UK shares

Fevertree Drinks (LSE: FEVR) is somewhat of a UK stock market darling. Since 2014, profit has grown from around £1.3m to £59m for 2019. Unfortunately, analysts forecast the group will report a decline in 2020, but this is expected to reverse in 2021. 

Of course, these are just forecasts at this stage. Projections like this should never be relied upon for investment decisions because they’re subject to change.

The company also faces multiple risks such as competition from deep-pocketed US soft drink giants, regulations and higher costs. Profit margins have contracted by around 20% since 2017 due to rising costs and, if this trend continues, it’ll impact the group’s bottom line. 

Nevertheless, as one of the UK’s leading premium mixer drinks groups with operations around the world, I think Fevertree’s potential is tremendous. When the pandemic’s headwinds have receded, I believe the company can build on its brand awareness developed over the past few years to drive sales growth globally.

That’s why I think this is one of the best shares to buy now and would acquire it for my portfolio of UK shares today. 

Best shares to buy now

Another growth share I’d buy today is RWS Holdings (LSE: RWS). Like Fevertree, this company provides a unique service and products, which give it competitive advantages over its peers. 

RWS provides intellectual property support services in life sciences translations and linguistic validation. This is a relatively specialist market, where reputation counts for everything. RWS has developed a niche for itself, which has helped drive its growth over the past five years. Since 2015, earnings have grown at a compound annual rate of nearly 25%. That puts it in the ranks of the fastest-growing UK shares. 

And the City is expecting this trend to continue. Analysts believe the group has the potential to more than double net income by 2022. However, as noted above, these are only forecasts and shouldn’t be relied upon for investment decisions. 

Despite its growth potential, the company is exposed to some significant risks. As I highlighted above, RWS has developed a strong reputation in its industry, but this isn’t guaranteed forever. If the firm’s reputation is damaged, customers might go elsewhere.

What’s more, like Fevertree, the company has also seen costs increase steadily over the past few years. Its operating profit margin has fallen from 22% in 2015 to 17.3% for 2020. This suggests the business is having to work harder to maintain and acquire new customers. If this trend continues, growth could suffer. 

Still, despite these headwinds, I’d buy RWS for my portfolio of UK shares today as I’m incredibly encouraged by its growth track record and competitive advantages.

It’s been a pleasure to look back since both have seen their share prices rise by a third in the last 12 months. Can they repeat the trick in 2020?

Standard Life Aberdeen

One reason that FTSE 100 asset manager Standard Life Aberdeen (LSE: SLA) caught my eye was a lowly valuation of just 6.7 times earnings, which I thought was far cheaper than it should be, despite the undoubted challenges facing the group. At the time, its share price had collapsed by around half, but this year the only way has been up.

The merger between Standard Life and Aberdeen Asset Management took time to prove its worth, especially since the group lost a £109bn mandate to run funds for Scottish Widows on behalf of Lloyds (an appeal was partially successful).

Stock markets have risen strongly this year, which is always good news for fund managers, and Standard Life Aberdeen posted both a drop in outflows and rise in assets under management. Despite that, first half figures showed profits before tax falling around 10% to £280m, partly offset by a drop in operating expenses.

The £7.17bn group has been strengthening its position by launching new funds and expanding in Asia, but much will depend on how stock markets perform over the year ahead. The going could be tougher, as global growth slows and geopolitical worries mount, although I don’t expect a crash.

Its forward valuation now looks a little toppy at 16.9 times earnings. It does offer an attractive yield of 7% but cover is thin at just 0.8, and low forecast earnings growth completes the mixed picture. Standard Life Aberdeen looked like a buy last year, but a hold today.

RWS Holdings

My other tip was language, intellectual property support, and localisation provider RWS Holdings (LSE: RWS). This was hugely expensive when I tipped it, trading at 26.9 times forward earnings, partly due to a 60% rise in its share price over just two years. However, it has thoroughly justified this valuation, rising 36% since I tipped it.

This acquisition-hungry AIM-listed company had developed the appealing habit of delivering double-digit earnings growth, up 35%, 31%, and 22% in the three years to 30 September 2018. It maintained that performance this year, posting another 22% earnings growth.

December’s full-year results showed record performances across all three of its main businesses, with revenue up 16% to £355.7m, while adjusted operating profit climbed 18% to £78.4m.

The attractive picture was completed by a 43% drop in net debt to £36.8m and a 17% rise in the total dividend for the year to 8.75p. This £1.71bn group may not look like an income seeker’s dream, with a forward yield of 1.7%, but a progressive management attitude and dividend cover of 2.4% means it shouldn’t be underrated.

