For Renishaw, impressive gains in the first quarter did the trick. The company, which describes itself as a “global provider of manufacturing technologies, analytical instruments and medical devices“, posted a 35% rise in revenue. Total revenue reached £157.8m, with the bulk of that coming from its manufacturing technologies business.

The firm’s smaller analytical instruments and medical devices business only accounted for £9.3m in revenue. But that represented a 63% jump over the same period in 2020.

Renishaw reported adjusted profit before tax of £41.7m for the quarter, more than double the £18.3m recorded a year previously. That’s just one quarter, though, and last year’s adjusted figure looked a bit low to me. Still, it’s impressive, and I’m not surprised to see the Renishaw share price climb in response.

At 30 September, the company had net cash and bank deposits of £234.8m, so there’s a healthy cash position here. But would I buy?

Renishaw share price valuation

Before I checked Renishaw’s price-to-earnings ratio, I expected something high. And based on last year’s earnings per share, the current Renishaw share price represents a multiple of 39. That’s after the shares have fallen 13% in the past 12 months, and I can’t help thinking there was a bit of overvaluation a year ago.

The company had a tough year in 2020, so this is something of a recovery situation too. I don’t know enough about Renishaw right now to decide whether to buy. I will wait until I see how the first half works out, with interim results due in February.

Second biggest climber

What’s so good about Vivo Energy’s Q3 update that it has sent the stock up 4.5%? In this case, we’re looking at a company that’s a fair bit easier to understand. Vivo Energy sells Shell-branded fuels and lubricants in 23 African countries. Its business includes aviation and marine fuel, and it runs more than 2,300 service stations.

The quarter brought in a 3% rise in volumes, with a 4% increase in gross cash profit. Over a nine-month period, volumes increased by 7% while gross cash profit rose by 19%. As well as the higher volumes, the rise in profit is also due to improving margins. Moving into the fourth quarter, Viva says it is “beginning to see improvements in the Aviation and Marine segment“.

The company beat its targets by opening 114 new sites over the nine months, ahead of previous expectations in the range of 90-110 sites. It now expects to have opened 130-140 new sites by the end of the year.

Valuation again

This all sounds good, and I can understand the share price rise in response. But I’m back to the same question again, of whether I should buy. Again, it comes down to valuation. This time, it’s tricky, as 2020 was a poor year with some damage from Covid-19.

Going on 2019 EPS, the current Vivo price gives us a P/E of 13.5. If earnings should come in ahead this year, that could be an attractive valuation. Vivo Energy shares are up 39% over the past 12 months, but they’re still down 12% over two years.

I think there could be more to come here, but I’ll wait for full-year results.

The post Why did the Renishaw (RSW) share price jump 10% on Thursday? appeared first on The Motley Fool UK.

Today, I’m looking at three FTSE 250 stocks I reckon offer a great mix of growth, income and value.

Under the radar

Defence engineering group Ultra Electronics (LSE: ULE) has been in business for 100 years. Since its listing on the London Stock Exchange in 1996, Ultra’s share price has risen by almost 600%, and its dividend has never been cut.

I think this business has the potential to keep growing. Ultra Electronics builds sub-systems used by most of the western world’s biggest defence contractors. Disruption was minimal last year, with revenue up 5% to £860m and pre-tax profit 8.7% higher, at £114.5m.

The biggest risk I can see is that almost a quarter of Ultra Electronics’ revenue comes directly from the US Department of Defense. If this relationship changed, I think it would cause serious problems. There’s no sign of this happening at the moment, but it’s something I’d monitor.

Ultra shares currently trade on 16 times 2021 forecast earnings, with a 2.9% dividend yield. This FTSE 250 stock is on my list shares to buy now.

I’d buy this instead of oil

My next pick is a relatively new arrival on the London Stock Exchange. Vivo Energy (LSE: VVO) is an African business that sells Shell-branded fuels and lubricants in 23 African countries. The group’s operations include selling aviation and marine fuel, in addition to running more than 2,300 service stations.

Big oil producers including Royal Dutch Shell are already placing a growing emphasis on their retail and marketing operations, as they prepare for the switch to electric cars.

In my view, Vivo Energy is a pure-play way to invest in this opportunity. I reckon service stations — with convenience stores and cafés — are here to stay. Even if we switch to electric cars, we’ll still need fast recharging points on longer journeys.

African markets offer the added opportunity of younger, faster-growing populations. Of course, they also carry some extra risks. Political instability is a concern in some areas, while underdeveloped infrastructure could limit good quality growth opportunities.

Even after the gains seen since November, Vivo still trades on just 13 times forecast earnings, with a forecast yield of 3%. I see this as a long-term growth opportunity.

