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2 overlooked recovery stocks offering growing dividends

Vertu Motors (LSE: VTU) shareholders have had a tough time, seeing their shares lose 20% of their value over the past year and 44% over five.

Thats left us with a stock valued at a super low price-to-earnings of 6.5 (based on forecasts for the full year) with a dividend set to yield 5% and the dividend would be covered three times by earnings. When I see a share as lowly valued as that, I look for indications of trouble.

But examining Wednesdays interim results didnt really uncover any. The franchised motor dealerships chain reported a 5.6% rise in total revenues for the period, with like-for-like revenue up 2.3%. Vertus adjusted pre-tax profit did dip a little, from 18.1m at the same stage last year to 17.1m, but the company revealed Excellent cash conversion of profits with free cash flow of 14.6m generated (2018 H1: 1.9m), and lifted its interim dividend by 9% to 0.6p per share.


Despite what he described as a more challenging backdrop, chief executive Robert Forrester spoke of continued growth in high margin aftersales revenues and the continued growth in used car volumes and added that Cost and excellent working capital control has again been exhibited.

On the firms current outlook, its perhaps not surprising that like-for-like new sales were down in September, or that the firm sees the potential impact of Brexit as one of the major factors likely to affect future business.

But with net cash of 6.6m on the books at 31 August, and such negative market sentiment towards the company, I cant help wondering if Im looking at an oversold bargain.


Just over a year ago, I asked whether Redcentric (LSE: RCN) was a buy after a 30% share price crash. At the time, the IT services firm had just reported disappointing results and had given CEO Chris Jagusz the push, but it was making the right noises about rectifying the problems underlying its first-half underperformance.

At the time I said Id want to see how the full year went before Id consider buying. Those results were positive, and the firm was able to announce an improved dividend policy and the commencement of a share buyback, though at the time the share price had already recovered significantly.

Since my November examination, the Redcentric share price is now up 27%, and a trading update Wednesday suggested things are still going according to plan.


A key measure for a recovering company to me is always its debt level, and Im seeing significant progress. Even though Redcentric has paid out 1.5m in dividends and has accelerated its capital expenditure in network and infrastructure, net debt at 30 September was down to 16.5m (from 17.6m at 31 March, and 22.6m in September 2018).

The share buyback has been started, but I have to say Im often sceptical about such things when theres debt on the books. And in this case, I cant help thinking the cash could be put to better use paying down debt to focus on the balance sheet, not on the share price.

Anyway, Redcentric looks like it is pulling off a successful recovery. And though I still wouldnt buy just yet, Im keeping my eyes peeled.

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Femi Ogunshakin Managing Director
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