My worry is that it is even more expensive today, trading at 31.7 times forward earnings, and earnings growth is predicted to slow to ‘just’ 8% this year. Today I’d call RWS a satisfactory hold, rather than a great screaming buy.

The AIM company lifted off in the wake of some truly stunning results for the fiscal year to September 2019. Strong demand growth for self-storage space in the UK is something that I touch upon with some regularity, but even so, those latest numbers from Lok’nStore, a company which has a history of impressing the market, were pretty exceptional.

Thanks to a revenues improvement of more than 10%, to £16.95m, adjusted EBITDA leapt 12% to £7.39m, while net asset value per share ballooned to 533p from 480p in FY2018. On top of this, strong cash flows helped it record a cash balance of £13.6m versus £5m last time around, and this encouraged it to lift the full-year dividend in excess of 9% to 12p per share.

It’s not a surprise to see City analysts predicting another year of payout growth in the current period, a 13.1p per share currently being touted. There are bigger yields than Lok’nStore’s reading of 2%. But I’d argue that the rate at which the firm could find itself still lifting payouts in the years ahead, as it expands its store estate to enable more impressive profits progress, still makes it a great pick for income chasers.

Another dividend hero

Before I let you go, I’d like to speak about RWS Holdings (LSE: RWS), a stock from which I’m expecting some strong financials early next month. Full-year numbers (for the period ending September) are scheduled for release on December 10.

This AIM-quoted stock is seeing demand for its translation services take off and in October announced that revenues would likely be up 16% for the full year, at £355m. That’s thanks to a combination of strong organic growth at the core, the positive contributions of its Moravia and Alpha Translations Canada acquisitions and favourable currency movements.

Like Lok’nStore, RWS isn’t famed for the size of its dividends yields. For the current year this sits at 1.6%, better than the returns one can expect from a Cash ISA, though some way short of the 3.3% broader average for the UK’s mid-caps.

Rather, it’s considered a solid income pick owing to the rate at which it’s lifted annual payouts over the past half a decade, including a 15% rise to 7.5p when it reported for fiscal 2018. A hike to 8.6p is predicted by City analysts for the year just passed and another rise to 9.5p for the present period. With profits booming and cash soaring through the roof, RWS is a share I’d buy in expectations of rampant dividend growth for some time to come, and particularly as it likely chases down more M&A targets.

Price is what you pay

Fund manager Standard Life Aberdeen (LSE: SLA) trades on a lowly valuation of just 6.7 times earnings, well below the 15 times generally seen as fair value. It has been dirt cheap for some time but remains seriously unloved by investors, falling 45% in the last 12 months, and 13% in the last week alone. Is this £5.67bn FTSE 100 firm an unmissable bargain or a value trap? Right now, the market reckons the latter.

On the other hand, intellectual property specialist RWS Holdings (LSE: RWS) trades at a pricey-looking 26.9 times earnings after rising 60% in two years. Is the £1.31bn AIM-listed stock a momentum hero or over-priced and over-rated? Here the market is optimistic, with the stock jumping 2.14% today on publication of its final results for the year to 30 September.

Value is what you get

Investors in RWS have plenty to be happy about, with revenues up 87% to £306m and adjusted profit before tax up 43% to £61.8m. It increased its proposed final dividend by 15% to 6p, with the total dividend also up 15% to 7.5p.

Net debt jumped 222% to £65.1m, due to new loan facilities and its 2017 share placing to fund its 2017 acquisition of Moravia, which enjoyed an excellent second half that contributed to the 22% increase in adjusted earnings per share to 17.4p.

The rights stuff

With growth in sales and profits across the group, chairman Andrew Brode hailed “a remarkable year in which we celebrated our 60th year in business and delivered our 15th year of unbroken growth in revenues, profits and dividends since flotation in November 2003.”

RWS is expensive. But for that you get an acquisition-hungry company with double-digit earnings growth (35%, 31%, 22% in the last three years) and a forecast 17% growth in the year to 30 September 2019. The yield is just 1.5%, but with cover of 2.3 and this year’s 15% hike, it looks progressive. Like Peter Stephens before me, I reckon it looks like a buy despite the price.

Not your Standard Life

RWS is in a very different position to Standard Life, which has been hammered by the slump afflicting its flagship fund Global Absolute Return Strategies Fund, heavy investor net outflows, and the loss of valuable mandates from institutional investors. It is also has a split identity and is in the middle of a sticky transitional period.

Growing anxiety about the end of the 10-year bull market run has cast a shadow over its asset management business, but I still think there are good reasons to buy. First, there’s the massive forecast 9.8% dividend yield. Cover is narrow at just one, but it looks relatively safe for now.

