It happened to the Sanderson Design Group (LSE: SDG) share price on 27 June, as the stock crashed by 20% to 82.5p. It’s back up a bit as I write, but still down in penny stock territory.

The share price soared in 2021. But it’s now lost a whopping 63% from its peak. And it’s down 5.5% in five years.

What it does

Sanderson Design does upmarket wallpapers, fabrics, and other interior decor. A few years ago, sales were rising, and profits were growing along with them.

The stock became a bit of a growth star, and than can often mean one thing… too high a valuation.

The price-to-earnings (P/E) ratio ended 2021 up above 20. That’s often cheap for a growth stock with years of rising earnings ahead of it. But for a small-cap interior decor firm? Hmm.

Sales and profits leveled off, growth investors dumped the stock, and the share price went into a slide.

What happened

What just happened to trigger this 20% crash? A profit warning.

In a trading update on the 27th, the company told us that UK trading conditions “have deteriorated, impacting brand product sales during the months of May and June“.

Total brand product sales fell 9% in the first 22 weeks of the year. And in the UK, the firm’s biggest market, sales dropped 14%.

As a result, “the board expects group trading in the current financial year to be below its earlier expectations. Underlying profits before tax for the year ended 31 January 2025 are now expected to be in the region of £8 million“.

What next

The intention now is to speed up cost savings and other plans. And the board reminded us that it’s in a strong cash position, which provides some safety.

At 31 January, the balance sheet boasted net cash of £16.3m.

We should hear how things develop further on 31 July, when Sanderson is due to post a first-half trading update.

What to do?

Prior to the profit warning, we were looking at a forecast P/E of 14, staying steady at that level for the next few years. That doesn’t include net cash, though. If I adjust for that, I get an equivalent P/E of around 10.

There’s a forecast dividend yield of 4.2%. But we’ll need to wait for H1 results for news on that. My feeling is that the cash balance should mean the firm can afford it, though cost savings might demand otherwise.

The luxury end of the home decor market is perhaps the riskiest. But I can see it picking up again when interest rates drop.

And I can’t help thinking this might be a buying opportunity. I’ll wait for interim figures, though.

The post This penny share just fell 20%. Time to load up? appeared first on The Motley Fool UK.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Accrol Group Holdings

What it does: Accrol produces toilet rolls, kitchen towels, and facial tissue products for major grocery retailers.

By Charlie Carman. Tissue manufacturer Accrol Group Holdings (LSE: ACRL) doesn’t exactly operate in a sexy sector on the face of it. However, a look at the firm’s finances makes this stock more glamorous than it might first appear.

Revenue growth exploded by 64% in the most recent half-year results. In addition, the business now has 21.5% of the market share based on sales volume. That’s a huge increase from the 5.6% share it had in 2017.

The Blackburn-based company has increased volumes across all product categories, but facial tissues (+50.2%) and wet wipes (+120%) have seen particularly impressive growth. Accrol is targeting further expansion opportunities in these areas.

One risk facing the firm is the 41% increase in net debt to £30.5m. However, the business has issued guidance that it’s already trading marginally ahead of expectations for FY23. If it can continue to deliver rapid growth, I think Accrol’s future looks bright.

Charlie Carman has no positions in Accrol Group Holdings.

Begbies Traynor Group 

What it does: Begbies Traynor provides professional services in fields including insolvency, asset sales and funding. 

By Royston Wild. Rising economic optimism has fuelled significant stock market gains in recent weeks. But improved investor confidence has seen many counter-cyclical shares plummet in value. 

Insolvency specialist Begbies Traynor Group (LSE:BEG) is one UK small-cap stock that’s sank since the start of 2023. In fact it’s down a hefty 10%. I believe that this reversal presents an excellent dip-buying opportunity. 

The number of companies in severe financial distress has ballooned and is tipped to keep rising. Last week business advisory firm FRP Advisory predicted that business volumes in the restructuring and administration market will grow this year.  

It said too that enquiries for its restructuring services “continues to rise.” I therefore think that heavy recent selling of Begbies Traynor shares is premature. 

Persistent inflation and increased borrowing costs are playing havoc with company balance sheets. With economists tipping a recession lasting well into 2024 conditions are likely to remain extremely difficult, too. And so businesses like Begbies Traynor could continue to generate robust earnings.

Royston Wild does not own shares in Begbies Traynor or FRP Advisory. 

