Centaur Media provides corporate information and marketing services to businesses. It also runs events. This means it’s well-placed to exploit the historical uptick in business investment that accompanies economic recoveries. Centaur Media is already riding the upturn impressively and it said last week that results for 2021 should be at the top end of expectations.

The media specialist will suffer if the Covid-19 crisis suddenly worsens. Advertising budgets could be scaled back and its events business might be mothballed again if lockdown restrictions return. That said, I think these dangers are baked into Centaur’s mega-low valuation, so I’d still buy it.

Another delicious penny stock on my radar

DP Eurasia (LSE: DPEU) is another dirt-cheap UK share tipped for explosive earnings growth in 2022. City analysts think annual profits will detonate more than 320% year-on-year. This leaves the company trading on a PEG ratio 0.1. Remember, a reading below 1 suggests a stock is undervalued.

DP Eurasia is the master franchisee of the Domino’s Pizza takeaway business in Turkey, Russia, Georgia and Azerbaijan. These are regions witnessing soaring demand for food delivery as personal income levels rise. Its latest financials showed revenues leap 58.3% between January and June, a result so strong the business hiked its earnings forecasts for 2021.

Industry experts think takeaway sales in these regions will keep rocketing too. Statista, for example, think revenues will grow at a compound annual growth rate of 10.2% through to 2025. I’d buy DP Eurasia to ride this trend, even though it faces intensifying competition from fast-growing local players.

Sporting hero

Now, Sportech (LSE: SPO) doesn’t offer the same sort of eye-popping value as DP Eurasia. In fact, it trades on a pretty toppy price-to-earnings (P/E) ratio of 75 times for 2022. However, I think this big valuation could be considered fair given the huge opportunities it has in the US.

Sportech provides technology to gambling operators and lottery organisers. It also owns and operates around a dozen gaming and sports venues in Connecticut, alongside digital betting services. It’s had problems in days gone by securing a sports betting licence but it now seems to have turned the page after inking a 10-year deal with the Connecticut Lottery Corporation in August. It’s why City brokers are expecting the penny stock to break back into the black in 2022, following three years of consecutive losses.

Regulations on gambling in the US have eased significantly. This provides companies like Sportech with exceptional profits potential. Of course, future law changes in this highly-regulated market could have an adverse effect on Sportech and send its share price plummeting. But, today, I think Sportech’s growth outlook is pretty exciting.

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This leaves this UK share trading on a forward price-to-earnings growth (PEG) multiple of 0.2. A reading below 1 suggests a stock could be undervalued.

Naturally, these bright forecasts could be blown off course if coronavirus cases head through the roof again. But I think this threat is baked into the Coats Group share price at recent levels. Demand for so-called fast-fashion is tipped to keep growing strongly. Also, this penny stock’s broad global footprint will allow it to benefit from steady population growth too.

Mining for mega returns

Precious metals miner Serabi Gold (LSE: SRB) is another penny stock I’m considering adding to my own portfolio today. Having exposure to gold is a good idea for investors to protect themselves against unforeseeable events (as the Covid-19 crisis and accompanying stock market crash last year proved). I think this UK share, one which trades on a forward PEG ratio of 0.6, is a good way to go about this.

The City thinks annual earnings will rise 10% in 2021. I’m confident of strong and sustained bottom-line growth too, thanks to Serabi’s impressive record on the exploration and production fronts. And then factor in the bright outlook for gold prices. Indeed, news yesterday that eurozone inflation has hit 10-year highs underlines the favourable environment for precious metal values.

Digging for metals is often problematic. So companies like Serabi can be hit by a double whammy of unexpected large costs and revenues setbacks. Still, at current prices, I think this penny stock remains an attractive stock to buy today.

Another attractive penny stock

Now Sportech (LSE: SPO) doesn’t sport low earnings ratios that makes Serabi such a great buy. In fact, the company isn’t even expected to turn a profit this year. And while it’s expected to move into the black in 2022, this results in a price-to-earnings (P/E) ratio of around 78 times. Bad news flow around the company could therefore send investors sprinting for the exits.

