The price dip came after 2021 full-year results. The company is in the marine services business, which has been under pressure. For 2021, Fisher & Sons reported a statutory loss before tax of £29m. But I think that headline figure hides a company with attractive long-term potential.

Covid-19 hit the FTSE sector hard. Chief executive Eoghan O’Lionaird said that “2021 was a challenging and disappointing year for the group. We experienced ongoing disruption from the global pandemic, our markets did not recover at expected rates, and we underestimated the headwinds faced by some of our businesses“.

I do like it when a CEO tells it like it is and doesn’t try to sugar coat bad news with waffly marketing speak.

Better than it seems?

There’s one thing that immediately makes me think things might not be as bad as they seem. The reported loss for 2021 covered a number of one-offs. Excluding those produces an underlying operating profit of £28m.

I know it can be risky relying on underlying figures. FTSE companies report them all the time, and some turn out to be more reliable than others. Who knows what other one-offs might hit the current year?

But it does at least make me think there’s a potentially healthy operating environment here, if Fisher & Sons can get past its rough few years. It just might be a good time to buy right now.

A FTSE recovery stock?

For Fisher to be a good investment for the medium term and beyond, it will first need to survive its short-term crisis. So what does the balance sheet look like? Well, there is significant debt on the books. But it is heading in the right direction.

At the end of 2021, the firm was saddled with £185.6m in net debt. For a FTSE company with a market cap of £195m, that’s a lot. But that figure does include finance leases and right of use liabilities. Actual bank net borrowing comes in at a less painful £139.6m.

And the total figure is £12.5m better than the previous year, which ended with net debt of £198.1m. Bank net borrowings are notably lower than 2020 too, down from £165.6m.

Buy right now?

The difficult question is how to put a valuation on the Fisher share price right now. Thought the results day fall is painful, it’s really only giving up some of the stock’s 2022 recovery. The shares have lost 56% over the past 12 months, while the FTSE All Share is down a modest 3%. But Fisher is still up 35% since a 52-week low in December.

To summarise, I am definitely seeing a risky investment here. Another “challenging and disappointing year” could result in a further share price collapse. But if the company can get back close to pre-slump earnings levels, we could be looking at a price-to-earnings multiple in low single digits.

Does that make it a share to buy right now? It’s definitely on my list for my next investment.

What just happened to the James Fisher share price?

James Fisher is an engineering services firm that specialises in marine-based operations for a variety of sectors including Oil & Gas, Transportation, and Renewable Energy. Looking at the latest earnings report, revenue for the most recent quarter came in 7.6% higher than a year ago. That’s obviously good news. Sadly, the positivity ends there.

Given the James Fisher share price crashed this week, I think it’s fair to say that investors were less than pleased to receive disappointing profit guidance from management. The company’s issued outlook for the full year of 2021 placed operating income between £27m and £32m. This range is firmly below analyst expectations of £35m, and when looking into the cause behind this underwhelming performance, I discovered an onslaught of bad news.

Firstly, its Fendercare ship-to-ship transfer business continues to deliver disappointing results, with more evidence emerging that a market shift is under way. Meanwhile, its JFD subsidiary, a specialist in underwater commercial and defence operations, has reached a stalemate in an ongoing £2m negotiation that is unlikely to be resolved until next year. At the same time, customers of the group’s marine Contracting, Decommissioning, and Nuclear businesses have begun delaying projects due to supply chain disruptions created by the pandemic. And on top of all that, James Fisher is struggling to collect a £2m outstanding debt from one of its customers in financial distress. 

Needless to say, this is all quite problematic. So I’m not surprised to see shareholders jumping ship, causing the James Fisher share price to plummet in the process.

Can it recover?

As troubling as this latest report is, there is some room for some optimism. I think it’s worth remembering that the delays in projects are only temporary. And management expects the missing income will materialise next year. In the meantime, James Fisher’s pursuit into the renewable energy sector as a new growth prospect appears to be paying off. Its subsidiary EDS Group, which provides high-voltage engineering services, just signed several two-year multi-million-pound contracts with industry leaders. And there are still more deals of the same size on the table.

Overall, the long-term potential of this business doesn’t appear to be jeopardised, in my opinion. The group does have a big pile of debt that could create problems if profits don’t eventually recover. But for now, it seems to have sufficient liquidity to meet short-term obligations. And providing that management doesn’t have any more nasty surprises for shareholders, I believe the James Fisher share price can recover over the long term. Therefore, I am considering adding this business to my portfolio.

I have to admit I’m a bit surprised by how bad things have become. This business has been a reliable performer for many years. Since last year’s falls, I’ve been thinking about buying. However, yesterday’s update has made me more cautious. Are these temporary problems, or has this business come off the rails?