Begbies Traynor

What it does: Begbies Traynor Group plc is a business recovery, financial advisory and property services consultancy company

By Paul Summers: Shares in insolvency specialist Begbies Traynor (LSE: BEG) have done fairly well over the last 12 months. That’s not really surprising considering the bleak forecasts that have been hitting the headlines.

I think there could be more gains to come. Back in December, the company said that it expected “continued growth” due to “higher levels of enquiries and increasing economic headwinds”.

Sure, the Bank of England now believes a UK recession will now be shorter and less severe than first thought. However, I reckon a lot of small businesses could still be in deep trouble. A Q3 update from Begbies is due before the end of the month.

The stock isn’t expensive either. I can grab a slice for 13 times forecast earnings. There’s a near-3% yield in the offing too.  

Having once been a holder, I’m tempted to buy back in.

Paul Summers does not own shares in Begbies Traynor.

Creo Medical

What it does: Creo Medical is a medical devices company that manufactures electrosurgical products used in endoscopic surgery.

By Ben McPoland. It’s been a stomach-churning 12 months for investors in Creo Medical (LSE: CREO) shares. After sliding 80%, the small-cap stock has shot up 65% in the last month. That’s due to a £28.5m fund raise. It may raise more money shortly via another share placement, which risks volatility in the stock.

However, the loss-making firm expects this cash will see it through to profitability, as adoption of its minimally-invasive surgical technology picks up worldwide. Its leading product is called Speedboat, which is a device attached to an endoscope. These are traditionally only used to diagnose diseases, not treat them. But Creo’s products can dissect, resect, coagulate and inject, all in a single device.

Last year, it signed a multi-year deal with med-tech giant Intuitive Surgical to optimise certain Creo products to be compatible with Intuitive’s robotic technology. This is a huge endorsement of Creo’s technology, and any future licensing revenue should be very high-margin.

At 31p a share, the long-term upside could be significant.

Ben McPoland owns shares in Creo Medical.

DX Group

What it does: DX Group is a delivery company that specialises in IDW (irregular dimensions and weight) packages and parcels.

By John Fieldsend. DX Group (LSE:DX.), with a current market cap of £169m, trades at around 28p. That’s a share price that is down around 78% from all-time highs. And despite the seemingly downward trend, the recent news has all been positive. 

Revenue has been increasing, with year-on-year growth in each of the last seven years taking total revenue from £287.9m in 2016 to £428.2m in 2022. Net earnings have been more of a problem as the company was unprofitable for some time, and this is likely the reason for the stuttering share price. However, the latest earnings showed a profit of £22.1m at an earnings-per-share of 2.9p.

Looking forward, the ongoing desertion of high streets in favour of online shopping is a strong tailwind for the company. A recession and the cost-of-living crisis may pose a problem, but overall, the company looks like a strong small-cap stock to me.

John Fieldsend does not own shares in DX Group.

Keystone Law

What it does: Keystone Law is an innovative UK legal firm that operates a scalable platform model.

By Edward Sheldon, CFA. Keystone Law’s (LSE: KEYS) share price has taken a big hit since the start of last year and I’m not convinced the fall is justified.

This is a company that has grown at an impressive rate in recent years as it has added lawyers to its platform. Between FY2019 and FY2022, revenues climbed more than 60%.

And recently, the small-cap stock advised that it delivered another strong performance for the six-month period ended 31 January, 2023.

Of course, the big risk here is a lengthy UK recession. This could have an impact on the company’s sales and profits as demand for legal services is correlated to economic growth.

After the large share price fall, however, I think the risk/reward proposition here is attractive. Currently, the stock’s price-to-earnings (P/E) ratio is in the low 20s. That seems very reasonable to me, given the company’s track record and long-term growth potential.

Edward Sheldon owns shares in Keystone Law.

Sanderson Design

What it does: Sanderson Design is a UK-based luxury interior furnishings company, specialising in wallpaper, fabrics and paints.

By Harshil Patel. Some of the best small-cap stocks often have turnaround potential. One such share that I’d buy in March is Sanderson Design (LSE:SDG). Just a few years ago, a new CEO arrived and set out a clear strategy to drive sales.

She streamlined the number of products and made the business much more efficient. The next step is to leverage Sanderson’s designs to maximise their value.

In addition to its own manufacturing capabilities, it also offers a licencing model. This part of the business is highly profitable.

