UK Edition
A positive recent trading update that showed improving organic momentum supplemented by acquisitions, as well as strong free cash flow, looked and felt like the “pre-pandemic” version of Restore.
The data and document management and office services specialist reported that sales were at an annual run rate 18pc above the pre-pandemic period, helped by eight purchases in 2021, where the full benefits of scale, cost synergies and operational efficiencies should continue to reach the bottom line.
Such an encouraging end to 2021 should underpin consensus analysts’ forecasts for pre-tax profit of £24.9m in the year just ended and £35m in the one just begun, compared to just £4m in 2020. Such a healthy profits rebound means that the price-earnings ratio for 2021 of more than 30 times looks less foreboding, as that multiple should drop as earnings rise, assuming all other things remain equal.
Management’s decision to return to the dividend list at the first-half stage and Marlowe’s unsolicited and ultimately unsuccessful bid in the summer both hint at the recovery potential here. And while the timing, nature and extent of the great return to the office remain difficult to predict, Restore is well positioned to capitalise upon any increase in activity through its relocation and recycling divisions, while the data and document operations provide a steady bedrock to the business.
Patience should get its due return here over time. Hold
Questor says: hold
Ticker: RST
Share price at close: 468.5p
Update: Fuller Smith & Turner
Shares in the pub operator have lost a little ground in the wake of last month’s update when the company revealed a dip in business during the run-up to the Christmas period, thanks to the latest viral variant.
But it is surely no surprise that omicron deterred, or prevented, thirsty and hungry people from heading to the pub, and this column continues to believe the stock offers long-term value to contrarian investors. A share price drop of more than 40pc from the pre-pandemic high means the £400m market capitalisation compares to net assets on the firm’s balance sheet of £441m as of the end of the first half.
The shares are therefore trading marginally below book value. Yet book value should grow as profits recover. Moreover, only £29m of those net assets are intangibles and the firm has not revalued the bulk of its pub assets since 1999 so that £441m figure is likely to be conservative, again to suggest that Fuller Smith & Turner’s shares are cheap and have plenty of asset backing.
Granted, other challenges lurk above and beyond omicron, including staff shortages, scarce carbon dioxide, input cost inflation and pay rises.
But Fuller Smith & Turner has a well-tended estate of pubs and hotels in prime metropolitan and rural sites in the south-east of the UK, notably London, and it takes little imagination to see business coming back strongly as workers and commuters return to offices and tourists to the nation’s capital and beauty spots.
Higher food and drink volumes should flow through just as quickly to the bottom line as a drop in customer numbers drained profits in 2020 and 2021.
It still has every chance of raising a cheer. Buy
Questor says: buy
Ticker: FSTA
Share price at close: 662p
Update: I3 Energy
It is often trouble that comes in threes at small-cap stocks (or even large-cap ones for that matter) but, pleasingly, the opposite appears to hold true oil and gas producer I3 Energy.
December’s production update suggests aggregate output from the Canadian and North Sea fields continues to surprise; oil and gas prices remain firm; and as of last week the company is committing to monthly dividend payments. The targeted £11.8m total payout for 2022 equates to just over 1p a share, for a forward yield of 6.4pc.
The story is heating up nicely. Keep buying.
Questor says: buy
Ticker: I3E
Share price at close: 18.8p
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