Standard Life’s earnings are forecast to fall 33% this calendar year but should turn positive next year, rising 2%. It also looks like a buy, although this time because of the price, rather than inspite of it.

For full-year 2015, RWS reported revenues of £95m. By 2016 this figure had risen to £122m, and for 2017, the group reported total revenues of £164m. As sales and profits have boomed, so have the company’s shares. Since the end of 2015, the stock has returned 174%, outperforming the FTSE 100 by 164% over the same period. 

Still time to buy?

After such an impressive performance, at first glance, it appears as if the opportunity to profit from RWS’s success has passed.

However, on closer inspection, I seem that the opposite is true. I reckon the firm’s growth isn’t going to slow down any time soon, and there could still be plenty of upside left for investors buying today. 

According to the company’s year-end trading statement, published this morning ahead of full-year results, management is expecting the enterprise to report revenues of “not less than £305m” for fiscal 2018, compared to £164m in 2017. That’s year-on-year sales growth of at least 85%. 

The City was expecting the firm to report sales of around £300m for the year, so it looks as if the company is set to beat analyst expectations for growth on both the top and bottom lines. Analysts have pencilled in earnings per share (EPS) of 17.3p for the year, giving a forward P/E of 26.7. 

Room left to run 

This multiple is right at the top end of what I would consider to be appropriate for a growth stock. But RWS isn’t your average growth stock. The company is a world leader in the very niche business of patent translations for the intellectual property and life sciences industries. 

On top of these services, the company also provides “high-level specialist language services” in other technical areas. The group is using its position in these markets to expand into other sections of the tech space. For example, last year it acquired Moravia, a leading provider of technology-enabled localisation services to some of the largest tech businesses in the world. 

This is unlikely to be the last significant acquisition for the firm. RWS is throwing off cash from its high-margin legacy operation, which it’s using to fund the growth of the rest of the group.

To give some example of how profitable the firm is, at the end of its fiscal first half, RWS reported £83m of net debt. According to today’s update, net debt has since declined to £66m. As well as acquisitions, it looks as if the group’s organic growth is also set to continue. In today’s update, the company notes that it’s seeing “increasing momentum across the business which underpins our confidence in delivering further significant progress in the new financial year.” 

The bottom line 

Overall then, it looks to me as if RWS remains a ‘buy’ even after its recent performance. As organic growth picks up and the group continues to expand its offering with bolt-on acquisitions, I believe there’s a strong chance the shares could even go on to double again from current levels.

The language and translation services provider advised last week that, due to the impact of adverse currency movements since the start of the fiscal year — namely the rampant strengthening of the pound — profits have taken a whack. It added that full-year profits may miss expectations should these exchange rate issues persist during the remainder of the period.

I see this as no reason to panic and sell up, though. Firstly, the sterling strength witnessed more recently may be difficult to sustain given that economic deterioration in the UK has shown signs of accelerating more recently, as illustrated by disappointing first-quarter GDP data last Friday.

Irrespective of these near-term currency-related problems, I am convinced that RWS, which has seen sales and profits shoot higher every year for well over a decade, remains in great shape to deliver brilliant earnings expansion. Demand for its products continues to boom and revenues leapt to £139.6m during October-March from £76.6m a year earlier.

Translation titan

Indeed, despite its latest trading statement, the City is still expecting earnings at RWS to keep surging at double-digit percentages and a 25% rise is forecast for the year to September 2018. An extra 11% advance is forecast for fiscal 2019.

And this leads means that the AIM-quoted business can be picked up on a dirt-cheap forward PEG reading of 0.8, comfortably below the accepted value territory of 1 or below.

An added bonus is that RWS’s bright growth prospects, exceptional cash generation and solid balance sheet with net debt coming in at a better-than-expected £84m as of March, mean dividends are expected to continue improving at quite a pace too.

The Square Mile predicts that last year’s total reward of 6.5p per share will jump to 7.3p in the present period, and again to 8.2p in fiscal 2019. These figures yield 2% and 2.2% respectively. I reckon RWS is a brilliant buy today.

A proven growth hero

Like RWS, Restore (LSE: RST) also has a great track record of delivering eye-popping earnings and dividend growth. The bottom line has more than doubled during the past five years and City brokers expect a lot more where that came from.

A 15% advance is forecast for 2018, and an extra 12% rise is predicted for next year. While a consequent prospective PEG reading of 1.5 may sit above that of the languages specialist, this is still great value in my opinion given the rate at which the office services provider continues to win business.