The turnaround seems to be making progress. Its high-margin licencing business performed very strongly last year, with sales up by 23% to £6.4m.

It also recently announced a major licencing agreement for its Clarke & Clarke brand with FTSE 100 retailer Next. That sounds encouraging to me.

Sanderson is cash-generative and has a solid balance sheet. With a price-to-earnings ratio of just 9, I’d say it’s too cheap to ignore.

Harshil Patel does not own shares in Sanderson Design.

Superdry

What it does: Superdry is a clothing brand with both retail and wholesale operations, combining vintage Americana styling with Japanese graphic design elements.

By Christopher Ruane. The founder and chief executive of Superdry (LSE: SDRY) has been topping up his stake lately. The shares have risks but look like a bargain to me, and I continue to hold them in my own portfolio.

The risks were highlighted by the company’s move last year to refinance some debt with high-interest loans. That suggests the retailer may have struggled to persuade mainstream lenders about its business prospects. Without the right financing in place, the seasonal cash flows common in the retail sector can kill a company.

But with a price-to-earnings ratio in the mid single digits, I see that risk as already priced in. Superdry has an iconic brand and revenues are growing, albeit modestly. I think the company could continue to grow in 2023 and see its current share price as cheap for such a well-known apparel brand. Apparently the firm’s boss feels the same way, given his recent purchase.

Christopher Ruane owns shares in Superdry.

UPGS Global Sourcing

What it does: UPGS owns and distributes a wide range of consumer products under homeware brands such as Salter and Beldray.

By Roland Head. UPGS Global Sourcing (LSE: UPGS) may not be a familiar name, but the small-cap stock’s products are a common sight in UK homes.

Growth was strong during the pandemic but slowed last year, as retailers cleared overstocking. However, UPGS’s outsourced production model means that the company doesn’t have too much cash tied up in stock.

Management are hoping to emulate the group’s UK success in other European markets, including Germany. Progress so far looks promising to me, but I can also see a risk that the group’s brand-driven UK strategy might not work so well in less familiar markets.

This business has generated attractive returns in the past, and February’s trading update confirmed results for the year to 31 July should be in line with forecasts. That prices the stock on nine time forecast earnings, with a 5% dividend yield.

I see UPGS as a decent buy at this level.

Roland Head does not own shares in UPGS Global Sourcing.

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Trading performance is unlikely to have got any better since the home furnishings firm updated shareholders during August. Indeed, I am expecting slew of fresh horrors when it releases half year numbers on October 10.

More nerve-racking releases

Last month the AIM quoted company declared that “trading in the half year continues to reflect the difficult marketplace,” with sales of its branded products having dropped 5.7% during the six months to July.

The West London firm had also shocked the market with a fresh profit warning just a week earlier, warning at the time that “new information on the potential profit contribution from [a] large licensing agreement” would see full-year profit before tax “fall materially short of the board’s expectations,” at between £9.5m and £10m.

As if this wasn’t enough, Walker Greenbank advised it was viewing the critical autumn period “with renewed caution” as trading troubles had intensified in July following a brief improvement, with orders in the year-to-date slumping below expectations.

Cheap but chilling

The question now is whether the low, low forward P/E ratio of 6.1 times now fully bakes-in the probable scale of any further problems. I believe not, and expect additional frightful commentary in the months ahead. The City is currently predicting a 27% earnings slide in the 12 months to January 2019, a figure I can see being downgraded (along with the expected 3% earnings rise in fiscal 2020).

A jumbo prospective dividend yield of 6.3% through to the end of next year isn’t enough to draw me in either. I see additional scope for Walker Greenbank’s share price to slide some more.

Yields rise to around 8%

In fact, I reckon Walker Greenbank shareholders may want to consider selling the business before that potentially-disastrous trading update and snap up some shares in Stobart Group (LSE: STOB) instead.

The boardroom shenanigans at the FTSE 250 firm have continued to dominate the financial newswires and overshadowed fresh news of strong trading at the support services business. I’m expecting another robust set of numbers when interim results are released on October 24.

In July, Stobart confirmed that it remains on track to hit the 5m-passenger-per-year landmark at London Southend airport by 2022, as well as its objective of freighting more than 3m tonnes of renewable energy fuel each year by this date. What’s more, it also repeated its goal of “realising value through disposal of our non-operating assets to support the dividend.”

