Shares of public transport operator Stagecoach Group (LSE: SGC) rose by 5% after the firm published its half-year results this morning. Today Ill be looking at the firms latest figures and also reviewing the recent news from struggling sub-prime lender Provident Financial (LSE: PFG).
Are Stagecoach and Provident good buys for investors looking for turnaround or income stocks?
Motoring ahead
Stagecoach shares received a sharp boost at the end of November when the company welcomed the governments new rail network plan. Todays 5% rise means the stock has gained 12% over the last month, taking it back to levels last seen in August.
Earnings per share rose to 13.6p during the six months ending 28 October, compared to 12.7p for the same period last year. Pre-tax profit climbed 8% to 96.7m, while the interim dividend was left unchanged at 3.8p per share.
Progress seems to be spread fairly evenly across the business. UK bus revenue per vehicle mile rose by 2.7%, while the groups London buses saw a 4.5% increase in vehicle miles.
The firm says its seeingimproved revenue trends in North America and progress and opportunities in the UK rail market. These include the extension of the East Midlands Trains franchise and good progress towards the award of the Virgin Trains West Coast franchise in 2019.
Good value
Todays figures look fairly reassuring to me. Dividend cover remains healthy and the groups debt levels arent excessive. Management expects full-year results to be in line with current expectations, putting the stock on a forecast P/E of 9.2 with a prospective yield of 6.4%.
In my view this represents good value, so Id rate the shares as an income buy.
Where next for Provident?
Investors backing the turnaround of sub-prime lender Provident Financial hit another bump in the road on Tuesday when the firm revealed that its Moneybarn business which provides car and van finance is under investigation by the FCA.
The regulator is looking into the processes used by Moneybarn to assess the affordability of loans. Its also investigating the treatment of customers in financial difficulties.
This is the second FCA investigation into one of the groups businesses. Theres also an ongoing investigation into a highly profitable credit card payment protection service.
Some good news?
One highlight of yesterdays Moneybarn announcement was that it didnt include a profit warning. Nor did Providents trading statement in October, when it confirmed previous guidance and reported good progress with the turnaround of its core doorstep lending business.
Analysts forecasts are for Provident to generate earnings of 55.7p per share this year, recovering to 94.2p per share in 2018. On this basis, the stock trades on a 2017 forecast P/E of 14.2, falling to a P/E of 8.4 for next year.
Therell be no dividend this year, but the group is expected to return to the dividend list in 2018, with a forecast payout of 44p per share. This implies a prospective yield of about 5.5%.
As my colleague Rupert Hargreaves recently explained, investing in Provident isnt without risk. But on balance I think theres a decent chance that the group will be able to resolve its problems. I see the shares as a potential buy at current levels, despite the risk of further problems.
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