In today’s article I’ll look at three of this year’s strongest performers Berkeley Energy (LSE: BKY), IG Group Holdings (LSE: IGG) and Victoria (LSE: VCP).
Should shareholders hold on for further gains, or sell and take profits?
Berkeley Energy
Shares in uranium miner Berkeley have risen by 100% since June, as the small-cap miner has made solid progress towards developing its low-cost Salamanca project, in Spain.
The firm’s test drilling has found that the Zona 7 deposit at Salamanca is likely to deliver a high grade of ore at low cost. Zona 7 has significantly improved the economics of the Salamanca project.
According to Berkeley, the inclusion of Zona 7 gives Salamanca has a net present value of £580m, or 322p per share. That’s 13 times the current share price! In an update today, Berkeley’s managing director Paul Atherley said that Berkeley is now focused on making Salamanca the world’s lowest-cost uranium producer.
This work forms part of the feasibility study which is currently underway. This study will be needed to enable Berkeley to secure financing for the project, which already has all the permits required for development to begin.
I suspect there is more upside to come for Berkeley shareholders, and rate the shares as a buy at 24p.
IG Group
Spread-betting firm IG is probably the UK market leader, but are the firm’s shares a buy?
IG said this morning that trading during the second quarter had been slightly ahead of the first quarter. Heading into the second half of its financial year, IG remains on track and says “it is pleased with the ongoing strength in client recruitment”.
Although IG is vulnerable slumps in trading activity, when times are good the business is extremely profitable and cash generative. Last year, IG reported an operating margin of about 40% and net cash of £148m.
IG’s dividend is usually covered by free cash flow. As a result, I think that the group’s 3.9% yield is quite attractive. While IG shares may not seem cheap at 18 times 2016 forecast earnings, I believe that the firm’s strong balance sheet and high profit margins make this a reasonable price.
IG could deliver more in 2016 — I wouldn’t sell just yet.
Victoria
AIM-listed flooring manufacturer Victoria (LSE: VCP) has rocketed 175% higher this year. The increase seems to have been driven by the ambitious growth plans of chairman Geoff Wilding, whose family trust controls a 33% shareholding in the firm.
Victoria’s expansion has been fuelled by the issue of new shares and new debt. The firm’s share count has risen by 69% to 11.9m this year, while net debt has risen from £36m to £81m. Mr Wilding has used this influx of investor cash to fund a string of acquisitions.
At the moment, it’s too soon to say how successful these acquisitions will be. The shares trade on 18 times 2016 forecast earnings but 81 times trailing earnings. My reading of this is that the shares could crash if results are not up to expectations.
Personally, I would take some profits and sell at today’s price of nearly £13 per share. I think the risks outweigh the potential gains.