Revenues at AIM-quoted Restore jumped 36% year-on-year during 2017, to £176.2m, the impact of recent acquisition activity helping to swell the top line. And with the company showing no signs of letting up in the hunt for M&A — it splashed out £88m in March to buy TNT Business Solutions to boost its position in the record management segment — I fully expect profits to keep swelling at a terrific rate.

As such, investor sentiment appears to have declined dramatically. Could this make it a stronger investment opportunity than a support services peer which currently resides in the FTSE 100?

Uncertain outlook

In the first half of its financial year, RWS was able to achieve revenue which was in line with expectations. In fact, it increased from £76.6m in the first half of the prior year to £139.6m. The company expects to deliver adjusted pre-tax profit of at least £30m for the first half of the year on a constant currency basis.

However, with the pound strengthening in recent months, it means that the figure could be lower when the impact of currency changes are factored in. An adjusted pre-tax profit of £28.3m is anticipated for the first half of the year when the currency impact is included. Should the currency effect remain as it has been in the first half of the year, the company may miss its profit guidance for the full year.

Despite this, the performance of RWS remains relatively strong. Its acquisition of Moravia has the potential to make a significant impact on its future growth rate. And with growth across its key divisions being strong, it seems to be in a favourable position to generate improving financial performance.

Since the stock is expected to report double-digit earnings growth over the next two years, it appears to be a worthwhile buy. That’s especially the case since it now has a price-to-earnings growth (PEG) ratio of just 1.1. As such, and while its share price could be volatile, it may prove to be a profitable investment.

Solid performance

Also offering upside potential within the support services sector at the present time is G4S (LSE: GFS). The company now seems to be back on track after a challenging period, with its bottom line growing in each of the last two years. More growth is forecast in the current year, with its earnings expected to rise by 8%. This is due to be followed by growth of 9% next year, which puts the stock on a PEG ratio of 1.4. This suggests that it offers good value for money for the long term.

G4S may also prove to be a strong income stock in the long run. It is expected to deliver a 4% dividend yield in the current year. Since dividends are forecast to be covered twice by profit, they seem to be sustainable. And when its growth prospects are factored in, it could become a more desirable income play over the medium term.

As such, and while it may not offer the most exciting business model at a time when investor sentiment is generally upbeat, the company seems to have a solid mix of growth, income and value credentials for those with a long view.

Since its 2003 flotation, it has posted 14 successive years of growth in sales, profits and dividends. Today’s update told us the group “performed in line with the board’s expectations” in the three months to December and that it’s “confident of further substantial progress in 2018.”

World leader

RWS is the world’s leading provider of intellectual property support services (patent translations, international patent filing solutions and searches). It’s also a market leader in life sciences translations and specialist language services in other technical areas.

The company’s success has been built on organic growth, complemented by selective acquisitions that have strengthened its market-leading position. Its recent $320m acquisition of localisation services specialist Moravia adds an additional profitable, cash-generative division of scale to the group, and further broadens and deepens its business and geographical diversification.

Far too cheap?

The good start to the current financial year reported today prompted little change in the share price (currently 425p, market cap £1.2bn) but puts RWS on track to meet full-year expectations.

City analysts are forecasting earnings per share (EPS) of 18.4p — 29% ahead of last year. The price-to-earnings (P/E) ratio is a tad over 23, while the P/E-to-earnings growth (PEG) ratio is 0.8, which is comfortably on the ‘good value’ side of the PEG ‘fair value’ marker of one. A forecast dividend of 7.85p gives a modest yield of 1.8% but with EPS growing fast, the payout is too. I believe RWS is trading far too cheaply and I rate the stock a ‘buy’.

Premier recovery stock

The progress of main-market-listed FTSE SmallCap firm Premier Oil (LSE: PMO) hasn’t been anything like as smooth as RWS’s. Indeed, it was in the FTSE 250 index, until the collapse of the oil price a few years ago sent its share price and market cap tumbling.

Premier managed to survive the oil rout, thanks to supportive lenders and the outlook is now considerably brighter in an improved oil price environment. The company said in a trading update in November that it’s on track to meet (previously increased) guidance of 75,000 to 80,000 barrels a day for 2017. It also advised that it expects to report 2017 year-end net debt below the $2.8bn level of 30 September.

Also far too cheap?

In December, Premier announced first oil from its Catcher field. It expects production from the Catcher area to increase to 60,000 barrels a day (30,000 net to the company) during the first half of 2018, which it says will help accelerate debt reduction through the course of the year.

City analysts are forecasting EPS of $0.24 (17.3p at current exchange rates) for 2018. At a current share price of 72p, the market cap is £545m and the P/E is just 4.2. With debt now falling, Premier is another stock that looks far too cheap to my eye and one I rate a ‘buy’.

