My negative view was based on its seeming inability to find a sustainable growth strategy since its demerger from British Gas plc in 1997 and its awful long-term performance for investors. The share price was around the same level as at the turn of the century, while the 10-year annualised total shareholder return was minus 0.3%.

The return is even worse now, with the shares having collapsed to 139p after a profit warning last week. Nevertheless, on reduced earnings guidance of 12.5p and a maintained dividend of 12p, the P/E is down to near 11 and the yield is up to 8.6%. Is Centrica now a contrarian opportunity?

Multiple headwinds

There’s certainly an argument for income seekers, based on the revised dividend forecasts from several brokers. Goldman Sachs is going for a maintained 12p dividend in 2018 and 2019 with a cut to 9.5p in 2020. Kepler and Investec are both forecasting a cut in 2018, the former expecting not below 10p but the latter a 30% reduction to 8.4p. So, it could be argued that the stock is worth buying today, because even if the dividend were to be cut to as low as 8.4p, it would still give a very decent yield of 6%.

However, Centrica’s earnings appear to be under tremendous pressure. There’s intense competition in its business-facing operations (both in the UK and US), while it’s also losing UK residential customers hand over fist. On top of everything else, UK policy-makers are looking to give regulator Ofgem increased (potentially profit-sapping) powers. In view of these multiple headwinds and Centrica’s record of dismal long-term shareholder returns, I err on the side of continuing to see it as a stock to avoid.

Eyes on the cash

Telematics firm Trakm8 (LSE: TRAK) released its half-year results today, reporting a 125% rise in earnings for the six months to 30 September. Its shares jumped 9% to 150p in early trading but have fallen back to 141p , valuing the AIM-listed company at £50m.

I’ve always had concerns about the ability of this paper earnings-grower to generate meaningful cash, so what caught my eye in today’s highlights was a 2,692% increase in cash generated from operating activities to £3.574m. I’ve had a close look at this. The table below shows some key cash flow numbers for the company’s recent first-half periods.

As you can see, the £3.574m cash flow number highlighted by the company today benefits from a favourable movement in working capital (£0.126m), a bit of interest (£0.014m) and, most significantly, a £1.643m inflow from HMRC. Otherwise, operating cash of £1.791m is only at about the level of two years ago. And would be minimal if £1.756m of development costs (which are rising annually) had been expensed, rather than capitalised.

Until such times as Trakm8 demonstrates it can generate meaningful and increasing cash flows from its business activities, it remains a stock to avoid for me personally.

The post Centrica plc isn’t the only stock I’m avoiding appeared first on The Motley Fool UK.

Trakm8’s sales rose by 12% in the first half of the year, although its operating profit declined by 61% versus the same period of the prior year. It was negatively impacted by a significantly higher investment in sales, marketing and engineering resource. This amount totalled £1.5m, with Trakm8’s cash flow also being impacted by lower profitability as well as an ongoing move to the software as a service (SaaS) financial model.

Looking ahead, Trakm8’s financial performance for the second half of the year is highly uncertain. The outcome for the full year is highly dependent upon the timing and quantum of contract opportunities, as well as the impact of foreign exchange rate movements. The company has also identified a risk in terms of contracts having the potential to drift into the next financial year. This would cause profits to be broadly in-line with last year on higher sales figures.

Of course, Trakm8 continues to make good progress with its strategy. For example, it has announced a new contract win today with Smart Driver Club and has its largest ever pipeline of substantial new contracts in place. Furthermore, the investment it is making today in its sales, marketing and engineering resources could improve its financial performance and help to reverse the decline in investor sentiment seen today.

In fact, Trakm8 is expected to deliver a rise in earnings of 15% in the 2018 financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.7, which indicates that now could be a good time to buy it. While share price falls may be on the cards in the short run, Trakm8 could deliver high returns for patient, long term investors.

Despite this, Trakm8 remains a relatively high risk technology company. Therefore, more risk averse investors may prefer to buy a better diversified, more financially sound technology company such as Micro Focus (LSE: MCRO). It has increased its bottom line at an annualised rate of 22.5% during the last five years. This has allowed Micro Focus to raise dividends per share by 127% during the same time period.

There is more potential for dividend rises in future years, since Micro Focus currently pays out just 44% of profit as a dividend. Therefore, while its dividend yield of 2.8% is relatively low, it is likely to rise in future years. This provides evidence of its financial strength and stability, with the acquisition of HPE adding to Micro Focus’s long term profit potential. As such, and while Trakm8 has clear growth potential which makes a worthwhile buy, Micro Focus offers lower risk and high potential rewards.

The post Why has Trakm8 Holdings plc slumped by a third today? appeared first on The Motley Fool UK.

Upbeat long term potential

Notably, Findel has sold Kitbag for £14m during the year and is now solely focused on its two remaining divisions of Express Gifts and Findel Education. The former recorded a fall in operating profit of over 5% during the year, but this was mainly due to the negative impact of foreign exchange. Meanwhile, sales at Findel Education declined by 8.1%, although customer numbers in the key Schools brands stabilised.

