Each month, we ask our freelance author traders to share their high concepts for progress shares with you — right here’s what they mentioned for August!
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FRP Advisory
What it does: FRP helps companies in financial bother by offering recommendation on restructuring, debt and pensions.
By Royston Wild. Discovering strong progress shares to purchase is changing into rising difficult for UK traders. Inflation is hovering and financial progress is stalling, placing company revenue forecasts below rising pressure.
However FRP Advisory Group (LSE: FRP) is a inventory that’s set to profit from these deteriorating situations. The enterprise gives a spread of advisory companies to firms in monetary misery, the variety of which is hovering in Britain. Greater rates of interest imply that companies are struggling to pay their money owed.
In accordance with tax, audit and advisory agency Mazars Accountants, the variety of company insolvencies has rocketed 70% over the previous yr, to 19,191. Sadly it has warned, too, that “the dismal outlook means extra ache for companies is probably going.”
FRP’s share value has slumped extra just lately. That is due to rising prices that prompted earnings to fall in its newest monetary yr (to April 2022).
I contemplate this to be an ideal dip shopping for alternative and count on FRP’s shares to bounce again as buying and selling exercise gathers momentum. Revenues at FRP leapt 21% year-on-year in fiscal 2022, and rose 11% on an natural foundation.
Royston Wild doesn’t personal shares in FRP Advisory.
Kainos
What it does: Kainos is a know-how firm that helps private and non-private organisations with digital transformation.
By Edward Sheldon, CFA. Kainos (LSE: KNOS) shares have skilled a big pullback this yr as progress shares have fallen out of favour and I believe this has created a compelling funding alternative.
Kainos is benefitting as firms and authorities organisations embrace know-how and that is mirrored within the group’s monetary efficiency. Final monetary yr (ended 31 March 2022), income was up 29%. In the meantime, on the finish of the interval, the group’s contracted backlog was £260m – up 26% yr on yr.
Trying forward, I’m assured that Kainos will proceed to develop at a wholesome price. That’s as a result of digital transformation might help organisations decrease prices and beat inflation. It’s value noting that CEO Brendan Mooney just lately mentioned that demand for the corporate’s companies has “by no means been greater”.
Now, this progress inventory isn’t low-cost. Presently, its P/E ratio is within the excessive 20s. This provides danger to the funding case. Nonetheless, I consider that long-term traders within the firm, like myself, shall be rewarded over time.
Edward Sheldon owns shares in Kainos
dotDigital
What it does: dotDigital is a SaaS firm offering an omnichannel advertising and marketing automation and buyer engagement platform.
By Zaven Boyrazian. The know-how sector hasn’t had a lot love in 2022. But, regardless of the volatility, there stay loads of enticing alternatives for my portfolio. One which’s caught my consideration in the mean time is dotDigital (LSE:DOTD).
With the tailwinds from the pandemic slowing down, top-line progress adopted go well with, upsetting fairly a couple of momentum traders. But even with out these catalysts, income continues to increase at a good price. In the meantime, its newest buying and selling replace confirmed a 16.8% soar in common income per buyer.
In different phrases, shoppers are spending more cash on the agency’s advertising and marketing platform. And even with an unsure financial outlook, advertising and marketing e-mail volumes are up 22% to 29.four billion versus a yr in the past. This all bodes effectively for the corporate, particularly given its fierce competitors from different platforms.
Pairing this with a seemingly low-cost valuation makes dotDigital appear to be a superb progress addition to my portfolio this month.
Zaven Boyrazian owns shares in dotDigital.
Domino’s Pizza
What it does: Domino’s is a UK-based pizza supply firm and FTSE 250 constituent.
By Paul Summers: On the time of writing, shares in Domino’s Pizza (LSE: DOM) are down by over a 3rd in 2022. That’s not totally stunning. The squeeze on discretionary earnings was by no means more likely to be excellent news for the agency.
For a long-term progress investor like me, nevertheless, that is wanting like a chance to accumulate the inventory at a cheaper-than-usual valuation. A forecast price-to-earnings (P/E) ratio of 14 for the present yr is under the 5-year common of 16. There’s additionally a 3.5% dividend yield to reinvest whereas I wait.
I’m not anticipating a rip-roaring restoration in earnings over the subsequent yr or so. Nonetheless, respectable interim numbers at the start of August coupled with encouraging information on the seek for a brand new CEO might herald a change in market sentiment.
Paul Summers doesn’t personal shares in Domino’s Pizza.
Safestore
What it does: Safestore is a number one supplier of self-storage amenities within the UK and Continental Europe
By Christopher Ruane. I proceed to see worth in Safestore (LSE: SAFE). Its shares are down 20% since April, though they’re nonetheless 7% forward of the place they had been this time final yr.
Within the first half, income grew 15% in comparison with the identical interval final yr, diluted earnings had been up 67%, working money inflows grew 25% and the dividend additionally grew 25%.
That’s glorious progress – and I count on extra of the identical in future. Self-storage stays a reasonably undeveloped trade within the UK in comparison with the US, for instance. I see a lot of house for progress. Safestore’s sturdy model and confirmed working mannequin might assist it capitalise on that. One danger I see is opponents making an attempt to woo prospects with low costs, pushing down revenue margins throughout the trade.
However I believe Safestore has an ideal, easy components in a market with sturdy long-term progress prospects.
Christopher Ruane owns shares in Safestore.
CMC Markets
What it does: CMC Markets specialises in on-line buying and selling, offering publicity to a spread of various asset lessons. It has a world presence.
By Andrew Woods. A look on the historic earnings information for CMC Markets (LSE:CMCX) instantly signifies fast progress over the previous 5 years. For the yr ended March, between 2018 and 2022, earnings per share (EPS) rose from 17.3p to 24.8p.
By my calculations, this ends in a compound annual EPS progress price of seven.5%. For me, I discover this enticing in a progress inventory. Over that point interval, income additionally grew from £209m to £325m.
It’s fairly clear that the agency benefited from elevated buying and selling exercise in the course of the pandemic. As prospects loved larger disposable earnings and had extra time to commit to investing, the enterprise noticed its revenue surge. What’s extra, larger volatility within the inventory market enabled the agency to derive extra earnings from value spreads.
Nonetheless, income fell by round £100m between 2021 and 2022, suggesting that buyer curiosity and exercise might have declined following the pandemic. Nonetheless, income and pre-tax revenue are nonetheless greater than pre-pandemic figures.
Andrew Woods has no place in CMC Markets.
