#1: Riding the construction boom

Soaring construction activity in Britain is setting building services group TClarke (LSE: CTO) up for strong earnings growth. City analysts think annual earnings here will rocket 50% in 2021 and 37% next year.

This leaves the company trading on a forward price-to-earnings growth (PEG) ratio of just 0.2. A reading below 1 suggests a UK share could be undervalued by the market.

New order volumes across the construction sector grew at their fastest rate in May since records began in 1997, IHS Market said last week. It’s an uptick which Tclarke, which provides a broad range of services across the industry, is well-placed to gain from.

Remember though, this cheap UK share’s operations are highly cyclical. And so a fresh downturn in the domestic economy could blow those upbeat forecasts wildly off course.

#2: An emerging market star

I reckon value hunters like me should give TBC Bank Group (LSE: TBC) a close look today. The FTSE 250 firm is expected to record an 81% earnings uplift this year, resulting in a forward PEG multiple of 0.1.

On top of this, the cheap UK share sports a monster 4.2% dividend yield. It’s a reading that smashes the broader 3.5% forward average for British shares.

TBC Bank’s a great way to ride the strong rebound in Georgia, an emerging market economy which has experienced stunning growth in recent years.

Indeed, just last week, the government there hiked its 2021 GDP growth estimate to 6.5%. It’s tipping growth of 6.9% in 2022 too.

Pleasingly for TBC Bank and its peers, Georgia’s central bank has undertaken a series of interest rate hikes in 2021. This widens the difference between what financial services firms can offer borrowers and savers, thus boosting net interest margins.

But be aware that a fresh uptick in the Covid-19 crisis could see rates slashed again in a bid to support the Eurasian nation’s economy.

#3: Another cheap UK dividend share

I think Sylvania Platinum (LSE: SLP) also offers tremendous value at current prices. Not only does this precious metals miner trade on a forward PEG ratio of below 0.1, but City brokers also expect dividends to keep growing as earnings are tipped to rocket (a 174% bottom-line rise is currently forecast). Thus, the cheap UK share boasts a 4.6% dividend yield.

I like Sylvania because prices of its metals are benefitting from extreme investor jitteriness during this economic recovery. The World Platinum Investment Council recently announced that the platinum market remained in deficit during the first quarter “as strong industrial, automotive and jewellery demand and sustained investment demand for platinum outstripped recovering but constrained supply.”

It’s true that mining metals can be fraught with massive operational risks that could hit revenues and cause costs to balloon. But I still think Sylvania could be considered too cheap to miss at current prices.

Take sausage casings manufacturer Devro (LSE: DVO) as an example. With City predictions of solid earnings growth come expectations of more weighty dividend hikes, too, leaving the business with bulging payout yields of 6% and 6.2% for this year and next respectively.

As if this wasn’t enough, the small cap trades on a price-to-earnings ratio that fails to reflect its enormous revenues opportunities in global markets, in my opinion, at 9.5 times.

Sales in growth markets soar

The latest trading details this week showed that despite disappointing sales in mainland Europe and Japan, solid performances in the hot growth regions of North America and China helped sales pick up momentum in the third quarter. And Devro says that it expects the top line to continue accelerating through the remainder of 2019.

The food manufacturing giant’s thrown shedloads of cash to bolster its position in these exciting regions, whether it be through opening new factories like its state-of-the-art facility in Nantong or rolling out suites of new products. These measures are now paying off and make Devro one to watch for both growth and income investors.

Remarkable resilience

Now TClarke (LSE: CTO) is, on one hand, not a share for the faint-of-heart. The services contractor’s predicted to keep earnings growing through the next two years but an uncertain political and economic outlook could see these figures come under pressure as the construction market cools. Latest PMI data showed the sector contract again in September for the fifth month on the spin.

Still, based on current forecasts could TClarke be considered too cheap to miss? It’s quite possible: after all, a forward price-to-earnings ratio of 5.7 times sits well inside the commonly regarded bargain terrain of 10 times and below, and arguably factors in these tough trading conditions.

Not that the business is showing signs of strain just yet. Revenues leapt 12% in the six months to June, while a stable forward order book (at £370m) provide some splendid earnings visibility. Besides, those fearful of a sagging top line should be encouraged by signs of progress on the margin front between January and June – the underlying operating margin rose to 2.9% from 2.6% previously.