A dividend share to buy now?

My final pick is Paragon Banking (LSE: PAG). This specialist bank has a market-cap of £1.3bn and is focused on the buy-to-let mortgage market.

For me, one attraction of this business is that Paragon’s specialist focus means it’s more profitable than the big high street banks. Paragon’s return on equity — a key measure for banks — has averaged 11.5% since 2015, compared to 5.2% for Lloyds Banking Group.

Paragon’s latest update reports “low levels of arrears” and “strong capital ratios.” However, if the economy slumps as we come out of the Covid-19 pandemic, we could see much higher levels of bad debt. This would hit Paragon’s profits and could trigger a dividend cut.

As things stand, Paragon stock trades slightly above its book value and offers a dividend yield of around 4%. Given growing demand for rental housing, I think this business could deliver steady growth in the coming years. It’s a share I’d be happy to buy today.

The post Best shares to buy now: my top 3 FTSE 250 stocks appeared first on The Motley Fool UK.

Vivo Energy shares’ market and overview

Vivo Energy is one of the leading distributors of fuels and related products in Africa. It has a footprint across 23 countries, operating under Shell and Engen brands. The company operates in three segments. The retail segment has over 2,250 service stations, mostly dealer-operated. It also offers multi-branded convenience retail and quick-service restaurant offerings. The company has entered into joint ventures with such retail partner brands to drive non-fuel revenue growth which is very positive. The retail segment contributed to 56% of 2019 adjusted EBITDA (earnings before interest, tax, depreciation, and amortisation).

The commercial segment supplies thousands of commercial customers with fuels and lubricants across the transport, infrastructure, mining, aviation, and marine sectors. In addition, it supplies liquefied petroleum gas to consumers and commercial customers. It also supplies aviation fuel, plus bunkering, for marine traders and other shipping companies. This segment contributed to 31% of 2019 adjusted EBITDA.

The company sells lubricants to commercial customers and retail customers in the countries of operation and also exports to more than 10 additional African markets. This segment contributed to 13% of 2019 adjusted EBITDA.

Looking into the management team, it has a UK governance code-compliant board of directors. As an investor, it makes me more comfortable investing in good governance companies. Another plus is that Africa has a fast-growing and young population, which should bode well for the GDP growth in the continent. That means Vivo Energy has a potentially growing market.

Vivo Energy shares’ recent trading update

The company released its trading update on 12 February 2021. The results were positive, primarily driven by the ongoing recovery in the retail segment. The return to normality from Covid-19 restrictions helped the growth in business. Full-year fuel volumes reached 9.6bn litres, a drop of 7% year-on-year. The drop is considered negligible due to the negative impact of Covid-19.

Improvement of margins in the third quarter continued through the final quarter. The management expects the group’s full-year adjusted EBITDA to be above the top end of the range of current market expectations of $331m to $354m. Due to the positive performance, the management intends to recommend the payment of a dividend of 3.8 cents per share for 2020. This equals to the declared 2019 full-year dividend. 

The company’s debt at the end of the first half of 2020 was $767m and cash of $460m. The debt-to-equity ratio was 1.01, as of 30 June 2020. I believe the liquidity position is strong for the company.

The company’s future profits depend partly on movements in the price of oil, over which it has no control. Another risk is currency fluctuations as it operates in several countries. Generally, market sentiment about investment in energy stocks has become more pessimistic due to the expectation there will be less reliance on oil in the future. The company’s first-half net income fell by 82% to $13m. So the earnings per share might come down for the year.

I would like to keep Vivo Energy shares’ on my watch list and review it after the company releases its annual report in the first week of March.

The post Stock market rally: should I buy Vivo Energy shares? appeared first on The Motley Fool UK.

Energy sector rebound?

The energy sector has dropped by more than 50% in 2020 as the global demand for energy products has declined significantly. The drop in demand has been led by the coronavirus pandemic and the Russia-Saudi Arabia oil price war that resulted in a significant decline in oil prices during March-May. Nevertheless, in my opinion, the coronavirus pandemic seems to be calming down, in particular with the recent news that the Pfizer Covid-19 vaccine was found to be 90% effective. As such, the energy sector has made a mini-comeback since the bottom levels it was trading in late October.  

Vivo Energy, which is a relatively new company founded in 2011 and has a market capitalisation of around £1.16bn, has also starting to gain momentum in the past two weeks. Since the bottom of 71p at the end of October, its shares have gained over 20% and, in my view, are poised to continue their strong rally. 