That said, I think this penny stock could still be a great buy today. Sportech operates 14 gaming and sports venues in Connecticut in the US as well as digital betting services. It’s therefore well-placed to ride the booming American sports gambling market.

The company had previously been denied a sports betting licence in Connecticut. But it traversed the problem this month by inking a 10-year partnership agreement with Connecticut Lottery Corporation to provide sports betting across its venues.

I’m tipping this to be an important turning point in the Sportech’s fortunes. It’s now set to ramp up retail betting across the state to latch onto this fast-growing entertainment sector.

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With the share price on the rise, will this momentum continue in the months to come? Let’s explore if now is the time for me to invest in Sportech. 

The Sportech share price gets a boost

Sportech owns a chain of game venues and sports bars in Connecticut, USA, but was previously denied a sports betting licence by the state regulator. Since its denial, the company has been looking to partner with a company that has a licence. 

Sportech announced last Friday, that it has a signed a new 10-year deal that will see its operating services launched into Connecticut. It signed the exclusive commercial agreement with Connecticut Lottery Corp (CLC) to provide sports betting services in betting shops as well as online.

Should I buy?

While this is good news as the deal will allow Sportech to offer its services in a new market, it has faced some challenges and its recent FY20 earnings report wasn’t great. Its revenue fell 41% in 2020 to £20m and gross profit fell from £18.3m to £10.5m. The company also reported a rise in losses. Its loss before tax widened from £9.7m to £10.6m. 

Of course, while the poor financial performance is worth noting, I think it comes as no surprise considering that many sports events were cancelled and fans weren’t allowed to attend those that did take place. That said, Sportech also faces very strong competition from industry leader Playtech and the company could even be muscled out of some areas it’s in at some point in the future.

However, that’s not to say I’m bearish on the stock. I believe the new deal for the firm is a great way for it diversify its market appeal. In the US, $1,55bn of revenue was generated in the sports betting industry in 2020. Considering the huge market Sportech has moved into, I think this venture is a good sign of potential growth to come.

Sportech will also benefit from the end to Covid-19 restrictions on sport events. For instance, England’s Premier League kicked-off this weekend and fans were pouring into stadiums. This should make up for a lot of lost revenue from the previous year. 

Can the Sportech share price continue to grow?

After Sportech’s struggles in its attempts to crack in the US market, it has finally been able to do so — or at least to make a start at doing so. Even though I have some concerns over how it can stay competitive against companies like Playtech, I think this partnership deal is a step in the right direction. 

On balance, I expect the Sportech share prise to continue rising further and think this share could be a great addition to my portfolio. 

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Fat profit margins 

Playtech is an interesting enterprise. The company supplies technology for the gambling industry, which as it turns out, is a very lucrative business. 

Over the past five years, it has reported an average operating profit margin of 43% and return on capital employed — a measure of profit for every £1 invested in the business — of approximately 15%, nearly three times higher than the current market average. And because the development of software does not generally require a large amount of capital spending, its fat profit margins give it plenty of cash to return to investors. 

According to my calculations, over the past five years, the company has distributed £666m to investors via dividends, approximately 44% of its current market capitalisation.

Dividend champion 

I see no reason why this trend cannot continue for the foreseeable future. City analysts believe Playtech has the potential to produce earnings per share of 52p for 2018, and distribute 31.4p of this to investors, giving a potential dividend yield 6.8%. The payout is expected to grow modestly to next year to 35p thanks to a 14% uptick in earnings. If the company hits this target, investors are in line for a potential dividend yield of 7.4%.

Not only do the shares support a market-beating dividend yield, the stock is also trading at a relatively undemanding forward P/E of 8, compared to the IT services sector average of 19. Put simply, if you are looking for an undervalued business with a market-beating dividend yield to add to your ISA, I reckon Playtech could be the perfect pick.