One final thing to note: at current prices the fledgling index firm sports big dividend yields of 4.4% and 4.8% for 2019 and 2020 respectively. Market conditions might be certain, sure, but TClarke’s confident enough to have hiked the interim payout 14% year on year. I’m confident the business should prove a very decent dividend share in the near term and beyond.

However, after such a large share price rise, the stock appears to be somewhat overvalued. Therefore, this smaller company could be worth a closer look for the long run.

Improving performance

The company in question is building services group T Clarke (LSE: CTO). It released a generally positive trading update on Friday, with its performance in the period since 1 July being upbeat. It is expecting to deliver results which are in line with guidance for the full year, with pre-tax profit due to be £6.5m and revenue expected to be higher than £300m.

The company’s forward order book now stands at £380m versus £320m at the same time last year. The integration of recently acquired ETON Associates seems to be progressing as planned. Alongside investment in its new off-site prefabrication manufacturing facility at Stansted, it could provide a catalyst for future growth. With continued demand for its specialist services and the company winning a number of contracts recently, its operational and financial performance could improve in future.

Valuation

Looking ahead, T Clarke is forecast to post a rise in its bottom line of 5% in the current year, followed by further growth of 8% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.7, which suggests that it may offer a wide margin of safety. Since the company has a price-to-earnings (P/E) ratio of around 6, it offers a dividend yield of 4.6% from a shareholder payout that is covered 3.5 times by profit. This indicates that there could be dividend growth ahead.

In contrast, Fevertree seems to have a relatively high valuation. The company’s P/E ratio of 60 may be easy to justify in the current year when earnings are due to rise by 60%. However, the financial performance is set to be less impressive next year. Its bottom line is expected to grow by just 4%, which puts it on a PEG ratio of around 13. This indicates that there may be a lack of upside potential on offer after an extremely profitable 2017 for investors.

In addition, Fevertree yields just 0.5% from a dividend which is covered 3.9 times by profit. While dividend growth may be high, its income return lags inflation.

Takeaway

While Fevertree Drinks has experienced a stunning 2017, next year may not be so prosperous for its investors. A high valuation and lack of strong earnings growth could make other companies such as T Clarke worth a closer look at the present time. Certainly, small-caps can be relatively risky, but the potential rewards may also be high.

Today, I’m going to look at two value stocks trading well above recent lows, and explain why I think there’s still time to buy.

Solid foundations

Construction firm Keller Group (LSE: KLR) is a “geotechnical solutions specialist”. In other words, it builds foundations and performs groundworks for large, complex construction projects. Think Crossrail, power stations and ports, rather than housing estates.

The group issued a trading update on Thursday that showed the first four months of the year is ahead of the same period last year, in-line with expectations.

Encouragingly, order intake for during the third quarter was described as “good”. Keller’s like-for-like order book for the next 12 months is now at an all-time high, 15% above the same point last year.

This stock has now risen by 43% from the lows which followed last October’s profit warning. But if trading remains in line with expectations, then broker forecasts suggest underlying earnings per share should rise by 19% to 90.4p this year, putting the stock on a forecast P/E of 10.5. A 5.4% dividend hike is expected, giving the stock a forecast yield of 3.2%.

In my view, the opportunity for investors is that Keller’s performance may continue to improve, leading to upgraded full-year guidance and further share price gains. Keller could also benefit if the pound continues to gain strength against the dollar.

This small cap is trading well

Another building stock that seems to be performing well at the moment is services contractor T Clarke (LSE: CTO). This £38m firm’s share price has risen by 52% so far this year.

These gains appear to have been driven by a strong order book and significant upgrades to earnings forecasts for 2017. Clarke’s broker now expects the firm to deliver sales of £300m and earnings per share of 11.3p this year, up from £265m and 9.5p per share a year ago.

However, the company’s latest trading update suggests that another round of upgrades may be on the way. On 5 May, Clarke reported that its order book had risen above £400m for the first time, up by 22% so far this year. As a result, the firm expects “revenues and profits for 2017 to be ahead of current market expectations”.

Clarke appears to be on a roll, with strong order intake. The firm’s balance sheet also looks sound to me, with net cash of £9.2m reported at the end of 2016.

However, it’s worth remembering that this firm is a low-margin contractor. A downturn in construction market activity levels could lead rapidly to Clarke’s order book drying up. Although the group has a strong balance sheet, its operating margin was just 1.6% last year.

At the last-seen share price of 90p, T Clarke shares trade on a forecast P/E of 7.6 and offer a prospective yield of 3.8%. In my view, the shares remain attractive at this level and could deliver further gains. But I think potential shareholders will also need to keep a close eye on market conditions, to avoid being caught by the next downturn.