Energy stocks are highly correlated to energy prices, global demand for oil and energy-related products, and to geopolitical issues. With the hopes that a vaccine for Covid-19 can keep pushing markets higher, and the recent change of guards in the US, I genuinely believe a direction change could potentially occur. Shares of Vivo Energy soared nearly 11% on the day of Pfizer’s announcement on expectations of upbeat economic projections.

Dividend restart

One of the key reasons for the Vivo Energy share price rally has been the recent announcement to reinstate its 2019 final dividend after a strong recovery in Q3 earnings results. In late October, the British petroleum company said it was “encouraged by the resilient performance during the quarter”. In its Q3 update, Vivo Energy has also said that the strength of the balance sheet can be largely attributed to Vivo’s international bonds issue of $350mn maturing in 2027.

Vivo has also mentioned the recovery from the impact of the pandemic, with mobility restrictions easing in the majority of the markets it operates (Vivo Energy operates in 23 countries and 2250 retail sites).  

The dividend resumption is a clear sign of recovery of profits and a strong balance sheet. Moreover, I believe it will be difficult to ignore any high-paying dividend yield stock like Vivo Energy that offers around 3% in times of near-zero interest rates. 

Vivo Energy shares: the verdict

Vivo Energy, like most global energy stocks, struggled since the beginning of the year when energy prices plummeted. With that in mind, I believe the reasons above could be a strong catalyst for Vivo Energy shares to return to pre-Covid-19 levels, and even higher. The company’s shares have already gained nearly 20% since late October, and if this trend continues, I’ll consider buying shares of the company for my own portfolio before too long.

The post Cheap UK shares: is Vivo Energy worth buying right now? appeared first on The Motley Fool UK.

Cheap FTSE 250 stock

At the beginning of the year, shares in VVO could be purchased for 125p. When the market crashed, its share price tumbled to a low of 64.5p. As I write this, it has recovered slowly and shares are currently trading at only 75p per share. At its current price point I consider VVO to be quite cheap.

VVO joined the FTSE 250 in April 2018 and was trading at a high of 172.5p per share. An argument could be made that its reduction in price is not a positive sign. My response to that would be that the recent economic downturn has affected nearly all companies and industries in a negative way. I would not base any investment opinion on share price alone, especially not right now due to the pandemic and crash.

Performance

Reviewing Vivo’s longer-term performance across the past three years makes for positive reading. It has seen a year-on-year increase in revenue and gross profit, which is definitely a positive indicator for any investor.

VVO today released its Q3 trading update and I feel there are some positive takeaways from it. As expected, Q2 was difficult for many firms in the FTSE 250.

VVO recorded a gross cash profit of $187m which is impressive despite the recent restrictions it has faced due to the pandemic. This is only a 1% decrease compared to the same period last year when there were no restrictions or pandemic. Q3 volumes of 2,492m litres was a significant improvement from Q2 although it remained 7% lower year-on-year. VVO’s retail segment saw lower volumes but an improvement compared to the previous quarter. In addition to this, a number of countries it serves returned to year-on-year growth during Q3. Its commercial segment volumes were lower and impacted by a lack of international travel and movement.

VVO initially suspended its 2019 dividend of 2.7 cents per share when the economic downturn first occurred. In its update today it has confirmed that it will now pay that dividend in December to shareholders who are on the register by 20 November 2020. This is a positive move as it shows the firm is confident in its financial flexibility and can reinstate its dividend.

My verdict

Overall, I really like Vivo Energy but there is an element of risk. There are positives, in that longer-term performance has been impressive. Its Q3 trading update shows that despite the market uncertainty, it is getting closer to pre-crash levels of performance and volumes. 

Due to the ongoing economic uncertainty and potential further restrictions, we could see another repeat of Q2 performance. This is where I believe the risk lies for VVO. At this moment, I would be willing to buy some shares in VVO. I wouldn’t be investing lots of cash but feel it could be worth buying some shares and keeping an eye on developments across the FTSE 250.

The post Is this FTSE 250 stock a bargain or one to avoid? Here’s what I think appeared first on The Motley Fool UK.

However, a low-key profile can be a good thing when it comes to investing. Such a company may have a bright future that isn’t yet widely recognised by the market. I believe Vivo Energy and UDG Healthcare are two such companies. They’re thriving, profitable businesses, and have long-term ‘structural’ growth drivers that could potentially make today’s investors seriously rich.

Rising prosperity in Africa

Vivo is a pan-African retailer and marketer of Shell and Engen-branded fuels and lubricants. It has a network of over 2,100 service stations in 23 countries, which also provide customers with non-fuel services including shops, card services and takeaway and casual dining restaurants in partnership with major brands such as KFC and Burger King. Its commercial arm serves customers across a wide range of industries.

