Publishing

For example, I’m keen on illustrated book publisher Quarto (LSE: QRT). The company has UK and US divisions. And with the share price at 157p, its market capitalisation is around £66m.

One thing for me to bear in mind is the company’s president, Chuk Kin Lau, owns just over 50% of the shares. So, he has a controlling interest in the enterprise. But I’m comfortable with that setup.

In March, the company delivered a pleasing set of numbers for the 2021 trading year and an upbeat outlook statement. But, as with all businesses, there is no guarantee of further growth in the current year with all its economic and geopolitical challenges.

Nevertheless, I’m happy to own some of the company’s shares for the years ahead. And I’m looking forward to the half-year results report due on 30 August to learn more about operational progress.

Meanwhile, the price-to-earnings rating is running around seven. And I see that valuation as undemanding. However, the company doesn’t currently pay a shareholder dividend.

Mining services

I’m also holding mining services company Capital (LSE: CAPD). With the share price near 91p, the market capitalisation is around £174m. The business earns its living providing drilling, mining, maintenance, and geochemical laboratory solutions to customers in the minerals industry. And it focuses on the African markets. 

Last week, the company posted a robust set of interim numbers covering the period to 30 June. And looking ahead, the directors raised their revenue guidance for 2022. 

Executive chairman Jamie Boyton said the underlying demand in the market is “encouraging”.  However, he expects some seasonal slowdown through the third quarter. But he pointed to a “buoyant” tender pipeline across drilling, mining, and laboratories as a reason for optimism.

Set against City analysts’ expectations, the forward-looking earnings multiple is just above four for 2023. And the anticipated dividend yield is about 4.3. I see the valuation as attractive despite the cyclical risks inherent in the sector.

Luxury goods

Finally, I decided to take a little slice of Burberry (LSE: BRBY) into my portfolio recently. And my shares sit in my account as part of my diversified long-term portfolio. The company operates as a global luxury goods manufacturer, retailer, and wholesaler. And as with all my recent stock purchases, I’m looking beyond the short-term economic challenges the world faces.

In July, with the first-quarter trading update, the company delivered an encouraging outlook statement. Sales in mainland China had been affected by ongoing lockdowns. But the directors said performance there had been “encouraging” since the company’s stores reopened in June. And the business is targeting high-single-digit percentage revenue growth and 20% margins “in the medium term”.

Meanwhile, City analysts expect earnings to advance by almost 27% in the current trading year to April 2023. And with the share price near 1,777p, the forward-looking earnings multiple is just over 15. There’s also a dividend to collect, yielding around 3%.

However, it’s possible for operational progress to stall and the company may miss its estimates. There isn’t much slack in the valuation to allow for setbacks. Nevertheless, I’m happy to hold my shares for the long haul to see if the company can progress its expansion plans.

However, does this provide a buying opportunity for new investors? Will the company be able to deliver dramatically improved performance over the long run?

Update

The update released by the company focused on a review of the guidance provided to the market. In undertaking this process, the company noted that the guidance currently in the market uses a publishing-only baseline for 2016 which does not reflect the benefit of £2.1m relating to the reduction in the amortisation of capitalised pre-publication costs. This means that the baseline for 2017 and beyond has been set too high. As such, the update essentially amounts to a profit warning and a downgrade to the company’s mediu- term outlook.

The update also discusses the challenges faced by the company at the present time. It is experiencing a soft retail environment in domestic markets, which is now set to result in a lower than expected trading performance in the year to date. But there is a more pronounced second-half weighting, with the company confident that its strong publishing programme will perform relatively well in the second half of the year.

Looking ahead

Clearly, Quarto is experiencing a transitional period at the present time. It is seeking to refocus on its core publishing business at a time when trading conditions are particularly challenging. It has also engaged in asset disposals which have caused the company’s performance to be more weighted to the second half than in prior years. As well as this, the company has changed its CFO, which it could be argued brings further uncertainty to its near-term outlook.

Despite this, the business continues to make progress with its strategic objectives according to Tuesday’s update. Its new organisational structure has the potential to create a more nimble business which could be more flexible in its approach to changes in future demand.

Investment prospects

With the company facing a difficult outlook, its share price could remain highly volatile. Further falls in its valuation cannot be ruled out. Although it is making encouraging progress regarding the changes it is making to its business model, doing so while trading conditions are tough means its financial performance may suffer.

As such, it may be prudent to await further news from the company, or else for its share price to stabilise. If it is able to deliver improved performance in the second half of the year, its stock price could rise. But between now and then there may be better options available elsewhere.

