Whats so special about a share costing under a pound? Well, nothing really other things being equal, 10shares at 1 are worth exactly the same as one at 10. But when Im running my regular stock screens, I sometimes like to choose unusual filters because it can throw up otherwise overlooked candidates.
Solid telecoms
My first pick is KCOM Group (LSE: KCOM), which serves the Hull and East Yorkshire area, while providing domestic and business telecoms. This actually isnt one Id overlooked, as Ive had my eye on it for some years. The share price hadnt really gone anywhere much over the past decade, but at 90.5p as I write its doubled over the past 12 months.
EPS is forecast to drop this year and next, before stabilising, as the firm is restructuring to simplify its branding and operations. With first-half results, chief executive Bill Halbert said that capital expenditure is likely to peak over this year and the subsequent year as the firms fibre network is rolled out.
The key attraction for me is KCOMs dividend, which is expected to yield 6.7% this year. It will be barely covered, but Mr Halbert promised us 6p per share for this year and next, and I can see KCOM maturing into a desirable cash cow.
Power to India
OPG Power Ventures (LSE: OPG) is one I didnt really know, but Im intrigued by what I see. The shares have fallen over the past couple of years, to 61p, but that gives us a prospective P/E ratio of only 7.5 for the year to March, and if growth forecasts come good, well see that dropping as low as five by March 2019.
A PEG ratio of just 0.1 this year, rising only as far as 0.3 over the next two years, also puts the shares firmly into the range that growth investors look for anything under 0.7 is typically seen as a good sign.
But what does it do? OPG develops and operates power plants in India, and first-half results released in December suggest we could be at a transition point. Revenue more than doubled, EPS rose by 41%, free cash flow came in at 20.6m, and gearing came down to 55% (from 58% six months previously). That led the company to declare its maiden dividend only 0.26p per share, but its a healthy start.
Ill need to investigate further, but OPG looks promising to me.
Cash from fibre
Shares in industrial thread manufacturer Coats Group (LSE: COA) have soared since September, to 60p, taking them up 170% over the past 12 months.
An October trading update told us that earlier challenging market conditions are improving, and that 2016 operating profit should be ahead of previous expectations the results should be with us on 24 February. And after having been stopped in 2012, the dividend should be back this year only a 1.4% yield, but it should be subsequently progressive.
The falling pound has helped Coats too, making its exports cheaper. And the firm has very little exposure to the EU, so Brexit shouldnt really be a problem.
News that the UK Pensions Regulator will cease regulatory activity regarding two of the companys pension schemes also gave the shares an extra boost, in December.
Even after this years gain, were still only looking at a P/E based on 2017 forecasts of 10.4, dropping to 9.5 next year. Definitely worth a closer look, I say.
Another great small cap bargain?
If you like the idea of searching for small cap stocks with great potential, you’re not alone – our top Motley Fool analysts are on the lookout for them too. And they reckon they’ve found a hot one.
Our free report, 1 Top Small-Cap Stock From The Motley Fool, identifies a sub-60m tiddler that has reported several years of impressive earnings growth, but whose shares are valued at a P/E of only around seven. It’s offering growth potential, and has net cash on its books.
If you want the details, just click here for your personal copy of the report, completely free of charge.
Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