Yes to RWS

Today it published final results for the year ended 30 September and market excitement has ebbed, its share price flat at time of writing. This is despite the fact that the language and intellectual property support services provider hailed this as “an outstanding year, strengthening our leading position in Life Sciences.”

Sales rose 34.4% to £164m and adjusted profit before tax jumped 41.5% to £43.3m. Organic growth clocked in at 8%, excluding acquisitions and currency movements, with organic profit growth of 18%. Basic earnings per share (EPS) jumped 22% from 9p to 11p. The total dividend increased 16.1% to 6.5p, continuing an unbroken series of dividend increases since it floated in 2003. Nice.

Pricey, but…

Net debt did multiply from £1.5m to £20.2m, but this was largely due to the £74.8m cost of the acquisitions of LUZ and Article One Partners. Group gross margin improved by 96 basis points to 43.75% after significant gains in 2016, while chairman Andrew Brode has reported a strong first two months of the new financial year.

Perhaps the main reason investors are not jumping up and down with excitement is that they knew all this stuff already, which explains why the stock trades at a forecast 30.7 times earnings. Prospects remain promising, with forecast EPS growth of 26% in 2018, and although the yield underwhelms today at 1.7%, there is plenty of scope for progression. Expensive, but it looks a buy to me. Although you may be tempted by these brilliant bargains instead.

Market swinger

Numis Corporation (LSE: NUM) also reported today after a storming year which has seen its share price rise 33%, while it is up 147% over five years. Again, the market reaction to its preliminary results for the year to 30 September has been muted, with the share price down 0.57%.

Yet it was a good year for the small- and mid-cap broker, with revenue up 16% to a record high £130.1m. Profit before tax rose 18% to £38.3m and EPS were up 17% to 27.4p. What’s not to like, stock market?

The total dividend for the year was maintained at 12p, the same as in 2016. However, the directors have pledged to pay a stable dividend and reinvest in the company, rather than lavishing shareholders with excess cash.

In the pipe

Market conditions provided a positive backdrop to UK equities and co-CEOs Alex Ham and Ross Mitchinson said the group’s “deal pipeline is strong,” while trading in the new financial year has started well. The stock also trades at a bargain 12.3 times earnings while the forecast dividend is a solid 3.9%, covered 2.1 times. If still unconvinced, you may prefer this hot growth stock.

City analysts have some concerns about Numis’s future, forecasting a 19% drop in EPS in 2018, with forthcoming new Mifid II EU regulations no doubt playing a part, but this also looks like one for your watch list.

This why I believe that RWS Holdings (LSE: RWS) is one stock investors should not ignore. The firm has chalked up 13 unbroken years of profit, revenue and dividend growth since coming to the market in 2003. And it just reported yet another set of record-beating figures. 

Unstoppable growth 

RWS is the world leader in translation, intellectual property, life sciences and language support services. Over the past decade-and-a-half, the business has grown organically and through bolt-on acquisitions, which have helped speed up expansion. 

For the year ended September 30, the firm now expects revenue to be “not less” than £163m, up 34% from last year’s £122m. Management also believes that pre-tax profit is set to come in “ahead” of market expectations as all divisions have “performed strongly” in the year. 

The bulk of this growth has come from the birth of RWS’s new Life Science business, formed by the acquisition and merger of CTi (acquired in November 2015 for $70m) and LUZ Inc (bought in February for $83m). 

It looks as if management expects the positive trading environment to continue into the new year. Commenting on today’s trading update, Andrew Brode, Chairman said: “Both our financial and market positions remain strong and we continue to see an interesting pipeline of acquisition opportunities to complement our organic growth.” He continued: “There is strong momentum in the business and we are, therefore, confident of further significant progress in the new financial year.” 

Worth paying for? 

Unfortunately, RWS’s growth story is well-known, and shares in the company command a premium valuation. Indeed, at the time of writing, the shares trade at a forward P/E of 28.6 (based on current City estimates, which may be out of date considering the above). 

This valuation, while dear, is easy to justify considering the firm’s historical growth. 

Over the past four years, earnings per share have expanded at a compound annual growth rate of 16.1%. If this rate of growth continues, the firm is on track to earn 25p per share by 2022 and 46.2p by 2026. If the shares continue to trade at a multiple of 28 times, this implies that the stock could be worth 1,294p within eight years, a return of 15% per annum for investors from current prices, excluding dividends. 

Overall then, it looks as if shares in RWS are worth paying a premium for today. Over the past 13 years, the company has proved that it has what it takes to survive and produce returns for investors, and I believe that barring any significant slip-ups, this can continue. 

As the group continues to expand, investors should be well rewarded.