Bad luck or bad management?

Yesterday’s profit warning will have been painful reading for shareholders. Problems revealed by the company included delays to projects in the marine contracting, decommissioning, and nuclear businesses. Ship-to-ship transfers and tankship operations are also not performing as well as hoped.

To make matters worse, the company has reached a standstill over £2m due on a long-term project and faces a £2m increase in bad debt risk from another client.

Underlying operating profit for the full year is now expected to be between £27m and £32m, compared to previous broker forecasts of £35m. That’s a big downgrade, in my opinion.

James Fisher says some of these problems are related to disruption caused by the pandemic. Some of them probably are. But in my experience, companies that suddenly reveal a string of unrelated problems are sometimes suffering from bad management.

This market-leading business needs to change

James Fisher is not some fly-by-night business promising profits in the future. The group is a well-established technical services provider that can trace its origins back to 1847. It has been listed on the stock exchange since 1952.

Many of the group’s businesses have market-leading positions in niche sectors, such as ship-to-ship transfers of oil and gas. The company is also well-established in other areas, such as nuclear decommissioning and commercial diving.

However, I’ve been reading through a presentation the group gave to City analysts in June. In among all the management jargon, my impression is that some parts of the business may have become inefficient and less competitive.

Growth may also be a concern. In 2020, James Fisher still generated half its revenue from oil and gas production and transport. Management hopes to replace some of this revenue with new work in renewables and oil and gas decommissioning. But that will require new investment and significant changes to some of the group’s businesses. Making a success of this may not be easy.

James Fisher shares: should I buy?

I haven’t bought any James Fisher shares yet. I want to do some more research into this quite complex business. But my view so far is that the company’s market-leading specialist services are likely to remain valuable and drive future growth.

Right now, I think there’s a good chance the company could deliver another round of bad news before things start to improve. I’m a little concerned about the company’s debt levels, too. For these reasons, I’ll probably wait for the next trading update in January before I decide whether to buy. But I’m definitely interested — and watching closely.

However, some stocks have bucked the trend. They’ve slumped while the broader market has rallied. 

In some cases, I think investors have overacted. With at least three coronavirus vaccines now in the pipeline, I believe the economy is set to roar back to life in 2021. As such, I’d use recent declines to snap up these investments while they’re trading at low levels.

UK shares on offer 

The first company that’s appeared on my radar recently is magazine publisher Future (LSE: FUTR). Over the past few years, this organisation has developed a winning strategy in the magazine business. It’s been buying up numerous smaller publishers and then using its size to get costs down. 

The firm has also been able to make the most of its internet real estate. Its specialist publications provide advertisers with niche audiences. In the ‘Wild West’ online advertising market, this gives the business an edge. Advertisers have been willing to pay a premium to get exposure to Future’s customers online. This initiative has pushed profits higher, making the group one of the best performing UK shares of recent years. 

Management’s latest acquisition target is the comparison website Gocompare’s owner, GoCo Plc. The stock dropped on the news of the announcement, but considering Future’s track record of integrating acquisitions, I think this could be an excellent opportunity to buy this growth stock at a discount price. 

If management can replicate the success the business has achieved in the past with previous acquisitions, I reckon Future can achieve large total returns for investors in the medium term. 

Service company 

Another one of the cheap UK shares that I’m currently eyeing up is James Fisher And Sons (LSE: FSJ). This business, which provides a range of services to the marine sector, has fallen out of favour with investors in 2020. It’s easy to understand why. Profits are expected to slump by 51% this year. 

Nevertheless, it appears to me that much of this decline is already reflected in James Fisher’s share price. Since the beginning of 2020, the value of the company has declined by more than 50%. 

Analysts are forecasting a rapid recovery in earnings next year. Growth of nearly 50% has been pencilled in for 2021. On this basis, it looks to me as if the market is focusing too much on the negative short-term new flow and not on James Fisher’s long term potential, which is the case with many other UK shares. 

Therefore, I believe now could be an excellent time to add the stock to my portfolio. As the economy begins to recover in 2021, and the group’s earnings rebound, I reckon it’s likely the market will re-evaluate James Fisher’s prospects.

In my opinion, this combination of earnings growth and improved investor sentiment could help the stock outperform other UK shares. 

In 2018 alone, the business — which provides a variety of engineering services to the marine, oil and gas sectors — raised the annual payout 10% year-on-year to 31.6p per share. And City analysts expect it to boom to 35.2p this time around, supported by predictions of a 5% profits rise. I’m not tempted for even a second to buy shares in James Fisher, though, given the prospect of tough trading conditions that threaten further dividend growth in 2020 and beyond.

