Four Neil Woodford yield/growth plays
The shares of Homeserve, Rightster, Paypoint (LSE: PAY) and Cranswick amount to just about 1.5% of stare fund manager Neil Woodford's portfolio. Here's why you should keep an eye on them.
Homeserve: A Yield Play
Homeserve offers home emergency repair services. Most of its revenues are generated in the UK, but the group is also exposed to Western Europe and the US. Its shares, however, are not especially cheap.
But Homeserve is a decent business, with solid growth prospects. As it grows abroad, hefty operating and net income margins are likely in the next couple of years. It has a market cap of £1.1bn, which is roughly in line with its enterprise value. So, net debt is negligible.
The group's price to earnings ratio stands at 19x for 2015 and 18x for 2016. A projected dividend yield of 3.5% is appealing. The shares were badly hit by a profit warning in early 2013, which followed an investigation by the FSA, but have registered a gain of 74% since a two-year trough in April last year.
Free investor's guide to ISAs
Rightster Promises Growth
Fancy some exposure to the IT services and consulting sector?
Rightster offers cloud-based services focusing on the distribution of live and on-demand video. This is a young business with less than £10m of revenues.
Rightster has a market cap of £67.8m, which implies a forward sales multiple of about 7x. As you would expect, the group doesn't generate positive operating cash flow and doesn't pay any dividends. The shares are not incredibly expensive, according to the sector's standards, but Rightster remains a risky investment.
You would want to add it to a diversified portfolio, in my view. Along with Mr Woodford, other key shareholders are Invesco and Vesuvius. Proceeds from a rights issue in July were used to fund acquisitions.
Is it an opportunistic buy? Well, the stock hit a 52-week low of 32p last week...
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PayPoint Offers Growth & Yield
PayPoint provides payments systems and services across a wide range of sectors. It generates £200m of gross revenues, some 80% of which are generated in the UK. Its financials are decent: earnings and dividends have nicely grown in recent years and should continue to do so into 2016.
Why does Mr Woodford like PayPoint?
First, it's a decent income play.
Second, its five-year performance reads +124%, but the stock currently trades more than 20% below the record high it achieved earlier this year.
Cranswick: Just A Boring Food Producer?
You reckon this is the least exciting business of the four, don't you?
Of course, Cranswick is just a boring British producer of foods and pet products, you may think.
You don't like the sector, do you?
Profitability is so low for food producers!
Cranswick boats a strong balance sheet. It has a market cap of about £700m, which is in line with its enterprise value.
Its P&L shows a truly impressive track record, while forecasts for growth are promising, although its dividend yield is about one percentage point below the market's. Its operating profit could easily grow at an annual clip of 10% into 2017, which would likely boost earnings per share.
Cranswick stock trades around its record highs, but doesn't look too expensive based on forward trading multiples. Its stock performance in the last two years reads +81%.
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