Stocks to watch in September
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
INTERIOR SERVICES GROUP
Interior Services Group is an AIM-listed minnow with a market capitalisation of just £67 million. But it is successfully striding across the global stage, with operations in Europe, the Middle East and Asia.
Its expertise lies in fitting out offices and retail space, as well as complete refurbishments and building development. It struggled through the recession pretty well and even kept dividends rising when profits dipped in 2010.
The latest trading statement at the beginning of July was encouraging. It currently has more than £760 million of work in its order book and £35 million in cash on the balance sheet (equivalent to more than half the group's entire market value).
Brokers expect profits of £12.2 million for 2010/11 and £13.1 million for this year.
One financial company with a stunning track record is Hargreaves Lansdown, a leading provider of investment management services to private investors.
On the latest count, it had £23.6 billion of assets under administration. In the five years to June 2010, it grew profits from a mere £7.6 million to £86.3 million - brushing aside the effects of the recession as if the crash wasn't happening and finding itself catapulted into the FTSE 100 index this year with a market value approaching £3 billion.
The next set of results is expected to reveal profits of £130.5 million, and the market is looking for £166 million in the current year. The dividend - just 3p a share in 2007 - is expected to be 20.44p in 2012.
The shares have more than doubled in value in the past year, but lately seem to be pausing for breath. Analysts are sharply divided on where they go from here. The track record suggests it is onward and upward, but the rating is a near-neutral 4.53. That's understandable, perhaps, as the forward earnings multiple is a demanding 23.9.
Magazine publisher and event organiser Centaur Media saw its shares trading above 150p in 2007 before the financial crisis hit.
However, the meltdown savaged advertising revenues for titles such as Marketing Week and The Lawyer, and in the space of two years, profits slumped from £16.9 million to just £1.7 million.
Lately, though, the company has been fighting back, and pre-tax returns for the year to June look like almost trebling to £6.24 million. The market forecast is for £8.58 million for the current year, as the management begins a reshuffle of operations with a view to cutting costs and streamlining operations ready for the next phase of expansion.
But the shares now sell at close to the year's low, reflecting disappointment that recovery hasn't been swifter. They begin to look cheap on a forward multiple of 10.9 and a prospective yield of 4.3%.
COAL OF AFRICA
Coal of Africa is an Australian company with an AIM listing and four big coal mining projects in South Africa. The group is now gearing up for large-scale exports, and the City is hoping it has finally swung into profit in the year just ended.
The market expects pre-tax profits of £25 million. The target for the current year is £86 million.
In the 2008 stockmarket slump, Coal of Africa's shares plunged from more than 200p to under 50p, but they gradually climbed back to 150p last year.They have since fallen out of favour again to just 75p, where the five brokers who follow the shares all rate them a 'strong buy' in the belief that profits are finally starting to flow.
For brave speculators only.
K3 BUSINESS TECHNOLOGY
Shares in K3 Business Technology Group have doubled in price this year in response to growing evidence that the pace of expansion at this specialist supplier of computer services to the supply chain industry is increasing.
The latest trading statement suggests recent acquisitions are bedding down very well and that more are on the way.
K3 already has a solid track record showing profits rising every year for the five years to 2009/10, from a lowly £233,000 to £4.77 million. For the year just ended, profits are expected to nearly double to £8.28 million, while in the current year the market is looking for around £9.8 million.
Such an outcome brings the prospective price/earnings multiple down to 7.9.
A way of valuing a company by the total value of its issued shares and calculated by multiplying the number of shares in issues by the market price. This means the market capitalisation fluctuates continually as the value of the shares change in the market. For example, HSBC has 17.82bn shares in issue at a price of 646.2p making a market capitalisation of £115.15bn.
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%.
Investors who borrow money they use for investment and use the securities they buy as collateral for the loan are said to be “gearing up” the portfolio (in the US, gearing is referred to as “leveraging”) and widely used by investment trusts. The greater the gearing as a proportion of the overall portfolio, the greater the potential for profit or loss. If markets rise in value, the investor can pay back the loan and retain the profit but if markets fall, the investor may not be able to cover the borrowing and interest costs, and will make a loss. Also used to describe the ratio of a company’s borrowing in relation to its market capitalisation and the gearing ratio measures the extent to which a company is funded by debt. A company with high gearing is more vulnerable to downturns in the business cycle because the company must continue to service its debt regardless of how bad sales are.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
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.
A property chain is a line of buyers and sellers (the “links”) who are all simultaneously involved in linked property transactions. When one transaction falls through – for instance, someone can’t get a mortgage or simply withdraws their property from sale, the entire chain breaks and all the transactions are held up or even fail entirely.