Reflecting this drive to bolster the balance sheet, the City believes Stobart will be able to lift the dividend to 18.5p per share in the year to February 2019, despite an anticipated 84% profits fall. Moreover, the projected 96% earnings rebound predicted for fiscal 2020 supports estimates of a 19.1p reward.

These anticipated windfalls produce meaty yields of 7.6% and 7.9% respectively. And I am tipping yields at Stobart to remain impressive as the company makes good progress on its growth plans.

A forward P/E ratio of 45.7 times is expensive on paper, but in my opinion the firm is worth every penny.

The post A brilliant 6%+ yielder that I’d buy before October (and one that I’d sell) appeared first on The Motley Fool UK.

What’s more, the company has a relatively stable balance sheet with net gearing of only 9% and interest cover of 16.1 times. 

However, as today’s full-year results for release from the luxury interior furnishings group shows, Walker is facing significant business headwinds that will limit its growth going forward. 

Another warning 

Today the company reported a 20.2% jump in adjusted underlying profit before tax and 6.2% increase in earnings per share, mainly thanks to the acquisition of Clarke & Clarke, completed last year. 

With earnings rising, management has decided to hike the final dividend by 20.3% giving a total dividend for the year of 4.4p. But despite these upbeat headline figures, a more troubling trend is emerging in the underlying business. 

Following a profit warning in November, the company has today announced another warning on growth, noting alongside results that trading in the current financial year “reflects a difficult marketplace, particularly in the UK.” The statement goes on to say that “in the first nine weeks of the current financial year, brand sales were down 8.3% in the UK.” 

Unfortunately, international sales are not doing much to pick up the slack either. Overseas sales declined 6.1% in reportable currency. These figures reflect broader industry trends, and it is unlikely, in my opinion, that the business is going to see a sudden uptick in demand any time soon. 

With this being the case, despite Walker’s attractive valuation of only 8.7 times forward earnings, I would avoid it in favour of growth champion Howden Joinery (LSE: HDWN). 

A unique business model 

Howden is not immune to the headwinds affecting the broader retail industry, but it is better placed, in my opinion, to weather the storm. 

As I pointed out at the end of January, Howden’s business model is unique in that each of the group’s depots is run as an individual business where managers receive a significant share of the profit. This incentive model has helped the company grow profitably without over expanding or becoming involved in any costly price wars. It has also helped the business retain key talent. 

By putting staff in control, Howden has seen its net profit grow at a compound annual growth rate of 17% for the past five years, and its dividend to shareholders has increased at a rate of 30% per annum over the same period. Meanwhile, cash on the balance sheet has risen from £95m to just over £241m, enough to fund dividend distributions for three-and-a-half years if profit evaporated overnight. 

And while Walker is struggling in the current environment, at the beginning of March, Howden announced that the robust trading it had seen in 2017 (revenue growth of 7.1%) had continued into 2018. 

So overall, Howden looks to be the better income and growth investment even though shares in the company are slightly more expensive. The stock currently trades at a forward P/E of 14.3 and yields 2.6%. Nonetheless, in my opinion, it’s worth paying a premium to profit from its outperformance.

The post Is this one of the best income and growth stocks to buy right now? appeared first on The Motley Fool UK.

Corrections such as this aren’t uncommon after a long period of growth. The good news is that most major global economies still seem to be in good health, so corporate profits should remain stable.

In fact, the trigger for the falls seems to be strong US wage growth and the likelihood of rising interest rates. This could cause investors to shift cash from stocks to government bonds.

My view is that the current market sell-off isn’t a serious concern. I don’t plan to sell anything and may even buy more shares. After all, lower prices mean higher dividend yields, and cheaper valuations.

Unfairly cheap?

Shares in upmarket interior furnishings group Walker Greenbank (LSE: WGB) rose by 4% today, after the firm issued a solid year-end trading update. Sales are expected to have risen by 17.9% to £108.9m, thanks to “increased overseas sales” and “licensing momentum”.

This good news will be a relief to shareholders. Walker Greenbank stock fell by more than 40% in November, after the group issued a profit warning. And in December, the company’s Loughborough wallpaper factory was hit by a fire.

A return to growth?

Today’s trading update indicates that full-year results should be in line with expectations. However, there still seem to be some concerns over UK brand sales, which fell by 6.1% excluding a recent acquisition.