Quarto is an illustrated book publisher and distributor, with a market cap of around £50m, and it’s just released full-year results that beat expectations. With adjusted pre-tax profit up 18%, adjusted earnings per share rose 13%, and the total dividend of 9.5p per share is 6% ahead of last year and yields 3.8% — and it’s covered 3.4 times by earnings. Net debt was cut by 10% too, which is a good sign, with chief executive Marcus Leaver telling us that the firm intends to “steadily reduce net debt further“.

Forecasts suggest two years of EPS growth at 11-12% per year, which would put the shares on a P/E multiple of under seven for 2016, dropping to just six on 2017 forecasts, and would provide PEG ratios of around 0.6. That suggests good growth value to me, and on these fundamentals I’d say Quarto is looking attractive.

Solar power

Shares in PV Crystalox Solar (LSE: PVCS) perked up 4% in early trading to 9.7p, after full-year results revealed an increase in revenues from €53.3m to €64.5m. The company makes photovoltaic silicon wafers, used for capturing solar energy, and it’s been suffering from weak pricing. But chief executive Iain Dorrity told us that the price of wafers “has shown some modest recovery during recent months while the price of polysilicon, the key raw material, has fallen to historic lows“, and that wafers can now be sold at more than their cash cost of production.

The company still widened its loss for the year and is extending a strategic review of its business in what are still difficult trading times. Vernalis had net cash of €12.7m on its books at the end of December, albeit down from €24.6m a year previously and possibly close to the limit if it suffers a further loss in 2016. But analysts are expecting just about break-even. It sounds like 2016 could be a pivotal year — and if demand for solar energy is on the rise, we could be at a good (if risky) buying point.

Medical recovery

My third candidate today is pharmaceuticals firm Vernalis (LSE: VER), whose first-half results led to a 12% drop in the share price to 52p. The shares soared to 87p back in September 2015 on the back of hopes for the firm’s Tuzistra XR cold treatment, but since then shareholders have been hit with a 40% fall.

Interim results showed a revenue increase to £6.1m from £5.7m, with Tuzistra XR contributing £0.6m to that — and it represents the direction the firm is going in the “major transformation in our business” described by chief executive Ian Garland, to specialize in cough and cold treatments.

There’s no annual profit forecast yet, but predicted losses per share are tumbling and the four brokers offering an opinion have Vernalis as a ‘strong buy’. It’s another risky one, but if profitability can be achieved by 2018 then we might be on to a winner.

The decision seems to be a sound move by Imagination Tech and it could provide it with a clearer path to profitability in the coming years. With its shares trading on a price-to-earnings-growth (PEG) ratio of just 0.8, it seems to be a relatively appealing buy for less risk-averse investors.

Good time to buy

Also reporting today within the technology, media and telecoms (TMT) space was Cello Group (LSE: CLL). Its shares have risen by 4% after its 2015 results showed a rise in pre-tax profit of 7.1% that has allowed the company to raise dividends by 10%. Furthermore, net debt was reduced from £7.2m in 2014 to £4.2m in 2015 and the company has apparently made a good start to 2016, with encouraging bookings momentum continuing from the final quarter of 2015.

Looking ahead, Cello is forecast to increase its bottom line by 3% this year and by a further 7% next year. This puts it on a PEG ratio of 1.4, which indicates that now could be a good time to buy it – especially since it yields 3.2% from a dividend which is covered nearly three times by profit.

Surprise price drop

Meanwhile, shares in media company Quarto (LSE: QRT) have fallen by 3% today despite it releasing an upbeat set of results for the 2015 financial year. For example, revenue increased by 6%, while pre-tax profit rose by 8%. This allowed the company to raise the final dividend by 15%, which means that it now yields 2.6% and that shareholder payouts are covered 3.4 times by profit. And with Quarto reducing net debt by 10% and delivering on its main strategic objectives, it appears to be moving in the right direction.

Today’s share price fall is most likely due to the announcement that its Chairman Tim Chadwick will step down. Despite this, Quarto’s forecasts are upbeat, with double-digit growth expected in each of the next two years. This puts the company on a PEG ratio of only 0.5, which indicates good value for money.

Shares set to rise?

Of course, one of the main players in the TMT space in the UK is ARM (LSE: ARM). It hasn’t reported today, but with its bottom line forecast to rise by 43% in the current year and by a further 13% next year, it appears to be on the cusp of improved share price performance.

Certainly, the slowdown in China has hurt investor sentiment in ARM, with its shares being down 2% since the turn of the year. However, with such a strong track record of growth and a highly appealing business model, it could easily reverse this period of poor performance and rise significantly over the medium-to-long term.

With ARM trading on a PEG ratio of 0.7, it continues to offer excellent value for money. That’s especially the case since it’s a relatively stable and mature business, thereby making its risk/reward ratio hugely enticing.