep Cake Box growing.  

Overall, Cake Box is a quality company led by entrepreneurial management. I like that it offers double-digit earnings growth and strong margins. Its balance sheet looks strong and even offers a well-covered dividend. 

Harshil Patel owns shares in Cake Box Holdings.

Tom Rodgers: SCS

With home refurbishment markets booming, sofa manufacturer SCS Group (LSE:SCS) is my top small-cap stock for July 2021. The £116m market cap firm has produced operating profit growth of 30.6% in the last 12 months as sales and profits surge post-lockdown. Dividends are expected to return in force, as high as 12p per share for 2022, offering substantial future income even after a 40% rise in the share price in the year to date. A forward P/E of 11 times earnings is cheap and I see more upside for July and beyond.

Tom has no position in SCS at time of writing.

G A Chester: B.P. Marsh & Partners 

Founded in 1990, and still founder-led, B.P. Marsh & Partners (LSE: BPM) is a specialist private equity investor in early stage financial services businesses. There’s higher risk with fledgling businesses, but the company has an impressive long-term record of growing its net asset value (NAV). It reported another year of growth last month, with NAV up £13m to £150m. 

The stock is currently priced with a market capitalisation around £120m. In other words, at a 20% discount to NAV. Given the company’s track record of delivering strong shareholder returns (including dividends), and the growth prospects of its investee businesses, I think there’s exceptional value on offer here. 

G A Chester has no position in B.P. Marsh & Partners.

Zaven Boyrazian: Bioventix 

Bioventix (LSE:BVXP) is a biotech company that manufactures specialised antibodies for blood testing. It’s a niche product. But remains an essential ingredient for diagnosing almost every type of disease – including Covid-19.

The firm generates revenue from direct sales to in-vitro diagnostic companies and royalties from any product developed using its propriety material. The latter has yet to evolve into a substantial source of income. But it does provide the facility for a recurring revenue stream in the future.

Bioventix operates in a highly regulated industry. This undoubtedly adds some operational risks. Suppose the firm or any of its royalty-generating customers fail to comply with regulations. In that case, its reputation and income could be compromised. But personally, I think the potential reward is worth the risk.

Zaven Boyrazian does not own shares in Bioventix.

Roland Head: Vertu Motors

Car dealership group Vertu Motors (LSE: VTU) is one of the UK’s largest motor retailers, with brands including Bristol Street Motors. Vertu says that demand for used cars is “exceptional” at the moment. The latest update from the company revealed strong trading and triggered an upgrade to profit forecasts.

The main risk flagged by the company is that the global chip shortage will cause delays to new car deliveries. However, Vertu’s share price is covered by the value of the group’s property portfolio, and the business currently trades on just seven times forecast earnings. Brokers are also forecasting a useful 3.6% dividend yield this year.

In my view, Vertu looks like a good, cheap, small-cap stock. I recently added the shares to my portfolio.

Roland Head owns shares of Vertu Motors.

Paul Summers: SDI Group

Having multi-bagged over the last year, shares in shares in scientific product maker SDI Group (LSE: SCI) look expensive. However, I suspect they could eventually be worth a lot more thanks to an acquisition-focused growth strategy similar to that of FTSE 100 top stock Halma.

There could even be more upside in July. The company stated in May that it would exceed previous estimates on FY21 revenue and adjusted pre-tax profit (given in February). I wonder if trading since then, combined with the lifting of restrictions, will lead management to also upgrade its FY22 guidance later this month.

Paul Summers has no position in SDI Group or Halma.

Christopher Ruane: M&C Saatchi

Things have been looking up for the previously troubled advertising small-cap stock M&C Saatchi (LSE: SAA).

The shares are up 156% already over the past year. For a company whose survival was in question at one point, that is impressive. But I see further possible gains ahead. The advertising market generally is buoyant. M&C Saatchi is poised to benefit from that. The company recently lifted its forecast for the year.

The company’s reputation remains tarnished, though, which could act as a dampener on growth.

Christopher Ruane does not own shares in M&C Saatchi.

Royston Wild: Begbies Traynor 

The British government’s furlough schemes have helped keep a lid on insolvency rates during the pandemic. But with these financial support programmes set to end, I think now could be a good time to invest in Begbies Traynor Group (LSE: BEG). 