Cheap growth play

Today’s year-end update from building services group T Clarke (LSE: CTO) shows that it is making excellent progress. Its underlying profits for 2016 were substantially ahead of the previous year. As such, it has entered the current year in a strong position in terms of its cash position and order book. In fact, its cash position improved for the fourth successive year and is now £9.2m, which is 39% higher than at the end of the previous year. Similarly, its forward order book has strengthened to £330m, from £300m a year ago.

Looking ahead, T Clarke is expected to record a rise in its bottom line of 20% in the current year. Given that it trades on a price-to-earnings (P/E) ratio of 9.6, this equates to a price-to-earnings growth (PEG) ratio of only 0.5. As a result, further share price gains seem to be on the cards even after today’s 21% price rise.

Of course, the construction industry faces an uncertain future. Brexit could cause inflation to increase via a declining pound and this may hurt demand across the construction sector. However, this risk appears to be sufficiently priced in to T Clarke’s valuation and it seems to offer a relatively wide margin of safety at the present time. So, while gains of the magnitude recorded today may not become commonplace, a significant rise in its share price could take place over the medium term.

An improving technology stock

While T Clarke’s gains are impressive, technology company Ubisense (LSE: UBI) soared by 33% today, following the release of a trading statement. The ‘enterprise location intelligence’ specialist showed continued good progress in 2016 versus 2015, with its sales growth, margins, cost management and order book all ahead of the prior year.

The company’s increased focus on its Real-time Locating Systems (RTLS )software platform has paid off, with the signing of a global software licence deal with a major automotive manufacturer. Other new and extended RTLS product orders were all signed, which positions the company for future growth. Furthermore, it is in compliance with its banking covenants and expects to report a net cash position as of 31 December 2016, which has improved further during the last month, thanks to substantial debtor collections.

Clearly, Ubisense is a small company that lacks the size and scale of larger industry peer, and is therefore relatively high risk. However, its business seems to be moving in the right direction and with investor sentiment on the up, its share price could keep moving higher over the medium term.

Today’s first-half results from Numis (LSE: NUM) show that the financial services company is making encouraging progress. Pre-tax profit increased from £11.9m in the first half of the prior year to £16.8m this year as Numis experienced a marked rise in revenue.

This is an impressive result given the high degree of volatility in financial markets during the period and shows that while investors have been nervous, accessing capital has still been possible for listed and unlisted businesses.

With Numis’s CEO and founder announcing that he is stepping down today, this could be viewed as an uncertain period for the company. Certainly a change in leadership always brings greater risk, but with Numis performing well and trading on a price to earnings (P/E) ratio of just 8.8, it seems to offer a sufficiently wide margin of safety to merit investment at the present time. That’s especially the case since Numis is forecast to grow its bottom line by 6% next year and offers a yield of 5.6%.

Relatively bright

Also updating the market today was Shanta Gold (LSE: SHG). Its shares have been down by over 10% today after it reported a loss for the 2015 financial year, with lower production, a lower gold price and higher costs being the key reasons for this.

In fact, the average realised price of gold fell to $1,163 per ounce, which is down from $1,289 per ounce in 2014 and, with a one-off non-cash depreciation charge of $21m being recorded for waste stripping and future development expenditure, Shanta Gold’s net profit of $8.9m from 2014 became a loss of $17.3m in 2015.

Looking ahead, Shanta Gold expects to be at the higher end of annual production guidance for the 2016 financial year. It has also reworked mine plans which has led to reduced costs and with a $10m placing also announced today, Shanta Gold’s future could prove to be relatively bright. However, with a number of other precious metals producers being highly profitable and cheap, there may be better options available elsewhere.

Record order level

Meanwhile, T Clarke (LSE CTO) has also reported today, with the building services company announcing that it is on target to meet full-year expectations. Encouragingly, revenue to 30 April is up by 8.3% versus the same period last year to £78m, while the targeted tender process which T Clarke has implemented across the company has been successful. In fact, the value of the company’s replenished order book remains strong and has now reached a new record level, rising by 10% to £330m.

Looking ahead, T Clarke is forecast to increase its bottom line by 28% in the current year and by a further 36% next year. This puts it on a price to earnings growth (PEG) ratio of just 0.2 and indicates that its shares offer a wide margin of safety as well as upward re-rating potential. As such, it seems to be a strong long term buy.