Fortunately, growth elsewhere seems to be offsetting this slowdown. International sales rose by 23% last year, and UK sales including the Clarke & Clarke acquisition rose by 13.8%.

I think the UK weakness is something to watch, but not necessarily a cause for concern. The shares remain very cheap after today’s news, trading on a forecast P/E of 9 for the year ahead, with a prospective yield of 3.6%. Given the group’s strong balance sheet, I think this is too cheap. I’d be happy to buy today.

A wizard choice

Harry Potter publisher Bloomsbury Publishing (LSE: BMY) has lost 7% in Tuesday’s market sell-off. Shares in the group have now fallen by 15% so far this year. Despite this, I don’t think investors have much to worry about. Indeed, I’m quite tempted to add a few shares to my own portfolio.

Although the print publishing business is expected to face a long-term decline, Bloomsbury has so far avoided problems. A major reason for this is that it’s the main publisher of the Harry Potter series.

Alongside this, the group’s Adult division also publishes celebrity non-fiction books such as Tom Kerridge’s Dopamine Diet, a recent number one bestseller. A third part of the business focuses on academic titles.

A blockbuster set of figures

It’s not only Bloomsbury’s books that make good reading. The group’s accounts are also a pleasure to absorb, featuring strong cash generation, stable profit margins and a welcome lack of debt.

City brokers have become increasingly keen on this business, upgrading their earnings forecasts by almost 10% in 12 months. After today’s falls, the shares trade on a forecast P/E of 12.5 with a prospective yield of 4.4%. In my view, that’s cheap enough for this quality stock to deserve a closer look.

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Indeed, for the six-month period to 31 July, sales jumped by nearly a third to £54.3m. This figure included a £10.3m contribution from Clarke & Clarke, the fabrics and wallpaper business acquired in October 2016. Adjusted operating profit before tax for the group as a whole hit £5.9m, compared with £3.8m for the first half of 2016/17.

On the back of these impressive first half numbers, for the full-year City analysts were predicting 16% growth in earnings per share to 15.9p and 105% growth in pre-tax profit to £14.3. 

Unfortunately, it now looks as if these numbers were highly optimistic. 

Skidding to a halt

Today, shares in Walker Greenbank have slumped by around 25% after the company warned on profits for the full-year. According to the press release from the firm, the upbeat selling conditions experienced during the first half, which were expected to continue have “not been sustained, ” and brand sales (excluding Clarke & Clarke) have “weakened significantly against management’s expectations.”

It seems the trading weakness stems from the firm’s largest market, the UK. The release notes that while overall sales are suffering, “brand sales are ahead of the same period last year” internationally. Management expects full-year licensing income to be up approximately 15% on a like-for-like basis. 

Overall, considering the disappointing UK Brand sales and the knock-on effect on manufacturing, Walker Greenbank expects that “profits for the year ending 31 January 2018 are likely to be approximately 10% lower” than its expectations. A 10% decline isn’t that bad on its own, but the company is only halfway through the critical autumn selling period, so there’s still scope for trading to deteriorate further. That said, there’s also scope for it to pick up in the final weeks of trading. 

Buy, sell or hold? 

How should investors react to today’s news and should you catch this falling knife? 

Well, as noted above, a 10% decline in expected profit is not a disaster. However, there is the chance that sales could slow further in the weeks and months ahead. I believe that this is the reason why the shares have sold off so heavily today. 

With this being the case, there is an air of uncertainty overhanging the company, and as a result, it’s difficult to place a value on the shares. 

When Walker Greenbank had a bright growth outlook, placing a value on the business, and its projected growth was relatively easy. But that’s all changed. The UK retail sector as a whole is facing headwinds in the shape of Brexit uncertainty, falling real wages and online competition. These factors are unlikely to dissipate for some time, which indicates to me that the company’s struggles could be just beginning. 

With an unclear outlook, I believe it might be wise to avoid this falling knife. 

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One stop shop

For those of you who are unfamiliar with the group’s activities, the Cardiff-based firm happens to be the leading global supplier of advanced semiconductor wafers. The company’s products cover a diverse range of applications, supported by an innovative outsourced foundry services portfolio that allows the business to provide a ‘one stop shop’ for the wafer needs of the world’s leading semiconductor manufacturers.