On the other hand, Sportech (LSE: SPO), Playtech’s smaller peer, does not appear to offer the same level of value.

The last time I covered this market minnow, I speculated that recent developments in the US sports betting market could give the company “tremendous scope to grow over the next decade.“

Missed opportunity 

Unfortunately, it seems that management is struggling to capitalise on the opportunities available in the US. A trading update from the company today informed investors that, “certain expected sales contracts are unlikely to be secured in 2018,” so adjusted earnings before interest tax depreciation and amortisation (EBITDA) for the year are likely to come in as much as 10% below current market expectations.

Even though this lower target will still represent year-on-year adjusted EBITDA growth of as much as 20%, it is a disappointment for shareholders who had been expecting much more from the company.

Before today’s announcement, shares in Sportech were changing hands for more than 20 times forward earnings, reflecting investor optimism in the business. Now that the outlook has deteriorated, I’m not convinced that it is worth paying a premium for the stock. Playtech, with its already established business and attractive dividend schedule, is a much better buy in my opinion.

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However, I believe I’ve stumbled across two companies that both offer this unique mix. Below, I’m going to weigh up the pros and cons of investing in these hidden growth and income champions.

Out of favour

At the beginning of July, shares in gambling software developer Playtech (LSE: PTEC) crashed by nearly a third after it issued its second profit warning in two years. 

Management pointed to an “increasingly competitive backdrop” in Asia, which is expected to have a “significant impact on revenue throughout the rest of the year.“

Following the dour trading update, the City has been quick to downgrade its forecasts for the company’s growth in 2018. Before the warning, analysts had been forecasting EPS of €0.76 for the full year. Now a lower €0.67 is being targeted.

Looking at these numbers, I believe the market has overreacted to Playtech’s woes. After sliding 33% in the days after its profit warning, shares in the company now trade at a multiple of just 8.3 times forward earnings. 

The valuation is even more compelling after discounting cash. According to its most recent numbers, Playtech has €107m of net cash, and that’s excluding €222m the firm made from selling its stake in online gambling group GVC in June. 

Combined, I estimate these two cash balances are worth 83p per share. Using this figure, my calculations suggest shares in Playtech are currently trading at a cash-adjusted forward P/E of 7.2. On top of this highly attractive valuation, the shares also support a dividend yield of 6.8%. With more than €300m of cash to play with, it does not look as if this distribution will come under threat any time soon.

Beating expectations 

So, after considering all of the above, I believe Playtech could be a fantastic income and growth investment. 

Right now, it looks as if the market has written off the business. If Playtech can prove the market wrong, and sales start to recover, I believe the stock could easily outperform the broader market.

Playtech’s smaller peer Sportech (LSE: SPO) is another growth play I believe you should consider for your portfolio.

What excites me about Sportech is its future potential. The tech business has struggled to grow over the past few years, but the recent opening up of the US as what could be one of the world’s largest sports betting markets gives the company tremendous scope to grow over the next decade. 

Soon after the US Supreme Court decision that effectively allowed sports betting across the country in May, Sportech signed an agreement with Sportradar (a $2.4bn company) for sports betting data, trading and risk management services.

It has only been a few months since the Supreme Court ruling, and City analysts have not yet come out with updated growth forecasts for Sportech. And until we have solid numbers on the size and growth of the market, it’s unlikely reliable predictions will be published. 

Still, estimates suggest $150bn is already spent every year betting on sports across the country. Even if Sportech can grab just a tiny section of this market, the company and its shareholders should be well rewarded. This is why it’s worth keeping an eye on it in my opinion.

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One theory is as good as another

The recent full-year report is packed of optimistic and rallying language. But words are as effective as snake oil when it comes to overcoming operational difficulties, so I think it’s worth discounting them. I rather like the theory I heard that the larger oil companies all knew decades ago that the oil under the Weald Basin was too hard to access because of the geology, so they ignored it. That may or may not be true, but one theory is as good as another before the case is proven either way. It’s as good as the theory that UKOG will be a good investment because it will increase its assets by discovering commercially viable oil, for example.