Indeed, buying this UK share before full-year results are released on Tuesday 20 July could be a very good idea. Despite a depressed insolvency market Begbies Traynor said in May that full-year revenues would grow ahead of market expectations following a strong fourth-quarter performance. News that trading has remained robust in the new financial period (to April 2022) could help lift the small cap again following recent share price weakness.

At current prices Begbies Traynor trades on a rock-bottom forward price-to-earnings (PEG) ratio of 0.4. This provides plenty of scope for a fresh move higher.

Royston Wild does not own shares in Begbies Traynor. 

The post Top small-cap stocks for July appeared first on The Motley Fool UK.

So, I’m looking at shares that have recently reported business strength. When a company reports trading that’s better than management expectations, it can understandably result in a rising share price. Not just for the day, but for months or even years.

Future stock market returns

One example is Future (LSE: FUTR), a global platform for specialist media. In May, it reported record first-half revenue and profit, materially ahead of market expectations. Its share price responded positively on the day and has risen even higher since then.

I reckon these hot UK shares have further momentum that could drive the share price higher over the summer. Management also expects full-year results to be “materially ahead” of market expectations.

Future has two main divisions — media and magazines. The performance was driven by digital advertising and e-commerce growth in the media division. It also reported record user engagement with online user growth of 31% year-on-year.

A word of warning, however. The company remains cautious about the wider macroeconomic outlook associated with Covid-19.  Also, changing user habits could affect Future’s advertising revenues. With an increasing use of mobile devices, Future will need to ensure its advertising offering stays relevant.

That said, these UK shares are still cheap in my opinion. Offering growing earnings, reasonable profit margins and a glowing outlook, I’m tempted to add some to my Stocks and Shares ISA.

So far so good

DFS Furniture (LSE:DFS) recently reported a strong trading performance. Total orders were up a staggering 92% in Q4 vs the same period in 2019.

This performance was driven by customers who’d been waiting for showrooms to open post-lockdown. In addition, it looks like people have increased their spending on home items in the past year. A combination of higher savings and spending more time at home seem to have sparked the desire for a new sofa.

It’s worth pointing out that more recent revenue growth could be affected by sector-wide shipping delays, Covid-19 disruption of factory production and higher raw material costs.

Overall, the business is still set for growth. Its share price is up by 69% over the past year, but I still think there’s room for further gains.

UK shares to sit and hold onto

I think the trends that DFS is seeing bode well for SCS (LSE:SCS) too. In fact, I’m tempted to buy both. SCS has a stronger balance sheet with plenty of cash. It also reported strong performance in its last interim results. That was several months ago in March, so I reckon it’s likely due another update soon.

Some of the best UK shares to invest in are those of smaller companies, in my opinion. With a market capitalisation of £115m, I’d say SCS falls firmly in this group.

The downsides that SCS is facing are likely to be similar to DFS, namely higher material costs and shipping delays. That said, I see SCS as a well-managed company and it’s well-funded too. At a price-to-earnings ratio of 13x its shares are relatively cheap, in my opinion. 

In conclusion, I’d consider buying all three shares this summer. 

The post 3 hot UK shares I’d buy this summer appeared first on The Motley Fool UK.

Why I’d buy these UK small-caps

For example, SCS (LSE: SCS) is one of the UK’s largest retailers of upholstered furniture and floorings. And it has a market capitalisation of about £90m. I think the business looks well placed as lockdowns ease and people potentially flock back to the shops to spend some of the lockdown cash they’ve saved. The firm issued a bumper set of interim figures in March covering the period to 23 January.

Chief executive David Knight is “cautiously optimistic” about the outlook because the firm’s doors will reopen soon. However, the recent performance of the business underlines the progress SCS has made in developing sales through its digital channels.

But one risk is that the share price has already returned to its pre-pandemic level. And another is that pent-up demand could already have been released because customers were able to order online. And with more time on their hands during lockdowns, many people might have turned their attention to household matters.

It’s possible demand for SCS’s products could ease in the months ahead now that the lockdowns are lifting and people will be busy with other matters. Nevertheless, I’m tempted to tuck away a few of the shares to hold for the long term.

Growth on the agenda

February’s half-year results report from Finsbury Food (LSE: FIF) showed this UK small-cap’s business took a bit of a knock from the pandemic. The figures covered the six months to 26 December 2020 and revealed lower revenue and earnings.