The AIM-listed firm uses advanced crystal growth technology, known as epitaxy, to manufacture and supply bespoke semiconductor wafers (epiwafers) to the major chip manufacturing companies, who then use these wafers to make the chips which form the key components of virtually all high technology systems. But what I love the most is the fact that that the Welsh firm is unique in being able to supply wafers using all of the leading crystal growth technology platforms.

Huge potential

IQE’s products can be found in many leading-edge consumer, communication, computing and industrial applications, including a complete range of wafer products for the wireless industry, such as mobile handsets and wireless infrastructure, Wi-Fi, base stations, GPS, and satellite communications and optical communications.

There’s no denying the huge potential for IQE. A broad range of customer engagements across multiple technologies and end markets should provide a clear path to increase revenue diversity and accelerate growth over the coming months and years. But this promise of spectacular growth has powered the shares 300% higher over the past 12 months, and at 38 times forecast earnings that potential now looks to be well and truly priced-in.

Something to think about

For those in the market for an AIM-listed growth stock with a more down to earth valuation, then today’s interim results from Walker Greenbank (LSE: WGB) should certainly give investors something to think about.

The luxury interior furnishings group this morning reported a big leap in first half revenue helped along by last year’s acquisition of Clarke & Clarke. The Uxbridge-based group designs, manufactures and markets wallpapers and fabrics, together with a wide range of ancillary interior products.

Step change

For the six-month period to 31 July, sales were up 29.9% to £54.3m, including a £10.3m contribution from Clarke & Clarke, the fabrics and wallpaper business acquired in October 2016. Adjusted operating profit before tax was up by a massive 55.3% to £5.9m, compared with £3.8m for the first half of 2016/17.

The acquisition of Clarke & Clarke clearly shows a step change in Walker Greenbank’s performance during the first half, and I’m bullish on the longer-term prospects. Trading on a forward price-to-earnings ratio of 15, this is one small-cap growth stock I’d certainly consider ahead of IQE at this moment in time.

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City analysts expect the company to report further growth this year with revenue of £119.6m projected, and off the back of this growth, analysts are expecting an earnings per share rise of 16% to 15.9p. If the company hits these targets, pre-tax profit will have grown by around 190% in six years, and earnings per share will be up 70%. 

As earnings have expanded over the past five years, shareholders have reaped the rewards. Management has hiked the company’s dividend payout per share by 200% since 2013 and shares in the company have produced a total return of around 240% since mid-2012.

Further growth ahead? 

I believe Walker’s returns can continue as the company builds on its existing presence to reach new customers. In October last year management completed the acquisition of Clarke & Clarke, an innovative design, fabrics and furnishing company with an international presence. 

Thanks to this acquisition, sales for the six months ended 31 July 2017 grew 35.6%. Excluding the new business, on a like-for-like basis sales increased 3.6% in reported currency. International sales are growing at a double-digit rate. During the reporting period, sales in Europe and the US rose 11.9% and 12.9% in reported currency, but sales in the UK declined by 1.8%. More lucrative licence income rose 18% in constant currency year-on-year for the period.

Despite Walker’s impressive growth, shares in the company trade at a relatively modest valuation of only 14.7 times forward earnings and support a dividend yield of 1.9%. As the company continues to use its reputation to drive global organic sales, while acquiring additional bolt-on growth, the group should be able to expand for many years to come.

Growth through acquisition 

Like Walker, Portmeirion Group’s (LSE: PMP) reputation and bespoke products have helped it grow steadily over the past five years, and these traits should ensure that the group has many more years of expansion ahead of it.

Over half a decade, Portmeirion’s revenue has grown by 50%, and over the same period, earnings per share increased 40%. Over the next two years, City analysts expect the company to report earnings growth of 11% for 2017 and 9% for 2018. These are hardly the market’s best growth rates. But Portmeirion has a strong reputation that should allow the group to continue to grow steadily over many years, so as a long-term investment the firm looks highly attractive. Shares in the company currently trade at a forward P/E of 13.8 and support a dividend yield of 3.7%.

Portmeirion is also executing select acquisitions to boost organic growth. Thanks to the purchase of Wax Lyrical, the UK’s largest manufacturer of home fragrances, for the six months ended 30 June 2017, total group sales rose 16%. With net debt of only £2.3m at the of the end of 2016 and a bank facility of £21m, the firm has plenty of financial headroom for further acquisitions to drive growth.

The post 2 high-growth small-caps I’d buy to retire on appeared first on The Motley Fool UK.

