I’m always wary of penny shares that are way down in price, literally trading in just a few pennies. And when a company’s market capitalisation slips to only a few tens of millions or less, then I’ll keep away for sure.
Big rebound
But sometimes I see stocks lifting themselves from such depths, and I start to wonder if I’m looking at a potential bargain buy. Renold (LSE: RNO) is one that has just crossed my path.
Renold shares dipped as low as 4p in early 2020, and the company was worth very little. But since then the price has grown to 24.75p. The company is up to a £56m market-cap now. That’s still a bit marginal, but it’s more respectable.
Renold makes industrial chains and related power transmission products, and it’s been recording falling earnings for years. But results for the year ended March were headlined “Significant revenue and earnings rebound… Record order book… Continued net debt reduction“.
This is still a very small company. And it’s listed on the Alternative Investment Market (AIM), which is less regulated and generally more volatile. So I’m extra cautious. But I think it deserves closer analyisis.
Dividends too
Structural steel specialist Severfield (LSE: SFR) has seen its share price falling over the past 12 months. As I write, it stands at 57.8p.
The company saw earnings dip a little during the pandemic, but not by much. And last week, the firm put out an upbeat trading statement.
Several current contracts are “expected to deliver significant profits in H2“. And Severfield has a “UK and Europe order book which stands at £483m at 1 September“.
The biggest threat seems to be the current economic outlook. I suspect soaring inflation and rising supply chain costs are likely to impact every aspect of the construction industry.
But against that, I think Severfield’s forecast price-to-earnings (P/E) multiple of under nine looks cheap. Especially with dividend yields heading to 6% and above, based on market predictions.
Back to the shops
Hammerson (LSE: HMSO) shares have lost a third of their value over the past 12 months, dropping to 21.7p today.
The landlord invests in commercial properties, including shopping centres such as the Bullring/Grand Central in Birmingham. And just as the pandemic has eased, we now have crippling inflation, reducing the desire to go out spending.
But Hammerson did record a 154% rise in adjusted earnings in the first half, as like-for-like rental income increased 48%.
Disposals helped to get net debt down a little. It still stood at £1.7bn at 30 June though, which is a threat. Still, the company values its property portfolio at £5.3bn.
The dividend situation is a bit confusing. Hammerson declared an interim cash dividend of 0.2p per share, or an enhanced scrip dividend of 2p as an alternative. This should be the last enhanced scrip dividend alternative, so we can’t deduce much about future cash payments right now.
I’d wait to see the second half performance. But if we get back even close to pre-pandemic dividends, Hammerson could turn out to be a buy.