During the past year, the company lost another £2.27m and raised gross proceeds of £7.46m — via the issue of equity — which it used to fund £8.72m of investments made into further exploration and evaluation. The story grinds on…

The share price is lower than it once was, but I think there’s massive potential for it to go much lower from here, so I’m avoiding the stock. I could be wrong, but upside risk is a risk, so I’m prepared to talk in favour of other investments.

One interesting situation exists in Sportech (LSE: SPO), former owner of the Football Pools, which delivered its full-year results today. After a busy year of restructuring, the company posted revenue from continuing operations up 2.3% to just over £66m and adjusted profit from continuing operations 114% higher than the previous year, at £1.5m.

A new focus and emerging growth

New chief executive Andrew Gaughan described 2017 as a year of “material change” for the firm and said 2018 is shaping up “to be one of significant opportunity.”  He pointed to the positives of recurring revenue in the firm’s Racing and Digital business and additional sales opportunities and growth in the 50-50 business. He expects the firm to benefit from “a liberalisation of sports wagering in the US.”

Following the sale of the Football Pools business in June 2017, 80% of Sportech’s earnings are in US dollars and the firm has become a US-focused firm with UK-based directors resigning. We could be about to see a new growth phase emerge from the ashes of the old business. The firm is in good financial shape, with no debt and around £12m cash in the bank. There’s also a further €3.25m on the way following today’s announcement of the sale of the company’s business in the Netherlands.

Points of major change in a firm’s business, like we are seeing with Sportech today, can be opportune moments to consider the stock for investment. I think your research time could be well spent on this one.

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Racing ahead?

The first of these companies is the former owner of The Football Pools, Sportech (LSE: SPO), which released half-year figures today.

Sportech is building a technology-focused sports betting business. This has two main parts. It operates sports betting venues in Asia, Europe and North America, and provides the world’s most widely-used tote-based betting software for horse racing bookmakers.

The company is also loaded with spare cash. As a result of a VAT refund and the recent sale of The Football Pools, it had net cash of £76.2m at the end of June, compared to a market cap of £179m. The company has already returned £21m to shareholders this year, and has plans to return more cash, up to a maximum of £55m.

This is appealing, but I believe investors need to look beyond the cash and focus on the group’s continuing business. Today’s half-year results show that revenue from continuing operations rose by 5% to £36.4m during the six months to 30 June.

The group’s earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 5% to £3.9m. Looking at the figures in more detail, a fall in software sales seems to have been offset by an increase in recurring service revenues.

Sportech shares have risen by 41% over the last year and the group is cashed-up to fund acquisitions and expansion. But my concern after reading today’s report is that there’s not much evidence of underlying growth. Does the share price reflect this?

Analysts are forecasting adjusted earnings of 3.2p per share for 2017. After stripping out the group’s net cash, this gives an effective P/E of 17. That actually seems fairly reasonable. If Sportech’s growth plans are successful, the shares could deliver decent gains. I’d hold after today’s news.

A wizard buy for smart investors?

A publisher of printed books isn’t an obvious choice for a growth stock, but I believe Bloomsbury Publishing (LSE: BMY) has appeal. Not only does this group have a fast-growing digital division, but it’s also the publisher of Harry Potter books. With two new books due this year, sales should be buoyant.

However, my attraction to Bloomsbury stock isn’t just based on the company’s most famous character. I believe this is a high-quality business that’s performed well over a number of years, and now looks quite affordable.

Starting with the basics, analysts expect earnings per share to rise by about 13% in 2017/18, and by a further 6% in 2018/19. This puts the group’s shares on a forecast P/E of 14.2, falling to a P/E of 13.3 in 2018/19.

