However, its future could be much more appealing than its past. The bank is expected to report improving earnings figures over the medium term, and this has the potential to boost its share price performance. But it’s not the only financial services stock that could be worth buying right now.

Strong performance

Reporting on Friday was institutional securities company Cenkos (LSE: CNKS). It released full-year results for the 2017 financial year which included a rise in revenue of 36%, as well as a profit after tax on continuing operations rise of 155%. This has enabled it to increase dividends per share from 6p to 9p, which means that it could offer significant income opportunities. In fact, with a dividend yield of 8.3%, it could deliver inflation-beating performance over the long run.

However, it is the company’s growth potential which may act as the biggest catalyst on its share price. It is due to increase earnings by 164% in the current year. And with it trading on a price-to-earnings growth (PEG) ratio of just 0.1, it seems to offer significant upside potential.

Certainly, the markets in which Cenkos operates are experiencing a period of significant volatility. This could create downward pressure on its share price in the near term. But in the long run the company appears to offer a potent mix of growth, value and income potential.

Possible turnaround

RBS also has a bright future according to its forecasts. It is expected to post a rise in earnings of 12% in the next financial year, which could show investors that the business is gradually moving on from the legacy issues it has faced in recent years.

Despite its impressive growth outlook, the stock has a PEG ratio of just 0.8. This suggests that it offers growth at a reasonable price and could generate capital growth. Alongside this, it has a forecast dividend yield of 5.2% for the next financial year. This could make it one of the highest-yielding stocks in the FTSE 100, while dividends are due to be covered 2.1 times by profit. This suggests that they are highly affordable and could increase over the medium term without hurting the financial strength of the business.

With interest rate rises expected over the coming years, RBS could enjoy a more positive trading environment. The potential for an improved net interest margin could lead to greater profitability, as well as a higher valuation. Therefore, now could be the perfect time to buy the stock, ahead of what may prove to be a strong turnaround.  

Under investigation

Petrofac is currently under investigation by the SFO regarding allocations of bribery. Specifically, the SFO announced in May that it would investigate allegations that the firm used scandal-hit Unaoil as a middleman to secure consultancy contracts worth an estimated $2bn. Chief executive Ayman Asfari and chief operating officer Marwan Chedid have been questioned as part of the ongoing probe, and Mr Chedid has since been suspended. 

Still, despite this overhang, during the past few months, the company has continued to win work from customers. The latest piece of work is a contract worth more than $700m with Sakhalin Energy Investment Company Ltd for its onshore processing facility on Sakhalin Island. 

Pushing ahead 

The fact that Petrofac continues to win work indicates to me that it’s business as usual at the group and despite the SFO probe, the company’s customers seem to continue to believe that it is an excellent partner to work with. 

And that’s why I’d buy the stock for its yield today. With work still coming in, the company is not going to collapse overnight, and the shares look cheap compared to current earnings potential.

Right now the shares are trading at a lowly forward P/E of 5.8, which implies to me that there’s already plenty of bad news baked into the stock. Meanwhile, the shares support a dividend yield of 7.1%, and the payout is covered twice by earnings per share.

With its discount valuation and high-single-digit yield, I believe Petrofac is a highly attractive value and income investment. 

Turnaround gaining traction 

Over the past three years, shares in small-cap broker Cenkos Securities (LSE: CNKS) have lost more than half of their value as a dearth of market activity has weighed on profitability. Pre-tax profit dropped from £26m in 2014 to just £4.4m for 2016. But now it looks as if the firm is finally turning a corner. 

Today Cenkos announced its first-half results and reported a 91% increase in revenue as well as 156% growth in profit before tax to £4.2m. Basic earnings per share for the period jumped 406% and off the back of these figures, management hiked the interim dividend payout by 350% to 4.5p. 

One of its most attractive traits, in my view, is management’s desire to return as much cash to investors as possible. Since its flotation in 2006, the company has returned £105.6m of cash to shareholders, equivalent to 160.8p per share via buybacks and dividends. That’s more than the company’s entire market value today. 

I believe this trend is set to continue. City analysts have pencilled in a full-year dividend payout of 11p per share for the company, and considering the interim payout of 4.5p, this full-year target is not wholly unrealistic in my view. Assuming the company does indeed meet this objective, for the full-year, the shares are on track to yield 9.6%, a figure I believe is hard to pass up.

