Could 20% profit growth help Patisserie Holdings plc & IG Design Group plc double in 2017?

Will profits continue to rise at small cap success stories Patisserie Holdings plc (LON:CAKE) and IG Design Group plc (LON:IGR)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Pre-tax profit rose by 18.2% to £17.2m at upmarket café and cake shop operator Patisserie Holdings (LSE: CAKE) last year. The group’s shares have risen by 9% so far today, but are still worth 31% less than they were at the start of the year.

Patisserie’s roll-out appears to be delivering stunning returns. Has the stock’s decline given investors a second opportunity to get involved with this impressive growth story? In today’s article, I’ll take a closer look.

I’ll also ask whether fast-growing giftware group IG Design Group (LSE: IGR) is worth buying after today’s impressive results.

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

Tasty growth could continue

Patisserie Holdings’ main brand is the Patisserie Valerie chain of café and cake shops. Growth was strong last year, with sales up 13.3% to £104.1m, and earnings per share up by 20.1% to 13.6p. The final dividend has been increased by 20% to 2.0p per share.

Patisserie opened 21 new stores during the year, taking the total number of stores to 184. The company is continuing to target 20 new store openings each year, and says that a number of last year’s new stores are trading “ahead of expectations”.

What’s so impressive about this business is that the rollout of new stores is being completely funded from Patisserie’s operating cash flow. Despite also paying a dividend, Patisserie has no debt, and ended last year with net cash of £13.3m.

Although the group’s rollout will eventually reach a natural limit, we don’t seem to have reached that point yet. It’s also worth remembering that as the group gets larger, each new store will make a smaller contribution to profits, in percentage terms.

Today’s results give Patisserie Holdings a trailing P/E of 20.5, and a trailing yield of about 1%. Earnings are expected to rise by 15% to 15.6p in 2016/17, putting the stock on a forecast P/E of 17.9.

Overall, my view is that Patisserie Holdings is reasonably priced at current levels. Growth investors may want to take a closer look.

These shares could be a gift

Sales at giftware group IG Design rose by 21.5% to £145.5m during the first half of the year, according to today’s interim results. Adjusted pre-tax profit rose by 57.5% to £8.2m, while underlying earnings per share were 50% higher, at 9.6p.

The company’s shares have risen by 5% to 289p following today’s news. The second half of the year includes the key Christmas trading season, and management believes that full-year performance “is now expected to be above current market forecasts”.

The growth potential of IG Design looks significant, in my view, but there are downside risks too. Earnings growth during the first half came from organic growth (20%), acquisitions (10%) and currency movements (20%).

IG Design’s move into the US market appears to be going well. UK growth also seems strong. The obvious risk is that the pound will rise against the dollar. This could hit IG’s profits, and cancel out gains from organic sales growth.

After today’s results, I estimate that full-year earnings of about 17p–18p per share are possible. This would put IG on a forecast P/E of 16. In my view, that’s a fair price. Although I’m concerned about potential currency risks, I believe IG Design could deliver further gains for shareholders in 2017.

Should you buy Lloyds Banking Group now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Patisserie Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Calendar showing the date of 5th April on desk in a house
Investing Articles

Here’s how a £20k ISA could produce £1,580 of passive income in the next year

A Stocks and Shares ISA stuffed with dividend shares can be a lucrative source of passive income. Christopher Ruane explains…

Read more »

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »