Curated auction leader

The Auction Technology Group is the world’s leading curated auction marketplace provider. Over 2,000 auction houses use its technology and £6bn worth of items are sold each year. It launched on the London Stock Exchange via an initial public offering (IPO) in February and its share price has soared.

ATG supports existing auction houses by offering software, design and e-commerce solutions. It also runs the well-known auction sites i-bidder.com and BidSpotter. Furthermore, it has an antiques trade magazine and several additional marketplaces. I think the digital art craze for non-fungible tokens (NFTs) is renewing interest in auctions. Plus the stay-at-home economy has boosted revenues. In fact, group revenues rose 48% to £34.5m in the half year to the end of March. 

The ATG share price is up 45% since IPO. The company has a £1.1bn market cap and, as mentioned, is now in the running to join the FTSE 250. There’s a risk the reopening could reduce interest, but with a clear shift to e-commerce I feel bullish on the sector. I’d happily buy shares in ATG today.

Reviews giant

Another FTSE 250 contender is online review site, Trustpilot Group, was founded in Denmark in 2007 and launched via an IPO in March.

The Trustpilot share price has risen 20% since IPO and it now has a £1.3bn market cap.

It invests in its technology and big-data ecosystem to enhance ease of use for both users and clients. The site mission is to be open and collaborative, and it’s popular with consumers for providing unbiased website reviews It removed 2.2m fake reviews last year). The company makes money from paid products and services. The hook for businesses is they get an element of marketing and enhanced credibility for the business.

Keeping on top of fake reviews and ensuring a high level of trust is key for its ongoing success. Nevertheless, I think this looks like a great business and I’d consider buying Trustpilot shares, FTSE 250 member or not.

Ventilation specialist

Ventilation specialist Volution Group operates internationally. It sells its extractor fans and installations to consumers and businesses. The UK accounts for half its business, with Europe and Australia making up the rest.

Following the M&A roadmap to scale is a clear priority for Volution. For now, it sees many opportunities in the UK and Continental Europe, but doesn’t rule out considering North American prospects in the future.

So far, it’s financed its deals from its own cash generation. But it has noted it may move into issuing equity for future acquisitions. This could lead to share price dilution, so I imagine market reaction would depend on the quality and size of acquisition.

Commodity pricing pressures are another issue that could cause share price volatility for the group. Nevertheless, I like the outlook for this business. After the pandemic, demand for ventilation appears to be rising. It’s the same new territories as climate change raises temperatures. I’d consider adding Volution Group shares to my Stocks and Shares ISA.

Kainos grows through M&A

Software company Kainos Group (LSE:KNOS) is expanding its reach across Europe. And it just announced the acquisition of Cloudator Oy’s Workday division.

Workday is an on‑demand financial management software vendor from the US and Kainos is already a significant partner in offering Workday services. In its recent annual report, it noted an 18% rise in organic sales from its Workday division, so I think expanding this seems like a wise move.

Kainos’ annual results were excellent, with it reporting a 31% increase in revenue and 117% rise in pre-tax profit.

It also has the NHS as a client, which has significantly boosted its revenues in the past year. It has a forward price-to-earnings ratio (P/E) of 38, earnings per share are 32p and its market cap is £1.7bn. It also offers a 2% dividend yield.

Yet Kainos has been a popular stock this year and may be at risk of a share price drop if its growth slows. Nevertheless, I like the look of this dividend-paying stock.

LGEN’s generous dividend

Legal & General Group (LSE:LGEN) is a large insurance company with several revenue streams from insurance, investments, retirement and life cover. One of its streams is from rental and leasehold properties for the elderly and as the UK has an ageing population, this is likely to have growing appeal. I think it should continue to see strong cash-flows in the years to come.

The LGEN balance sheet is stronger now than it was before the pandemic hit. It’s increasing its product offering in the US, and in Europe, where it’s seeing strong demand for its exchange-traded funds (ETFs).

But there are ongoing risks to this business and they include another wave of Covid-19 or a financial crisis.

Legal & General has a forward P/E of 9 and earnings per share are 29p, plus it offers a generous 6% dividend yield. This yield holds great appeal for me and I’m tempted to add it to my Stocks and Shares ISA.

A blast of fresh air

Volution Group (LSE:FAN) sells ventilation products to homes and businesses, including extractor fans and built-in ventilation systems.

The pandemic has highlighted the need for ventilation and it’s increasingly in demand as consumers look to control indoor air. The firm’s operating margins are a decent 20% and it’s been growing through M&A in recent years.

It’s also tipped as a viable entrant into the FTSE 250 in the upcoming reshuffle.

The Volution share price has risen 163% in the past five years. In the year prior to the pandemic, the group’s share price did well, but since the March 2020 market crash it has soared.

Today Volution has a P/E of 48, earnings per share are 9p and its dividend yield is 1%. But given that it’s an expensive stock, there’s always a risk of a price slide on disappointing results. Yet I like its future prospects and would happily buy shares in Volution Group today.

I reckon news flow surrounding the coronavirus is driving this stock lower. In the outlook statement, the firm said measures governments are taking to control the evolving pandemic are creating “significant” uncertainty. The directors reckon there’ll likely be a “material impact” on the global economy. That implies a hit to trading, because there’s a large element of cyclicality to the Volution business.

Trading well in H2 so far

Although it’s hard to forecast, management believes there’s potential for adverse impacts on both supply and demand for the company. But there is “limited” sales exposure to some of the hardest-hit countries such as China, Italy and South Korea. Meanwhile, the firm is taking actions to “monitor and secure” its supply chain.

And things are going well so far. In the second half of the trading year, performance has continued “on a similar basis” to the first half.  And several new product launches could boost sales over the next few months.

Looking beyond the current macro-economic challenges, the lead directors think regulatory drivers are “increasingly supportive” of energy-efficient ventilation solutions. This could augur well for the business over the medium term.

Prior to the crisis, Volution had been growing well. The five-year record is one of generally rising revenue, earnings, cash flow and shareholder dividends. And today’s numbers are impressive. In the first half of the trading year to 31 January, revenue at constant currency rates rose 5% compared to the equivalent period the prior year. In terms of the adjusted figures, operating cash flow shot up almost 44% and earnings per share moved 6.5% higher.

Net debt lower

There was also good news regarding net debt, which dropped by almost 14% to just over £60m on a like-for-like basis. I’m pleased to see progress with lowering debt because if trading conditions get tough, the firm will need its interest payments to be as low as possible.

The directors slapped 6.9% on the interim dividend, which suggests there’s a measure of confidence in the outlook, despite the pandemic. Meanwhile, one of the things I admire about Volution is the way operations are growing geographically. In H1, 46% of sales came from the UK, 30% from Europe (excluding the UK and Sweden), 13% from Australasia, 9% from Sweden and 2% from the rest of the world.

I’m not going to try to pin down the valuation on this one until there are clear signs that the share price has ended its plunge. But this is high up my watch list, and I’d be keen to examine it in more detail later with a view to picking up a few of the shares.

Cracking results

Take ventilation products supplier Volution (LSE: FAN), for example. The shares look perky today on the release of a robust-looking full-year results report. Revenue came in almost 15% higher than last year, adjusted operating cash flow moved up a little over 7%, and adjusted earnings per share increased by just over 10%.

The firm managed to reduce its net debt figure by a shade above 3% to around £75m, and the directors offered their seal of approval by pushing up the total dividend for the year by 10.4%, suggesting confidence in the outlook. Everything looks fine in the figures, yet the valuation strikes me as undemanding.

The recent share price, close to 175p, puts the forward-looking earnings multiple at around 10 for the trading year to July 2020 and the anticipated dividend yield at just under 3%. But will the five-year financial record since listing on the stock market continue? Revenue, earnings and the dividend have grown a little each year over that period, driven by both organic and acquisitive growth. But what about Brexit? Will the UK’s exit from the European Union pull the rug from under the business?

Brexit? Not that bothered

The directors have examined the likely effects of a no-deal Brexit and, in today’s report, said the new potential tariffs likely don’t “represent a significant impact.” But just to make sure things run smoothly after Brexit, the firm has increased inventory levels of faster-moving items “in certain locations.”

The main risk, as the directors see it, is the potential for “a broader downturn in confidence and activity levels in the UK,” because of Brexit when it happens. To put things in perspective, the UK market provides Volution with just under half its revenue. Meanwhile, 22% originated in the Nordics in this reporting period, 15% from Central Asia, 10% from Australasia, and around 5% by exporting from the UK.

Chief executive Ronnie George explained in the report that the strong results were driven by improving organic revenue growth and an “excellent” contribution from acquisitions made “in the prior and current financial year.” 

New product launches and cost-saving measures have contributed to the operational momentum, including a factory rationalisation project in the UK. Two older and “capacity-constrained” facilities were “consolidated” into a purpose-built injection moulding, ducting extrusion and fan assembly facility in Reading. 

There may be economic uncertainty in the air, but Volution is carrying on with its plans, which include an eye on “ambitious” growth plans in Australasia. I think the stock looks attractive and could be worth buying as we near the Brexit end-game.

As such, further outperformance of the FTSE 100 could be ahead over the long run. Alongside another stock that reported encouraging results on Monday, Lloyds could be worth buying right now.

Improving prospects

The stock in question is supplier of ventilation products, Volution (LSE: FAN). Its interim results showed a rise in revenue of 16.3% to £114.8m, while adjusted operating profit moved 10.7% higher to £20.2m. Encouragingly, the four acquisitions that were completed in the previous year are integrating and performing well. Those acquisitions have enhanced the company’s business model, while also providing additional diversification.

The company’s performance in the UK has been relatively strong. Despite operational challenges at its Reading facility, it has achieved improved production levels that have been sustained into the second half of the year. It has also experienced good traction with its new Xenion range of decentralised heat recovery ventilation in Germany.

With Volution forecast to deliver net profit growth of 10% in the current year, it seems to have a bright future. A price-to-earnings growth (PEG) ratio of 1.3 suggests that it may have a wide margin of safety and could deliver improving share price performance.

Low valuation

Also offering a low valuation is Lloyds. Even though its shares have made strong gains since the start of the year, it has a price-to-earnings (P/E) ratio of around 8.5. This suggests that investors continue to price in the risks facing the bank, in terms of an uncertain outlook for the UK economy.

While that is perhaps to be expected given the political and economic challenges facing the UK, recent quarterly updates from Lloyds have generally been positive. Despite difficult trading conditions, it has been able to further reduce costs and improve its income prospects. Like all UK-focused banks, it has endured a prolonged period of low interest rates, which means that net interest margins across the sector have been suppressed. Therefore, as interest rates move higher over the coming years, there could be improving profitability ahead that has not yet been priced in by the stock market.

As ever, there are risks ahead for the stock. Brexit could have a negative impact on the economy, for example. There may also be global challenges over the coming months. But from a risk/reward perspective, Lloyds seems to be highly appealing – even after its recent stock price surge. Therefore, now could be a good time to buy it, with its growth strategy seemingly intact and it having a wide margin of safety at a time when the FTSE 100 is trading within 10% of its all-time high.

Great operational progress

The firm’s operational progress is the catalyst for the move up in the share price. Revenue is up around 300% since the company arrived on the stock market and operating cash flow runs close to £8m from almost nothing. The firm develops software robots to automate routine back-office clerical tasks and blue-chip customers are snapping it up. The potential in the market is huge, which reflects in Blue Prism’s robust revenue projections.

However, there’s a problem. Speculation has driven the share price way ahead of events and that’s why we are seeing such a vicious correction now. Even at 1,550p, the price-to-forward-sales ratio is an eye-watering 18 for 2019, and no-one is suggesting that the company will turn a profit next year – profits could be years away if they arrive at all.

Don’t get me wrong, I think the underlying business is performing well and the firm seems to be capturing accelerating sales from a rapidly expanding market. However, with projected revenue for 2019 running close to £86m and the market capitalisation at £1.14bn, I think there is a significant disconnection between operational progress and the valuation.

Mark Minervini – one of the modern era’s most successful stock traders– would probably describe Blue Prism as a market leader because it was one of the shares that led the charge in the bull market we have just enjoyed. However, he cautions that each new bull market tends to start with new leaders and the old outperforming stocks rarely lead in the next bull market after a significant correction in the market.

Well placed for accelerating growth

Recent weakness in the market suggests we could be in for a significant correction, so maybe now’s a good time to look for new emerging growth stories and I’d like to put forward for consideration Volution Group (LSE: FAN). The company designs, manufactures and distributes ventilation products to the residential and commercial construction markets in the UK and northern Europe.

That’s not a business that is as sexy as Blue Prism’s, but I reckon we need to look at new sectors to find the next leaders. I’m bullish on the world’s economies after our 10-year crawl out of recession and austerity following last decade’s financial crisis, and it makes sense to me that firms doing useful things will be in demand, so Volution fits the bill.

And today’s full-year results demonstrate that progress has been good. Revenue rose more than 11% compared to the previous year and adjusted earnings per share moved nearly 7% higher. The directors expressed their confidence in the outlook by pushing up the total dividend by 7%.

After completing four acquisitions in the period, I think the firm is well-placed to grow organically from here. Best of all, the forward price-to-earnings ratio sits below 11 for 2019, leaving plenty of room for a valuation re-rating if earnings take off as hoped. I think the stock is attractive.