The engineer declared in recent days that pre-tax profits of £56.1m are likely this year, missing its previous expectations due to troubles at its Marine Support division. Conditions may have been better at its Offshore Oil and Tankships divisions of late, though the possibility of severe oil price weakness in 2020 (and possibly beyond) is a big worry for me. And with James Fisher dealing on an elevated forward P/E ratio of 20.3 times, some significant share price falls could be just around the corner.

Property star

I’d much rather use my hard-earned investment cash to buy shares in Springfield Properties (LSE: SPR). Like James Fisher, this stock also has a history of lifting dividends at a spectacular rate, but in this case, share pickers can also enjoy market-beating yields. And more importantly, trading conditions remain robust enough to suggest that payouts should keep shooting skywards beyond the immediate term.

In the last fiscal year (to May 2019) the Scottish housebuilder, supported by a 69% year-on-year improvement in adjusted pre-tax profits (to £16.5m), decided to raise the annual dividend an astonishing 19% to 4.4p per share.

And it’s no surprise that, with the number crunchers predicting a 9% earnings rise in the current financial period, another meaty payout increase is being tipped. A 5.4p per share reward is currently expected, a reading that yields a mighty 4.6%.

A brilliant ISA buy

The wider housing market might be suffering the impact of Brexit fatigue, though thankfully the strength of first-time-buyer demand continues to boost the new-build providers like Springfield. According to UK Finance, there were 8,810 new first-time-buyer mortgages completed north of the border in the third quarter, up 1.6% year on year.

And this particular housing giant is ramping up build rates to fully capitalise on this favourable trading environment. Last year it built 952 new homes, up 24% from 2017 levels. At current prices, Springfield trades on a forward P/E ratio of 7.7 times, one which sits inside the widely-regarded bargain region of 10 times and below. Combined with that huge dividend yield, I reckon the business, unlike James Fisher, is a top ISA buy today.

John Laing (LSE: JLG) shares dropped 8% Thursday morning, on the release of what it described as “mixed” H1 results. Though the infrastructure management specialist told us its full-year outlook was unchanged, an 80% slump in pre-tax profit, to £35m from £175m at the same stage last year, has given shareholders a shake.

The fall seems to be down to one-offs. Last year’s figures were boosted by the sale of one of the firm’s investments for £87m, and that skews the comparison.

Write-downs

This year, problems at three renewable energy assets in Australia led to a £66m write-down, with a further £55m hit coming from performance issues at European wind energy developments — where it seems it wasn’t windy enough! Laing has put new wind and solar investments in Australia and Europe on hold.

While the day’s price dip might look worrying, the shares are still up 95% since flotation in 2015 — but the chart looks like a growth stock just coming off the rails. John Laing shares, however, are definitely not on a growth valuation.

If the firm’s full-year outlook is genuinely unaffected, we’ll be looking at a forward P/E of under eight. No problem on that score, but in Laing’s business it’s important to look at the value of its infrastructure investments. A quoted net asset value per share of 325p is very close to the 350p share price, and I think that’s undervaluing the business itself.

Great year

I’m turning now to a company I last looked at in December 2018, James Fisher & Sons (LSE: FSJ), which I had down as a candidate to do well in 2019. Since then, the shares are up 17%, so I sometimes get it right — though, naturally, I didn’t buy any.

But what does the marine engineering and support services provider look like today? The full-year ended with a 14% rise in earnings, and the firm upped its dividend by 10% to 31.6p per share. We heard that “with a strong pipeline of opportunities at the start of 2019, the Board has a high degree of confidence for the year ahead,” and that pipeline has since been delivering new contracts (on top of the £30m submarine rescue service deal done just before the end of the year).

Contracts

An update last month revealed a number of new offshore renewable energy contracts with a total value of approximately £30m, and a new five-year contract with the Ministry of Defence to support the Royal Navy’s fuelling requirements.

This month, Fisher announced the acquisition of 60% of Brazilian offshore oil services firm Serviços Marítimos Continental for a total of £7.5m (with £2.6m of that not due until 2022), and that looks like a smart move to me.

My only reservation is the current share price valuation, pushed up to a forward P/E of 22 with only single-digit EPS growth penciled in for this year and next. If I owned the shares I’d continue to hold, and I think it’s one to buy on the dips.

But if we ignore growth, we could be missing out on companies like James Fisher & Sons (LSE: FSJ).

