Stocks to watch in May
The tempo of growth at engineer Babcock is picking up. The group increased profits and dividends impressively throughout the recession, thanks to a growing government habit of outsourcing major contracts. The track record shows revenues rising from under £1 billion in 2007 to over £3 billion now. Profits and dividends have grown in tandem.
Results should show a spectacular rise in the pre-tax figure, from £115.4 million to £283.4 million. A surge of new contracts in January has prompted the market to forecast profits hitting £344 million within two years.
That suggests the shares sell on only about 10 times prospective earnings per share - cheap for a growth stock.
TalkTalk Telecom has struggled with a poor customer service record in the wake of integrating Tiscali.
There are signs now that the expanded business is clicking into gear. Results should show profits up from £57 million to £187 million with analysts projecting £220 million for next year. Enthusiastic brokers such as Nomura have set a target price of 180p.
The prospective yield, which is 6.3%, should support the price while the company battles with giants like BT, Virgin Media and BSkyB for greater market share.
A year ago this column focused on a number of higher yielders including transport outfit First Group. But the shares fell 20% over the year. The yield attractions remain and the market expects profits in May to show a dramatic upsurge from £127.2 million to £273.8 million.
A steady rise in dividends and a prospective return of 9% for 2014 has failed to impress analysts.
BRAEMAR SHIPPING SERVICES
The prospective yield of 6.7% looks reasonably secure at Braemar Shipping Services, although company profits could be down from £13.2 million to £10.6 million for last year. Over this year and next there should be a modest resumption of earnings growth. The shares – down from 460p to 387p in the past year – sell on 9.4 times forward earnings.
Chilled foods specialist Dairy Crest saw its shares shoot up from 349p to 410p between April and July last year. Lately, however, they have been bumbling along at just above the low of 311p. Profi ts for 2011-12 should come in at around £84 million (£77 million last time)
Analysts hope the figure will edge up to £90 million by 2014, accompanied by dividend increases big enough to boost the yield to 6.8%.
KCOM has painfully evolved into a growth company. Since privatisation in 1999, it has turned itself from a local phone utility into a nationwide, full-service telecoms operator. The payoff is now coming with rising profits and dividends. Returns for the year just ended could be up from £33 million previously to £51 million.
More expected growth in the next two years leaves management confident they can hike dividends by at least 10% a year. That projects the yield to a hefty 8.6% next year.
KCOM is one of a number of shares we highlighted a year ago that have ended up more or less back where they started. You had to be nimble to make a profit on them. The same applies to Bloomsbury and Entertainment One.
Bloomsbury, famed for publishing JK Rowling’s Harry Potter books, appears to be back on a growth course. The Harry Potter gold mine is unlikely to recur but expansion in electronic publishing and in India, where people buy 50 million English language books a year, is putting the glow back into profits.
In the year just ended profi ts should climb from £4.2 million to £9.2 million, while analysts look for 10% growth in earnings and dividends this year and next. That puts the forward yield on an attractive 4.7%.
Cluff Gold shares just about doubled in 2010, but when this column joined the bandwagon the shares proceeded to halve in value. Highlighted at just below their peak at 117.5p, they plunged to 66.5p at the end of 2011 before recovering to just below 100p.
The Cluff story is still a strong one of successful exploration and development of West African mines, with production of gold expected to treble in 2014 as its new mine in Sierra Leone comes on stream.
Significant profits are expected for the year just ended (£9.4 million against a £623,000 loss last time) with every prospect of earnings per share almost doubling over the next two years according to analysts.
The popularity of Peppa Pig, the children’s TV creation of Entertainment One, meant the company had a bumper year last year. Profits are expected to come in at £43 million compared with £11.4 million last time - which explains why the company has been so coy about succumbing to bid approaches.
The bid prospects sent shares above the 200p level last year, but as these have fizzled out the shares are back near the levels of a year ago. However, brokers including Peel Hunt remain enthusiasts. They have a target price of 226p. Profi ts, they reckon, could hit £50 million next year.
Big supermarket suppliers, such as pig meat specialist Cranswick, are used to seeing their margins squeezed. The early months of last year were particularly tough, as it found raw material price increases could not be passed on to consumers. So latest profits are likely to show a fall from a record £47.1 million to £42.8 million.
But dividends continue to grow and this year should see a resumption of profits growth, with analysts forecasting £50 million next year. The shares have been a seesaw performer in the past year. Tipped at 835p, they peaked at 842p then drifted right back to 558p before hitting a strong recovery road. They offer a prospective yield of 4%.
This article was written for our sister publication Money Observer
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.