Of course, there are many other shares across the FTSE All-Share which could provide wide margins of safety. In fact, reporting on Friday was a smaller company that could deliver impressive growth at a reasonable price.

Solid performance

The company in question is ventilation products supplier Volution (LSE: FAN). The stock released a trading update for the financial year to 31 July on Friday which showed that its results will be in line with expectations. Revenue growth during the period was 11.3%, rising to £206 million. This was made up of organic growth of 2.9%, with 8.4% of total growth being as a result of new acquisitions.

The company’s organic growth benefited from a stronger performance in the UK. Notably, Residential New Build recorded growth of 13.3%. And despite disruption in its Private Residential RMI segment, it was still able to post growth of 3.3%. International performance was strong, with revenue in the Nordics rising by 19.2% and Central Europe revenue increasing by 3.7%.

Looking ahead, Volution is expected to report a rise in earnings of 10% in the current year. With a price-to-earnings growth (PEG) ratio of 1.4, this suggests that it offers good value for money at the present time. Therefore, while the prospects for the UK economy remain uncertain, its growth potential seems to be high.

Growing opportunity

easyJet’s earnings growth potential also seems to be high, and this could help its share price to beat the FTSE 100. The company’s bottom line is expected to rise by 44% in the current year, followed by additional growth of 18% next year. This is despite potential risks from a rising fuel price, as well as weak consumer confidence that has been present in the UK in recent months. And with it trading on a PEG ratio of 0.7, it seems to be cheap on a relative basis.

With easyJet set to outperform sector peers regarding its financial performance, its share price could do likewise. The company has been growing passenger numbers, as well as becoming more efficient. Its business offering has proved popular, while M&A activity could prove to be an added catalyst for its top and bottom lines.

easyJet may also become an increasingly popular income share for FTSE 100 investors. The company’s dividend is expected to rise by 26% next year so that it yields around 4.3%. This would make it a higher-yielding stock than a wide range of FTSE 100 shares. And with dividends due to be covered twice by profit, they seem to be highly sustainable. As such, the total return potential of the stock seems to be high.

However, there could be more to the company than simply a high dividend yield. Furthermore, it’s not the only income stock which could be worth a closer look at the present time. Reporting on Monday was a dividend growth stock which could offer high returns.

Improving performance

The company in question is ventilation products supplier Volution (LSE: FAN). It released a positive set of interim results which showed a rise in revenue of 11.6%. Organic revenue growth was 6.3%, while inorganic revenue growth was 5.3%. This boosted its adjusted operating profit by 6.7% to £18.3m. Operating margin decreased by 90 basis points, as expected, due to the impact of acquired businesses which have lower margins than the rest of the company.

Volution also announced the acquisition of Simx Limited. It is a market-leading residential ventilation products supplier in New Zealand for both new and refurbishment applications. This could help to boost the company’s financial performance, with it expecting to make further progress in future periods.

Since the company’s bottom line is due to rise by 6% in the current year and by a further 7% next year, there seems to be scope for an inflation-beating rise in dividends. Although it has a dividend yield of just 2.2% right now, shareholder payouts are covered 3.3 times by profit. This suggests that they could increase at a much faster pace than profit over the medium term without hurting the financial strength of the business.

Turnaround potential

Clearly, Centrica’s dividend yield has more appeal at first glance than almost any other stock in the FTSE 350. However, the company continues to experience a difficult period as it seeks to fundamentally change its business model. Its strategy may be sound, with it seeking to generate major cost savings and transition towards a more efficient business in the long run. However, uncertainty regarding regulatory change has weighed on its performance and this has caused investor sentiment to weaken.

Today, Centrica trades on a price-to-earnings (P/E) ratio of around 10. Even though it has a challenging outlook, this suggests that investors may have fully factored-in the problems it faces as political risk for the domestic energy supply sector remains high. In fact, the stock appears to have a wide margin of safety that could equate to strong growth over the medium term – especially since it is expected to record a rise in earnings of 7% in the current year.

Certainly, its stock price could be volatile and its prospects of dividend growth may be limited. But its total return potential still seem to be impressive.

Show me the profits

I have to admit, there are aspects of Purplebricks’ business model that look interesting, to me. Whereas traditional estate agents charge a fee of around 1%-3% to sell a property, Purplebricks charges just £849, or £1,199 for London properties. Furthermore, the cost structure of the business also looks attractive, as unlike traditional estate agents, it doesn’t require an extensive, a fixed-cost high street estate to sell properties. 