Shares in financial adviser Lighthouse Group (LSE: LGT) have fallen by over 10% today after AFH Financial stated that it does not intend to make an offer for the company. While this may be viewed as disappointing for investors in Lighthouse, since it means that its shares could fall back to the level at which they were trading prior to AFH’s initial approach, Lighthouse states that it is continuing to perform in-line with expectations.

Looking ahead, Lighthouse is forecast to increase its earnings by 32% in the current year, and by a further 22% next year. When combined with its price to earnings (P/E) ratio of 17.9, this rate of growth puts the company on a price to earnings growth (PEG) ratio of just 0.7, which indicates that capital gains are on the horizon. Clearly, Lighthouse is a relatively small and high risk play, but for less risk averse investors it could be worth a closer look.

Unfavourable mix

Also in the news today is Cenkos Securities (LSE: CNKS), with the stockbroking company reporting a fall in revenue and pretax profit for the 2015 financial year. The former declined by 14% in the 2015 financial year, while the latter slumped by 26% due in part to an unfavourable sales mix. While the total volume of funds raised by Cenkos increased versus the prior year, sales were hurt by a bias towards investment fund tap issues and larger average deal sizes.

The impact of this decline in profitability has been a reduction in dividends, with them being cut by 18% versus the previous year. And with the company’s shares being down by 10% today, it is clear that investor sentiment has come under a degree of pressure. As such, and while Cenkos could deliver improved performance, it seems to be a stock to watch rather than buy at the present time.

Maintaining momentum

Meanwhile, shares in BATM Advanced Communications (LSE: BVC) are also down today, falling by 4% following the release of a disappointing set of results for the 2015 financial year. Its pre-tax loss widened to $11.4m from $3.6m in the prior year, with higher financing costs being booked and a stronger US dollar also hurting its overall performance. In fact, the stronger greenback contributed $14.6m to the company’s fall in sales, and at constant currencies BATM posted a small rise in its top line.

Despite a disappointing 2015, BATM has a higher backlog now than at the same time last year and expects to maintain the momentum of last year across all of its divisions. And with BATM forecast to move into profitability in 2016, investor sentiment could pick up in the coming months and help to reverse the share price fall of 15% which has been recorded in the last six months. As such, for less risk averse investors BATM could be of interest.

Cenkos’ shares slumped by 16% on Monday after the Sunday Times reported that the broker, which was the nominated advisor to the infamous Quindell, had been asked to hand over a selection of documents to the SFO. 

However, the company reported today that the:

“Recent press article, citing the Company…includes a number of material inaccurate references to the Company. In particular, the Company wishes to confirm that it has not been asked to provide, and nor has it provided, any information to the Serious Fraud Office (“SFO”) in relation to any investigation being undertaken by the SFO and that the Company is not itself the subject of any SFO investigation.”

The company also says that it is working with its advisers to correct the inaccurate reporting.

Good news for shareholders

The revelation that Cenkos is not being investigated by the SFO is good news for investors. As an independent, specialist institutional securities group, focused on small and mid-cap companies and investment funds, Cenkos trades on its reputation, and an investigation into the company’s practices by the SFO, is unlikely to improve its reputation around the City.

What’s more, it’s highly likely that if Cenkos really was a subject of an SFO investigation, regulators would consider suspending the company’s licence to operate in the financial sector. As Cenkos’ principal activity is institutional stockbroking, this would cripple the business almost overnight. 

Still, Cenkos isn’t under investigation by the SFO, and the company remains authorised by the Financial Conduct Authority. 

A bargain?

It has been a rough year for Cenkos’ shareholders. Since mid-April, the company’s shares have fallen by around 30%, as the group’s growth has slowed. Indeed, for the six months to the end of June, Cenkos’ sales declined 19% year-on-year, and pre-tax profit fell 21%. Earnings per share fell 16% year-on-year to 26.1p putting the brakes on five years of stellar earnings growth for the company. Between 2009 and 2014 Cenkos’ earnings per share tripled and the company paid out a total of 50p per share in dividends to investors. 

However, despite falling profits Cenkos continues to return plenty of cash to its investors. At the end of September management declared a 7p per share interim dividend and only a few weeks ago the company returned £8m to investors via a tender offer, repurchasing 4.5m shares (7.3% of the company’s issued share capital) at £1.80 each. At the end of June, Cenkos reported a cash balance of £42m, around 40% of the company’s market capitalisation. 

So it is in the UK investment banking and advisory market right now. For a real-life example of such trend in action, look no further than gusher Cenkos Securities (LSE: CNKS). Compare the recent rise of this upstart to a dreadful year for top-tier bank, Barclays (LSE: BARC) (NYSE: BCS.US), and it’s easy to see how Cenkos makes for an attractive target for a competitor of pretty much any size bigger than itself.