Vivo looks to me like a very good play on the long-term story of rising prosperity in Africa. Today, in a trading update ahead of its AGM, it reported “a positive start to 2019 with performance in line with expectations.”

City analysts expect the company to post earnings per share (EPS) of $0.133 (10.15p at current exchange rates) this year, rising 13.5% to $0.151 (11.5p) next year. At a share price of 125p (a little down on the day), we’re looking at an undemanding current-year price-to-earnings (P/E) ratio of 12.3, falling to 10.9 on the 2020 forecast. Dividend forecasts of $0.04 (3.05p), followed by $0.044 (3.36p), give handy yields of 2.4% and 2.7%.

The company floated at 165p a share just about a year ago. Its balance sheet looks decent, with modest debt. And given the near-term and long-term growth prospects, the shares look very buyable to me at their current level.

Health spending and outsourcing trends

The structural growth drivers I see over at UDG Healthcare are rising health spending in a world where people are living longer, and a trend in the industry to outsource the kinds of services UDG offers.

It enables and supports large pharmaceutical to small biotech companies to bring their products to market, ensuring patients can access these drugs and providing support to educate healthcare professionals and patients on the products. In short, it does a whole load of stuff that allows its clients (currently over 300, including the top 30 pharma companies) to concentrate on their core business. It has operations in 26 countries and delivers services in over 50.

I’m expecting 5% EPS growth this year to $0.486 (37.1p at current exchange rates), with growth accelerating to 10% next year and EPS rising to $0.534 (40.8p). At a share price of 678p, we have a P/E of 18.3, falling to 16.6. Dividend forecasts of $0.18 (13.7p), followed by $0.20 (15.3p), give yields of 2% and 2.3%.

While UDG’s P/Es are somewhat higher than Vivo’s and yields are somewhat lower, the healthcare stock also looks very buyable to me at its current valuation. In a defensive industry with good growth prospects, and the company having delivered dividend increases over three decades, the premium is well worth paying, in my book.

The post 2 FTSE 250 stocks I think could make you seriously rich appeared first on The Motley Fool UK.

One such company is Vivo Energy (LSE: VVO), which is the licensee of the Shell service station brand in 15 African countries that together boast 277m consumers. The company currently runs 1,800 service stations stretching from Botswana to Morocco that are experiencing rapid urbanisation, vehicle usage and economic development.

By running stations for a trusted brand name, Vivo is well-placed to benefit from these trends. Indeed, in the first half of the financial year, it recorded a 4% uplift in the volume of petrol it sold to consumers. But petrol and associated vehicle products like lubricants and car washes aren’t the only driver of growth as Vivo is placing a great emphasis on Western-style retail sales and restaurants at its service stations.

The shift towards these profitable retail operations helped boost gross profits 6% during the period to $312m with adjusted EBITDA increasing 8% $204m. And with net debt at just 1 times full-year EBITDA, the group’s balance sheet is in good shape. Together, solid cash flow being generated from operations as well as access to debt funding provide a solid base for Vivo Energy to continue expanding operations in current countries and beginning them in other ones.

However, despite Vivo’s solid growth prospects the company’s exposure to a wide variety of developing markets, any would-be investors should do extra due diligence before considering investing.

More wealth equals better health? 

This is also true of another fast-growing African business I’ve got my eye on, Integrated Diagnostics Holdings (LSE: IDHC). As its name suggests, IDHC runs 383 medical diagnostic testing branches in Egypt, Jordan, Sudan and, recently, Nigeria.

Just like Vivo, IDHC is taking advantage of rising populations, incomes and health problems to sell its services to increasingly wealthy customers. In the first quarter of its financial year, the group’s revenue rose 29% year-on-year to EGP446m with net profit up 24% to EGP110m.

As these results show, the company is not only growing quickly but is also profitable. Indeed, for the full year, management is guiding for 20% revenue growth and EBITDA margins in excess of 40% at its operations outside of Nigeria, which have just begun and are currently lossmaking.

Although its 12 Nigerian locations are not profitable at the moment, the long-term potential for IDHC in Africa’s most populous country is understandably impressive. And as Nigeria beefs up, the company is still growing steadily in its home markets with new branches opened in each of its three core markets in Q1 and a solid increase in the revenue per test it received during the period.

IDHC has pretty solid growth prospects, but UK investors should be extra cautious considering the currency woes that have hit the company’s USD and GBP results stemming from Egypt’s turbulent political and economic environment. 

The post Forget other emerging markets. Why these African stocks have enormous growth potential appeared first on The Motley Fool UK.