With exceptional items excluded, Findel recorded a pretax profit of £24.8m during the year, which shows that it has upbeat long term potential. And with its adjusted earnings forecast to rise by 11% in the current year and by a further 21% next year, investor sentiment towards the company could improve substantially, thereby making Findel an appealing buy for less risk averse investors.

Also falling today are shares in Trakm8 (LSE: TRAK), with the vehicle telematics specialist seeing a fall in its share price of 9% despite no news flow having been released by the company. Clearly, this has been a tough year thus far for Trakm8’s investors, with its share price having fallen by 40% year-to-date. And with investor sentiment showing little sign of improving in the short run, further share price declines cannot be ruled out.

Rising profitability

Looking ahead, however, Trakm8’s share price could record a strong recovery since the company is expected to report rising profitability over the next two financial years. In fact, Trakm8’s bottom line is forecast to rise by 84% in the current year and by a further 48% in the following financial year.

This has the potential, if delivered, to cause a step-change in investor sentiment and with Trakm8 trading on a price-to-earnings growth (PEG) ratio of just 0.3, it seems to offer a relatively appealing risk/reward ratio for less risk averse investors.

Meanwhile, shares in Game Digital (LSE: GMD) have soared by over 7% today despite no news flow being released by the video games retailer.

Wait for evidence

Clearly, the company is enduring a challenging period, as evidenced by its second Christmas of disappointing sales figures and the reduction or removal of significant levels of insurance cover in its aftermath. And with the outlook for the UK retail sector being challenging, it would be unsurprising if Game Digital’s shares resumed their downward trend.

With Game Digital forecast to report a fall in its bottom line of 48% this year, it may be prudent to wait for evidence of improved performance before buying a slice of it. Certainly, positive earnings growth is forecast for the following year, but with a number of other retail stocks offering better financial performance at the present time, there may be superior options elsewhere for long term investors.

The post Why are Findel plc, Trakm8 Holdings plc and Game Digital plc among today’s biggest movers? appeared first on The Motley Fool UK.

Britvic

Shares in soft drink manufacturer Britvic (LSE: BVIC) have risen by 80% over the last three years. The group’s earnings per share have kept pace, climbing from 24.7p in 2012 to 46.7p for the year which ended on 27 September.

Today’s results show good progress across the board last year. Britvic, which owns brands including Robinsons, Tango and J2O, said that pre-tax profits rose by 10.6% to £147m last year.

The firm’s dividend kept pace with this growth and was hiked 10% to 23p, giving a yield of 3.2%. Sugary drinks still appear to be strong sellers, but Britvic’s management did sound a note of caution about the outlook for the year ahead.

Chief executive Simon Litherland said that the group had “seen a slow start to the year”. Mr Litherland said that increases in disposable income were not being felt in grocery spend on soft drinks, which remain flat. Health concerns relating to sugar are also a growing issue.

Britvic trades on a 2016 forecast P/E of 14.7 and a prospective yield of 3.5%. That seems reasonable to me, although not compellingly cheap.

HSBC Holdings

HSBC Holdings (LSE: HSBA) shares have fallen by 12% this year, as concerns have risen about the bank’s exposure to the emerging market slowdown. The bank’s performance has also lagged its own targets, forcing management to reset expectations.

However, in my view these concerns have provided a buying opportunity for long-term investors. The bank’s shares trade on a 2015 forecast P/E of 10 and offer a 6.4% prospective yield. This generous payout is expected to be covered 1.6 times by earnings this year.

HSBC stock also trades at a useful 16% discount to its tangible book value, providing further downside protection. I recently added to my personal holding and continue to see HSBC as an attractive buy.

Trakm8 Holdings

Small-cap Trakm8 Holdings (LSE: TRAK) sells telematics and data software to fleet operators and insurance companies. This is a fast-growing area, as the growing computerisation of fleet management makes it easier for operators to manage costs, health and safety risks and compliance issues.

Shares in Trakm8 have risen by 300% over the last year and are worth a massive 2,380% more than they were five years ago. For investors who got in early, this has been a big winner. The question is how much more is there to come?

The firm’s half-year results on Tuesday showed sales up 38% to £11.7m and adjusted pre-tax profits up by 89% to £1.4m. These figures apply to the six months to 30 September. Full-year forecasts for 2015/16 suggest earnings per share of 11.3p, putting Trakm8 stock on a forecast P/E of 23.

That looks pricey, but earnings are expected to rise by 40% next year, giving a 2016/17 forecast P/E of 17. If Trakm8 continues to deliver this kind of earnings growth, today’s 261p share price could end up looking cheap.

Cash doesn’t seem to be a problem, either. Trakm8 had net debt of £2.2m at the end of the first half and appears to be breaking even on cash flow, excluding acquisitions. For growth investors, Trakm8 could be worth a closer look.

The post Are HSBC Holdings plc, Britvic Plc & Trakm8 Holdings PLC Today’s Most Compelling Buys? appeared first on The Motley Fool UK.