A Simon Peter That’s Proving The Doubting Thomases Wrong

Last year, Cenkos posted interim profits of £23.5m – representing a 653% increase over the same period in the year before.

While impressive, many investors were a little weary of the results, since around half the company’s H114 revenue came from what looked like a one-time deal: the IPO of insurer AA. However, a round of mayhem in the financial sector mid-year, with Barclays, RBS and Lloyds getting slammed with big fines for mis-selling to their customers, compounded with a slow summer in equity issuances, meant that despite posting stellar profits and showing an increase of 164% in cash on its balance sheet, Cenkos was still trading for peanuts come the end of December. 

Right now, Cenkos is selling for around 5x earnings, despite having proven that it can play in the major leagues with much more established competitors.

With a market cap of £115m, there’s simply no better value publicly listed financial services firm on the UK market right now. Let’s look at some of the most compelling facts for the advisor being deeply undervalued:

• For a start, there’s that famous AA IPO, which pretty much every analyst in the City wrote off as being overpriced initially. Since June, however, the insurer has jumped 36% in value and it still looks cheap after paying off debt. Unbelievably, AA is starting to look like an enviable client.
• Cenkos has also had a number of wins recently fundraising for its other clients, further showing the strength of its distribution power. In the second half of the year, the advisor raised £424.9 million. Those placements will produce an estimated £20-£25m income for that period.
• Accounting only for the income derived from private placements conducted in the third quarter of 2014 (estimated at £15m), Cenkos is still trading at a valuation of less than 10x earnings for the period! On top of that are broking and advisory fees, which add up to another 20% on top at least. Contrast this scenario with rivals such as Numis, where the same multiple for the period is – at its most generous – in the 40s, and it’s easy to see the recent value on offer.

Cheap … But Hardly Just Chips

Barclays looks like a firm with distinctly average pools of talent in dire need of reinvigorating their lacklustre and heavily institutionalised investment banking operation. In the past year, Barclays has posted a 16% decline, wiping out all its shareholder’s 5-year gains and making the stock a 15% money-loser for the period. 

While Cenkos is up just 44% in the past 5 years, more than half of that has been earned in the past year alone. And the company is still a fraction of the price of any other comparable competitor!

Cenkos is exactly the kind of fountain head gushing from the spring with great management, a bulging client base and a healthy cash position that both firms need to look at to take part in what appears to be a return to exciting times for mid-cap stock issuance.

According to the report, David Currie, who took over the running of the company after founder Rob Terry was forced out, has approached a number of brokers in the City to try to find a replacement for current nomad Cenkos Securities (LSE: CNKS) — and at least one has apparently said no.

Good news or bad?

Looking round the reactions so far, it seems that both bulls and bears are claiming this as vindication of their respective positions.

Ridding Quindell of its association with the Terry regime would seem like a sensible strategy for a new management team to adopt, and if that’s what’s happening then it would be natural to ditch Cenkos.

After all, if you were the new boss, would you really want to stick with the nomad who apparently signed off on the RNS that claimed that Terry and two other directors were buying new Quindell shares using a loan from Equities First Holdings (EFH), when in reality they were massive net sellers? Especially as Terry went on to ditch almost his entire holding (and as he’s now below 3% ownership, we may never know if he sells the rest)?

Sensitive information?

And wouldn’t you want to part company with a nomad that either didn’t keep itself informed or seemed to think it was fine to sit on the news that joint broker Cannacord Genuity had resigned on 21 October and not tell the punters until 17 November? Especially as the controversial EFH deal was happening over the same period? And as it has raised questions about the company’s adherence to rule 11 of the AIM code which says that any sensitive information that might move a company’s share price must be immediately released to the market?

Yes, if you were a Quindell shareholder or a member of the board, I could really understand why you’d be happy to see the back of Cenkos.

On the other hand, what if Cenkos is quitting and Quindell is in desperate need of finding a replacement? After all, having a nomad is a requirement for a listing on AIM, and without one a company would have its shares suspended.

Presaging catastrophe?

Coming so soon after the resignation of Cannacord, Cenkos throwing in the towel while there’s an independent review of the company’s accounts and practices under way, and just after we heard that Quindell’s much-trumpeted rise in Q4 cashflow “has not been as significant as previously anticipated“, could be the last herald of disaster.

So, is this a much-needed step back towards respectability, or is it the next chapter in an investment horror story? Time will tell. And soon.