But the speciality bakery manufacturer of cake, bread and morning goods for the retail and foodservice channels looks set to recover as restrictions lift. Chief executive John Duffy said the half-time performance was “resilient”. And looking ahead, he’s “confident” retail operations will bounce back when conditions normalise.

Organic growth is likely from emerging trends such as artisan and free-from food products. And Finsbury also enjoys a “leading position” in more established areas such as cake bites, buns and rolls. Duffy said growth is on the agenda for the long term. And the company is making progress in driving efficiency gains, synergies and scale benefits for the business and its supply chains.

Meanwhile, with the share price near 78p, the market capitalisation is around £100m. And the valuation looks modest with a forward-looking earnings multiple close to nine for the trading year to June 2022.

However, although earnings look set to bounce back in the current trading year, City analysts expect a modest, low-single-digit percentage advance in the following year. So the company’s ambitious growth plans could march to a slow tune when it comes to execution. And the company has a patchy record of earnings over the past few years and a history of volatility in the share price.

Finsbury Food isn’t a no-brainer. And the stock opportunity comes with plenty of risks. Nevertheless, I’m prepared to buy a few shares now and hold them for the long-term potential of the underlying business.

The post 2 UK small-caps I’d buy with my new ISA allowance appeared first on The Motley Fool UK.

I recently explained why fresh trading data from Associated British Foods spells bad news for Britain’s beleaguered clothing retailers. The evidence of a worsening storm continues to mount elsewhere too. John Lewis was also chiming in with troubling trading news on Tuesday.

Sales set to sink

The British shopping institution has been in the doghouse because of weak consumer confidence caused by Brexit uncertainty. The more recent pandemic outbreak, however, means total sales at John Lewis could crash 35% in 2020, it says. It’s a shocking forecast that assumes “significant sales decline between April and June, and weak sales thereafter,” the retailer commented.

John Lewis is suffering from falling demand for its more profitable lines. As the business succinctly noted: “We are buying more Scrabble but fewer sofas.” It’s no wonder sales of big-ticket, discretionary items are slumping. Britons are prioritising essential items like groceries and putting off purchases of expensive goods in expectation of a severe economic downturn. Those final comments should certainly give ScS Group (LSE: SCS) more to worry about.

Shutdown stress

The furniture retailer announced it was axing the interim dividend earlier this month in response to the Covid-19 crisis. It comes after ScS said it was shuttering its stores, its distribution network, and its head office to protect both workers and customers.

The business had seen sales begin to decline before the UK-wide lockdown came into play though. It witnessed reduced footfall in the week leading up to 17 March, it said. That John Lewis update shows ScS could face a battle to get sales moving once quarantine measures are rolled back and tough economic conditions persist too.

Go for better ISA buys

Of course, ScS has been in some trouble owing to the uncertain political and economic picture created by Brexit. Like-for-like orders were down 4.4% during the six months to January. The UK’s future relationship with Europe might not be top of the list of Britons’ concerns right now. But it’s an extra problem that looms over the retail sector for this year and beyond.

City analysts expect earnings to sink 19% in the current financial year (to July), a figure that could be chopped down should quarantine measures remain in place into the summer. Estimates of a 4% bottom-line rebound are in danger of being culled too, given the economic shock that’s rapidly developing.

ScS is cheap on paper. The company sports a forward price-to-earnings (or P/E) ratio of 6.5 times. This is a signal of the enormous risks it faces in the near-term and beyond though. I’d happily avoid this particular cheap stock and put my ISA cash to hard work elsewhere.

The post ISA investors! Should you buy this cheap stock and its P/E ratio of 6.5x? appeared first on The Motley Fool UK.

There’s a reason why SCS is so cheap, however. City analysts expect earnings to fall 22% this year, but as financials this week showed, there’s plenty of scope for these already-insipid forecasts to be hacked down. In that latest statement, it said that like-for-like orders fell 7.1% in the 17 weeks to November 23, underlining the significant worsening in trading conditions of late. By comparison, two-year like-for-like orders were down a more modest 4%.

“Ongoing economic and political uncertainties are continuing to impact consumer confidence and spending,” SCS said. And as Brexit uncertainty threatens to spill over into 2020 (and possibly beyond), it’d be foolish to expect business to pick up any time soon.

A better income stock?

I’d much rather plough my investment pennies into Bovis Homes Group (LSE: BVS), a share which remains a brilliant dividend bet despite signs of a cooling UK economy and severe Brexit-related tension.