Growing momentum

However, what’s interesting about this is that broker forecasts for the year ahead rose significantly after the firm’s last set of results were published, in May. The firm’s next set of figures are due in October. If the company continues to impress City analysts, earnings estimates could be upgraded again.

Supporting Bloomsbury’s growth potential is a solid balance sheet, with £15.5m of net cash and no debt. So I’ve no concerns there.

I suspect many investors are overlooking Bloomsbury in favour of more exciting businesses. But in my view, this could be a surprisingly successful small-cap buy.

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Upbeat performance

Reporting on Wednesday was online advertising specialist RhythmOne (LSE: RTHM). Its trading update for the most recent financial year shows that it has made excellent progress towards its target of returning to profitability. This was aided by a rise in core revenue of 28%, which pushed total revenue 5% higher. This led to a swing in EBITDA (earnings before interest, tax, depreciation and amortisation) of $11.7m, with the company reporting EBITDA of $1.2m.

Clearly, 2017 was a pivotal year for RhythmOne. It saw a continuation of the fundamental transformation which started two years ago that has put the company in a much stronger position. Its investment in core strategic capabilities across mobile, video and programmatic trading has been hugely beneficial. Its acceleration of the drawdown of certain historical non-core and non-programmatic product lines has also delivered improved financial performance.

Looking ahead, the company has an upbeat outlook. It is expected to deliver a black bottom line in the current financial year and then record growth of 91% in the next financial year. This puts its shares on a price-to-earnings growth (PEG) ratio of just 0.2, which indicates that they offer a wide margin of safety.

With the company’s growth strategy continuing to deliver improved performance, its shares may not remain so cheap for all that long. Therefore, now could be the perfect time to buy them.

Improving outlook

While betting company Sportech (LSE: SPO) is forecast to record a rise in its bottom line of just 3% this year, its outlook for next year is much more positive. It is expected to deliver a rise in its earnings of 17%, which has the potential to create a step change in investor sentiment following a rather mixed period for the business. For example, in the last five years its earnings have fallen in three financial years and were 9% lower in 2016 than they were in 2011.

Possibly because of its volatile track record of earnings growth, Sportech’s shares trade on a relatively low valuation. They have a PEG ratio of only 0.9, which indicates that now could be the perfect time to buy them. Certainly, competition within the gaming and betting sector is becoming increasingly intense and this has led to sector consolidation. However, with a clear catalyst to push its share price higher, Sportech could be a relatively strong performer in the long run.

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Sporting boost

Sportech shares are up 6% as I write, as the markets are ingesting a whole load of news from the sports betting operator and technology supplier. Headlines from 2016 full-year results include an adjusted pre-tax profit rise of 17% to £13.8m, with adjusted earnings per share up 18% to 5.2p.

But the big item is the change in the company’s cash position. Despite a non-cash impairment of £63.7m due to a review of assets, the overall balance sheet strengthened by £22.6m — and Sportech turned a £57.7m adjusted net debt at the end of 2015 into adjusted net cash of £36.5m.

Some of that cash is set to find its way back to shareholders in the form of a tender offer through which the company will invest approximately £20m in buying back around 10% of its ordinary shares.

Sportech also said its eight-year £97m VAT refund appeal has been successful, and tells us it it has agreed to sell its Football Pools subsidiary for £83m.

With the shares having almost doubled to 103p over the past 12 months, is it still time to buy?

With chief executive Ian Penrose calling it a transformational year and saying the firm is “in a strong position and more focused to take advantage of the strategic positioning of its predominantly US based businesses“, I think we could be in for good times. And analysts agree, suggesting EPS growth by 2018 that would put the shares on a lowly PEG of 0.4.

Hospital expansion

Full-year results gave shares in Spire Healthcare a 5% boost in early trading, but they’ve dropped back to 333p as I write, just 1% ahead. The price has been erratic with no overall change for around two years, so where are the growth prospects?