However, the key issue stopping me from investing in the company right now, is the lack of profitability. You see, while Purplebricks’ revenue increased substantially last year from £18.6m to £46.7m, the company generated a net loss of £3m. City analysts forecast a further increase in the top line to £96.8m this year, but another sizeable net loss of £14.5m is anticipated.

After losing money on unprofitable businesses in the past, one of my general rules these days, is to refrain from investing in companies until they become profitable. Sure, this means that I may potentially miss out on some big gains, but at the same time, I’ve found this approach helps me reduce the chances of investing in a dud. At the end of the day, successful investing is as much about limiting big losses as it is about making large gains.

Furthermore, with a current market cap of £960m, Purplebricks’ valuation doesn’t leave a huge margin for error. With that in mind, I’ll be avoiding shares in the hybrid estate agent for now.

A lower risk alternative?

One company that is generating robust profits right now is £392m market cap Volution Group (LSE: FAN), a UK-based supplier of ventilation products to the residential and commercial construction markets in the UK and Europe. Ventilation may seem like a boring business, but that doesn’t mean the sector isn’t capable of generating attractive investment opportunities. Indeed, Volution Group shares have risen nearly 30% in the last year alone.

The ventilation specialist released its final results for the year to 31 July today, and the numbers look solid. Revenue for the year increased 19.8% to £185.1m, while adjusted profit before tax rose 10.3% to £34.6m. Adjusted basic and diluted earnings per share came in at 13.6p, a 7.9% rise on FY2016, and the company declared a full-year dividend of 4.15p, a 9.2% hike on last year’s payout. Chief Executive Ronnie George gave an upbeat assessment of the company’s outlook, stating: “The Board is confident of delivering good progress in this financial year.”

Volution shares currently trade on a P/E of 14.8, with a dividend yield of 2.1%, metrics which look attractive in my view, given the company’s momentum. With the share price trending upwards over the last year, I believe further gains could be on the horizon.

The stock — which provides ventilation solutions to the residential and commercial construction sectors — was last unchanged from Thursday’s close and still within striking distance of recent record peaks around 200p.

Volution announced that revenues during the 12 months to July 2017 clocked in at £185m, up 20% year-on-year, or 15% at stable exchange rates. The company saw organic revenues increase 7.6%, it advised, with 13% the result of new acquisitions.

The Crawley business declared that “organic growth was helped by a strong performance in the Nordics, where revenue for the year grew by 5.1% on a constant currency basis, and in our UK Residential New Build sector, where revenue grew by 8.3%, along with continuing growth in the order book.”

A positive outlook

Chief executive Ronnie George unsurprisingly struck an upbeat tone following last year’s results, commenting that: “I am delighted with the progress that the Group has made during the year. The challenges in UK Residential RMI, most notably in the public sector, have continued in the year just ended but we have delivered good organic growth in our other market sectors.”

While uncertainty continues in the UK economy as a consequence of plans to leave the EU, “our increasing market and geographical diversity gives us confidence for the year ahead,” he added.

George noted that Private RMI had returned to growth in the second half of the year, helped by the introduction of various sales and product initiatives. And Volution has further developments under way for the current financial period straddling both the public and private market sectors.

The City expects it to maintain its upward path given these promising signals, and to follow up the 8% earnings rise predicted for fiscal 2017 with an additional 6% advance in the current period. And these projections mean the company offers plenty of bang for your buck, its forward P/E ratio of 13.8 times falling below the widely-considered value yardstick of 15 times.

I reckon this is a bargain given the excellent sales opportunities created by the company’s broad market and geographic footprint, not to mention its proven success on the M&A front.

Past its best

In fact, these qualities make me much more bullish on the ventilation expert’s long-term earnings potential than that of Tesco (LSE: TSCO).

The number crunchers do not share my sense of dread however, and are predicting earnings rises of 44% and 31% in the years to February 2018 and 2019 respectively. But I am not convinced Britain’s biggest retailer has what it takes to post sustained, and stratospheric, bottom-line growth as the fragmentation in the grocery market intensifies.

Indeed, while latest Kantar Worldpanel numbers showed Tesco’s sales up 2.3% in the 12 weeks to July 16, the continued progress of Aldi and Lidl pushed the firm’s market share 0.5% lower year-on-year to 27.8%.

While a forward P/E ratio of 18.2 times may not be greatly appealing on paper, a sub-1 PEG of 0.4 would suggest Tesco provides decent value for money. I am not convinced, however, given the fragility of current earnings forecasts, and I for one won’t be diving into the supermarket any time soon.