There are a number of factors that continue to drive demand for new-builds in Britain, most notably rock-bottom interest rates, mortgage product wars across the country’s lenders, the Help to Buy purchase incentive scheme, and a lack of existing homes entering the market.

But one decisive factor that commands considerably fewer column inches is the contribution that the so-called Bank of Mum and Dad is having on helping first-time buyers leap onto the ladder. Indeed, according to the boffins at Legal & General, the average contribution made by parents to their children in order to buy property has risen to £24,100, up £6,000 from a year ago.

In total, Britain’s parents will have given a whopping £6.3bn this year, the insurance leviathan estimates, a £600m improvement from 2018 levels. To put this in context, Legal & General notes that “the figure effectively makes the Bank of Mum and Dad the 11th largest mortgage lender in the UK,” adding that “its contribution dwarfs government schemes to address the problem of housing affordability, such as Help to Buy.”

8.5% yields!

All things considered, then, it’s not a surprise that, despite the broader homes market facing its toughest period for decades, City analysts believe conditions remain supportive enough for profits for most of the homebuilders to keep chugging higher. Consensus suggests, for instance, that Bovis’s bottom line will swell 9% in 2020.

The days of rip-roaring earnings growth might be gone, sure, but these firms’ capacity to keep throwing out spectacular dividends remains intact. Thus, based on current estimates, Bovis carries a market-beating 8.5% yield for next year. Combine this with a rock-bottom forward P/E ratio of 10.4 times and I reckon the builder is a brilliant buy today.

The post These dirt-cheap dividend shares yield 7%+! Too good to miss or investment traps? appeared first on The Motley Fool UK.

The firm’s biggest problem is that it could run out of cash in September. Boss Chris Fraser needs to raise $500m from lenders this month. Without this, the firm may lose access to the $2.5bn credit facility it needs to fund the remaining build costs for the Woodsmith Mine.

Mr Fraser made an unsuccessful attempt to raise the cash earlier in August. Another effort is expected in September. But the stakes are high for shareholders. I believe that failure to secure this funding could leave shareholders facing a total wipe-out, even if the mine goes ahead.

I’m not keen on speculative, loss-making businesses like Sirius. The risks of a big loss are too high for me.

I prefer to invest in profitable companies with proven business models. In the remainder of this article I’m going to highlight two small-cap stocks I believe could be profitable long-term buys.

A contrarian buy?

Discount shoe retailer Shoe Zone (LSE: SHOE) has so far managed to deliver stable results despite retail headwinds. But the firm issued a profit warning today.

Management said that “challenging” conditions since May mean that full-year profits are likely to be lower than expected.

Chief executive Nick Davis has put on his walking boots and leaves with immediate effect. He’ll be replaced by the executive chairman, Anthony Smith.

Mr Smith and his brother Charles, who is chief operating officer, will once again occupy the two top executive roles at the firm. Between them, the two men control more than 50% of Shoe Zone shares. So they have a strong incentive to turn the business around.

In fairness, I think they have a good track record. Since its flotation in 2014, Shoe Zone has delivered stable profit margins and an average return on capital employed of 24%. The company has ended each year with net cash and shareholders have received generous dividend payouts.

Although this business appears to be struggling with growth, its value offering still seems relevant to me. Falling rents have cut store costs and I can see this business retaining a place on our high streets.

I rarely back stocks after a profit warning, but I think that Shoe Zone could be worth buying at under 140p.

Are you sitting comfortably?

Sofa and carpet retailer SCS Group (LSE: SCS) is another firm that has so far avoided the wider retail slump. The firm’s most recent trading update confirmed that the group achieved a 4.2% rise in like-for-like sales during the year to 27 July.

Full-year results are expected to be in line with expectations, putting the stock on a price/earnings ratio of nine, with a dividend yield of 7%.

Like Shoe Zone, SCS generates very high returns on capital and lots of surplus cash. Management has wisely kept the balance sheet debt-free.

Of course, sales would be likely to slump in a recession, as consumers cut back on spending.

That’s not happened yet. For now, analysts expect SCS to report a small drop in profit during the 2019/20 financial year and to maintain its dividend.

Although retailers selling big-ticket items are not without risk at the moment, I rate this as one of the better choices in this sector.

The post Sirius Minerals shares have tanked. I’d rather buy these small-cap stocks appeared first on The Motley Fool UK.