With 2016 revenue up 5.4% to £926.4m, adjusted profit after tax grew by 4.9% to £76.6m and adjusted EPS picked up the same percentage to 19.2p. The dividend was lifted by 2.7% to 3.8p, modestly beating inflation. The only minor downside is a 3.1% rise in net debt to £432.3m.

Cash flow conversion was strong, and the firm is expanding its operations, literally — five new operating theatres were opened in the year. A number of the firm’s hospitals saw new developments too.

Executive chairman Garry Watts said that “integration issues” at Spire St Anthony’s Hospital had impacted performance and that “the first half of 2017 will still be a period of recovery at St Anthony’s“. And with further start-up costs still to be faced at the company’s newest two hospitals, EBITDA for 2017 should be pretty much flat.

But Mr Watts reckons EPS growth will return in 2018, with demographics and pressure on the NHS helping boost Spire’s long-term prospects.

Analysts appear to think so too, and have pencilled-in a 14% rise in EPS for 2018, with the forecast dividend rising to yield 1.2%. That dividend is low, but it’s well covered, and I can see a greater proportion of Spire’s earnings being paid out in future years as the company matures further into a growing market.

The forecast suggests a P/E of around 16.5 for 2018, and I think that’s a good price — for a long-term growth prospect rather than a get-rich-quick punt.

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Rocky ride

Shares in Sportech (LSE: SPO) have had a volatile ride over the past 12 months, soaring and plummeting as a VAT claim by HMRC swung this way and that — as it stands, HMRC is seeking permission to appeal the most recent Court of Appeal ruling in favour of Sportech.

Putting that aside, Sportech, which billls itself as “one of the world’s leading pool betting organisations,” reported first-half revenue of £48.7m and adjusted pre-tax profit of £5.6m. The company is only just (hopefully) into sustainable profits and there are no dividends yet, but there are strong forecasts on the cards — analysts suggest an 11% rise in EPS this year followed by 30% in 2017, giving us P/E ratios of 14.3 and 11 respectively.

That valuation doesn’t look like bargain territory to me, especially as Sportech is carrying adjusted net debt of £59.8m, which seems high compared to current profit levels. I also wouldn’t touch it until the VAT dispute is finally settled.

Cheap challenger bank?

OneSavings Bank (LSE: OSB) was a bit of a ‘challenger bank’ darling until the Brexit vote put the wind up the banking sector. Since the fateful day, the shares were down 29% — until today’s interim figures, which have spurred an 11% resurgence to 263p.

Underlying pre-tax profit rose 36% to £64.6m, with a 10% rise in the bank’s loan book. Liquidity measures look strong, and the interim dividend was lifted by 45% to 2.9p per share. Chief executive Andy Golding did say that it’s “too soon to predict the medium to long-term impact of Brexit on the UK economy.” But has the uncertainty unfairly depressed OneSavings Bank’s shares and are they in bargain territory?

I’d say they are, with post-referendum forecasts holding strong and the City expecting a 7% rise in EPS this year with a 3.6% dividend yield (rising to 4% in 2017). That puts the shares on a P/E of only seven, which I see as significantly undervaluing OneSavings’ long-term prospects.

Printing success

As company names go, Xaar (LSE: XAR) has always been one of my favourites, even if I haven’t been so keen on the trajectory of its share price in recent years. Soaring earnings saw the printing technologist’s shares rocket to more than £11 apiece by the end of 2013, but several years of contraction have seen it crash back down to today’s 505p.

But we’re at least seeing a 4% rise on the back of this morning’s interim figures, which showed continuing falls in profits — but that was in line with expectations, as the firm commits bigger sums to R&D and seeks to succeed with the new “strategic vision” launched in March. According to chief executive Doug Edwards, Xaar has launched “major new products” and has announced a “strategic partnership with Ricoh” as it works towards its “2020 vision.“

Would I buy the shares? On a forward P/E of 26, rising to 36 on 2017 forecasts, nope. The latest interim report contains too many fancy-sounding marketing buzzwords for my liking — I want to see the colour of Xaar’s money first.

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