Shares in structural steelwork company Severfield (LSE: SFR) and supply chain solutions provider Wincanton (LSE: WIN) have been moving up.
At todays 82p share price, Severfield is up around 41% from the 58p or so the shares reached in late June. And at 257p, Wincanton sits around 49% higher than the 172p we saw the shares touch during early July.
These stocks are marching on, but why? Lets dig a little deeper to see if they can make decent investments from here.
A dividend explosion
Severfields chief executive Ian Lawson was upbeat in the firms interim results report released in November. He said a strong performance continued after the companys September half-year period with margins up and healthycash-generation. He thinks profit growth for the full year will be ahead of previous expectations, and to underline the directors confidence, the interim dividend was pushed up an impressive 40%.
Severfields strategy targets an underlying doubling of profit before tax over the next four years and, judging by the interim report, it looks like the firm is on course to achieve that goal.
However, just four years ago itsposition didnt seem as rosy. Profits had collapsed and the firm tapped the market with a Rights Issue to pay down debt and fix its balance sheet. Theres no doubt that the firms operations are highly cyclical, but there could be more to come during the current upturn in operations.
Indeed, City analysts following Severfield anticipate the firms earnings bounce-back to continue with earnings per share rising 14% during the year to march 2018 and by 12% to March 2019.
A return to dividends
Wincantons interims were out in November too. The firms chief executive, Adrian Colman, said that good trading during the first half of the year justified the reintroduction of a dividend payment at the end of the previous year and dividends would continue with an interim payment.
Dividend payments were last on the scene as far back as 2011, and one glance at theshare price chart tells the story of the firms volatile trading over recent years operating profit declined into loss as recently as 2012. Yet City analysts see progress ahead, predicting 4% uplifts in earnings per share for the years to March 2018 and March 2019.
More to come?
Companies with recovering operations such as thesecan be attractive as investments, but if I held their shares I would remain vigilant for approaching weakness in trading down the road.
Right now, you can pick up shares in Severfield for a forward price-to-earnings (P/E) ratio of just over 14 for the year to March 2018 and Wincantons on a forward P/E rating of around nine. Severfields forward dividend yield runs at 2.8% or so, and Wincantons around 3.8%.
The valuations remain undemanding and the shares are on the move, but I think its worth remembering these firms troubled recent histories. If youre tempted to take the plunge, it might be a good idea to remain cautious while holding the shares.
Kevin Godbold 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.