So far in 2018, shares in the marine services engineer have gained 13% while the FTSE 250 has lost 15%. And over the past five years, James Fisher shares have gained 37% — the mid-cap index has aded 11% in that time, while the FTSE 100 has been almost precisely flat.

There have been dividends on top of that, though yields are modest at a little under 2% as we might expect from a growth stock. Still, they’ve brought the total five-year return to more that 45%, which is exceptional in the current climate.

Submarine

On Wednesday the company announced a new contract worth £30m. Under the deal with Daewoo Shipbuilding & Marine Engineering, the firm will design and build a deep search and rescue vehicle for the Korean navy, with delivery expected by 2021. Training and in-service support are part of the agreement.

Chief executive Nick Henry said the contract “further demonstrates our position of market leadership in the submarine rescue market,” and that seems to me like a niche with significant barriers to entry for would-be competitors.

James Fisher shares are not on a screaming bargain valuation, with forward P/E multiples of around 20. But if the firm can maintain its long record of annual earnings growth, currently forecast at 5% per year this year and next, I can see it as a very good company at a fair valuation.

And though its dividends are modest right now, they’re strongly progressive and are growing at around 10% per year — and that could make it a cash cow in years to come.

Aerospace

Though it hasn’t enjoyed the same recent growth record, BAE Systems (LSE: BA) actually hasn’t been performing too shabbily. Earnings per share have remained pretty much flat over the past few years, but I see that as a sign that BAE has a defensive nature to its business and I think it’s a decent record in the current global economic climate.

By midsummer, BAE shares had been outperforming the FTSE 100 in 2018 with a decent gain. But since then, the price has slumped and now lags the FTSE with a 20% year-to-date drop (against 11.5% for the index).

That’s almost certainly down to fears caused by the increasingly pear-like shape of our Brexit negotiations, as tie-ups with European defence and aerospace firms could be under threat. But BAE sells most of its products to the Middle East, the US and the UK, and that makes me think Brexit fears are overdone.

Undervalued

The share price slump has dropped the valuation of the shares as low as a P/E of 10, and has pushed predicted dividend yields up to 5%.

The only thing that concerns me a little is net debt rising to £1.9bn at the interim stage at 30 June. But that’s still only around 10% higher than annualised EBITDA and well within what I see as a comfort zone. The intermittent nature of contract payments means I might wait for full-year results in February, but right now I think I’m looking at a strong buy.

There’s more to come

When oil prices crashed in 2014, big producers launched urgent cost-cutting drives. The results have been impressive. For example, Shell now expects to be able to generate free cash flow of $25bn-$35bn per year at an oil price of $60 per barrel.

With Brent Crude now trading at about $76 per barrel, profits are soaring. The Anglo-Dutch group’s half-year adjusted earnings rose by 36% to $10.3bn this year.

Shell’s share price has now doubled since the start of 2016. But rising profits mean that the stock still looks reasonably priced to me, on 12 times 2018 forecast earnings and with an expected yield of 5.6%.

Looking ahead, earnings per share are expected to rise by 14% in 2019, giving a forecast P/E of just 10.5.

My view is that we’re still in the early stages of the next oil market upcycle. Even if oil prices weaken again, I see very little risk that Shell will need to cut its dividend. The firm held its payout unchanged through the recent oil price crash and is now operating with much lower costs.

I’d rate Shell stock as an income buy.

A growth opportunity

At some point, I suspect the ‘g’ word — growth — will start to appear in oil executives’ forecasts. When this happens, rapid profit growth could be slowed by rising spending, as firms invest in the next generation of oil and gas fields.

This will be the opportunity that oil services companies are waiting for. Customers such as Shell put these firms under huge pressure to reduce their rates during the downturn. In most cases, profits have not yet recovered.

One example is marine services group James Fisher & Sons (LSE: FSJ). During the first half of 2014, revenue rose by 20% in Fisher’s Offshore Oil division. Underlying operating profit climbed 32% to £11.9m.

According to figures published today, the same operations generated an underlying profit of just £1.2m during the first half of 2018. Revenue rose by just 1% during the period.

It’s clear that this group hasn’t yet seen much of a recovery in Offshore Oil. Fortunately this is only part of a much larger business, which includes shipping, offshore wind farm support and other specialist marine services.

An under-the-radar buy?

Today’s half-year results showed that James Fisher & Sons’ underlying operating profit rose by 18% to £24.5m during the six months to 30 June. Group revenue was 12% higher, at £260.5m.

When profits rise more quickly than revenue, we know that margins are improving. In this case, underlying operating margin rose from 8.9% to 9.4%. My calculations show that the group’s return on capital employed, another measure of profitability, has risen from 11.5% to 12.2% over the last six months.