Strong performance

Reporting on Friday was homeware manufacturer and distributor Portmeirion (LSE: PMP). The company’s share price declined by 5% after a trading update, even though it suggested the business was performing well. For example, total group sales increased by 16% in the first half of the year. Even when the positive impact of recently acquired Wax Lyrical was excluded, the company’s sales were 3% up on last year.

As an exporter, the depreciation of the pound has been welcome news for Portmeirion. Although interest rates are forecast to rise in the medium term in the UK, which could prompt a stronger pound, it continues to be on track to meet its guidance for the full year. In fact, it is due to increase its bottom line by 11% this year and follow this with growth of 9% next year. Both of these rates of growth are ahead of those of the wider index. They suggest that investor sentiment could improve.

Portmeirion’s valuation indicates that improved share price performance could be ahead after its 14% decline in the last year. It trades on a price-to-earnings growth (PEG) ratio of just 1.5, which is relatively cheap given its sound financial performance. As such, now could be the perfect time to buy it.

Growth potential

Also offering growth at a reasonable price is luxury interior furnishing company Walker Greenbank (LSE: WGB). It has experienced a consistent level of performance in recent periods, with its bottom line increasing in each of the last five financial years. It has recorded annualised growth of almost 11% during this time, which suggests it has a sound strategy that could perform well in a variety of market conditions.

Looking ahead, Walker Greenbank is expected to report a rise in earnings of 16% in the current year. This puts it on a PEG ratio of just 0.9, which appears to be rather low given its outlook and track record of consistency.

As well as its growth appeal, the company is also gradually becoming an enticing income stock. It currently yields 2% from a dividend which is covered 3.5 times by profit. This indicates there may be significant scope for dividends to rise at a higher rate than profit over the medium term. During a period of time when inflation is forecast to move higher, this enhances the company’s investment appeal.

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Shareholders in my first company have seen their payouts increase by 200% since 2012 but my second firm has performed even better, delivering dividend growth of 256% over the same period.

Posh profits

Walker Greenbank (LSE: WGB) produces luxury wallpaper and fabrics for upmarket homes. The company’s British style attracts affluent buyers in markets all over the world. Last year, 30% of brand revenue came from Western Europe, 33% from the U, and 15% came from the Middle East and Asia.

The group said on Wednesday that brand sales have risen by 4.5% since the start of February. Europe and the US are outperforming the UK, where sales have been fairly flat. Despite this, chairman Terry Stannard said that both of the firm’s manufacturing sites have seen a “noticeable increase in export orders from new customers” and have “improving order books”.

Mr Stannard cautioned that it was “too soon to predict the strength of this trend”. Walker Greenbank could certainly suffer if a US or European recession hit spending among affluent customers. However, as yet there’s no sign of this. Management expects full-year results to be in line with expectations.

Broker forecasts suggest that Walker Greenbank will generate adjusted earnings of 15.4p per share this year, putting the stock on a forecast P/E of about 13. An 18% dividend hike is expected, pushing the payout up to 4.3p and implying a yield of 2.1%.

The stock looks affordable to me. The only risk is that market caution about consumer spending will continue to put pressure on the shares, which have lagged the market over the last couple of years.

A Brexit buy?

Kitchen manufacturer Howden Joinery Group (LSE: HWDN) was a big casualty of last year’s post-referendum sell-off. However, unlike housebuilding stocks, Howden hasn’t yet recovered. The group’s shares are still worth 15% less than they were before the UK voted to leave the EU.

There are two main risks for investors in the firm. UK consumer spending could slow, reducing demand for kitchens. A second more complex issue is that the weaker pound will affect the costs of the group’s raw materials and finished products, many of which are imported.

Like Walker Greenbank, Howden shares have performed poorly over the last couple of years. But for investors who believe the UK economy is likely to remain in reasonably good health, I believe this could be a buying opportunity.

Howden has achieved an impressive 18% operating margin in each of the last two years. Return on capital employed has averaged 43.7% since 2011, which is extremely high. This has enabled the group to fund its expansion without debt.

Its operations are extremely cash generative and the dividend has been covered comfortably by both earnings and free cash flow in recent years. An ongoing £80m share buyback should provide further support for the share price and dividend.

With a forecast P/E of 15 and a prospective yield of 2.6%, I believe Howden Joinery could be worth a closer look at current levels.

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