I’m encouraged by this progress and attracted to the group’s broadening mix of customers.

Trading on a forecast price/earnings multiple of 20, the shares look fully priced at the moment. But in my view this could still be a good long-term dividend growth buy, with the aim of topping up on any market dips.

With that in mind, here are two FTSE 250 shares which appear to offer narrow margins of safety. While they may be able to offer strong dividend growth potential due to improving financial outlooks, their investment appeal seems to be lacking.

Positive outlook

Reporting on Thursday was services provider to the marine, oil & gas, and nuclear industries James Fisher (LSE: FSJ). The company’s trading in the current financial year has been in line with expectations. Its Marine Support, Specialist Technical and Tankships segments have traded well, with signs of recovery being shown in Offshore Oil. Contract wins have been relatively high in the first four months of the year, and the business remains confident regarding its outlook for the full year.

Looking ahead, the company is expected to report a rise in its bottom line of 6% in the current year, followed by further growth of 3% next year. As such, its growth outlook is relatively modest and yet it trades on a high rating. For example, it has a price-to-earnings growth (PEG) ratio of 3.8, which suggests that it could be overvalued at the present time.

Certainly, James Fisher is expected to raise dividends per share by 20% over the next two years. However, with its dividend yield being around 2% and it lacking a wide margin of safety, it appears to be a stock to avoid at the present time.

Mixed future

Also seemingly overpriced is price comparison website operator Moneysupermarket (LSE: MONY). The company has an excellent track record of growth, with it increasing its bottom line in each of the last five years. During that time its earnings have risen at an annualised rate of over 13%, which suggests that it has been able to find a sound strategy.

However, the prospects for the business appear to be somewhat less impressive. In the current year it is due to report a fall in earnings of 1%, followed by a return to growth of 8%. While the latter figure may be relatively appealing, the company’s valuation suggests that investors may be anticipating a higher figure. It trades on a PEG ratio of 2.2, which indicates that it may lack upside potential.

While Moneysupermarket is expected to record a rise in dividends per share of 11% over the next two years and has a dividend yield of 3.5%, its valuation makes it relatively unattractive. While the FTSE 250 may be trading at a high level versus its historic performance, there could be stronger investment opportunities available elsewhere within the index.

At first glance, this might not look like the market’s leading income or growth stock, but if you look at the company’s performance over the past decade, it quickly becomes apparent that this business is built for the long term — making it a good pick for beginners.

Indeed, over the past 10 years, the company’s earnings per share and dividend per share have grown at a steady rate of around 10% per annum, while book value per share — a measure of business wealth — has increased at an average rate of 14% per annum over the past six years.

Today the company reported that during 2017 it managed to achieve a similar rate of growth. Underlying profit before tax grew by 10% thanks to revenue growth of 9%, and statutory profit before tax increased 9% allowing management to increase the total dividend per share by 10%, the 23rd consecutive year of dividend growth. 

Innovation is key 

James Fisher’s management attributes the group’s steady double-digit growth rate to its international presence, high-quality management and reputation. Long-term chairman Charles Rice will step down at the beginning of May. But he believes the firm’s “stable management team” and “continued commitment to a decentralised management structure which keeps decision-making close to our customers and markets” will ensure it continues to innovate and can grow for many years to come. In my view, this focus on innovation more than justifies the high valuation of 16.3 times forward earnings.

What’s more, for dividend investors there is also plenty to like as the payout is currently covered nearly three times by earnings per share, giving plenty of room for growth in the years ahead. The shares support a dividend yield of 2.2%.

Slow and steady 

Another stock that I believe should feature in any beginners’ portfolio is A.G. Barr (LSE: BAG). This is another business that initially looks expensive, but its record of expansion and well-established brands mean that it is well placed to continue to grow steadily for the foreseeable future. As my Foolish colleague G A Chester previously pointed out, the shares have returned over 14% p.a. for the past decade.

The shares currently trade at a forward P/E of 19.9 and support a dividend yield of only 2.5%. This payout is covered twice by earnings per share and has grown at a steady rate of between 5% and 10% over the past five years. There’s no reason why this rate of growth cannot continue as City analysts expect the company’s earnings per share to rise by 10% over the next two years. Further, over the past five years, it has been cleaning up its balance sheet and has virtually eliminated all of its debt, enabling it to announce a £30m share buyback at the beginning of last year. 

Compared to its current market value of £735m, a buyback of £30m is a meaningful return to investors. If management continues to reinvest excess free cash flow into buybacks and dividends, shareholders could be in line to receive healthy returns in the years ahead, indicating to me that this is a great investment for investors of all experiences.