Pensions specialist Xafinity (LSE: XAF) listed on the London Stock Exchange in February, and there has been very little overall change in its share price since then — a rise of 1.3% as of Tuesday, but with a drop after Wednesday’s full-year results the shares are now down an overall 3.4%.
It’s tricky to evaluate this set of figures, as it’s blighted by one-off IPO items — which is what led to the pre-tax loss of £12.8m after a profit of £3m in 2016.
But adjusted earnings per share of 8.1p, up 4%, suggests a P/E of a little over 20, implying there’s significant growth built in to the current share price — and I think that growth potential is there.
£50m raised from the flotation was used to repay some existing debt facilities, dropping the debt figure to £33m immediately after flotation, from £86m. And since then it’s been reduced further to £28m. That’s 1.6 times adjusted EBITDA, and does not look onerous.
Pensions freedom
National Pension Trust assets under management rose by around 67%, and the firm was “awarded a trivial commutation mandate on a FTSE30 client with an £11bn scheme“. Xafinity also signed up eight new clients, and clients should get hold of the firm’s newly-developed pensions modelling software during the current year.
Liabilities afflicting the nation’s defined benefit pension schemes, together with increasing demand for alternative opportunities for transferring defined contribution schemes, should provide a fair bit of momentum for firms like Xafinity, which provide both de-risking services and Master Trust pension schemes.
That suggests to me that we’re looking at a decent growth opportunity — especially with worthwhile dividends expected to kick in from next year.
Outsourcing profits
Turning to a far longer established company, shares in Bunzl (LSE: BNZL) are up 3.6% at the time of writing, following an upbeat trading statement.
The distribution and outsourcing group reckons its first-half revenue should be up around 7% at constant exchange rates (with an extra 12% due to currency movements), due to a combination of underlying growth of 3%-4% coupled with the effect of acquisitions.
Acquisitions are “an important part of the company’s strategy for growth“, with the firm also announcing the takeover of three new businesses in Spain and Canada — that’s eight new businesses snapped up so far this year for a total of around £290m, adding an extra £370m to annual revenue.
The shares are on a forward P/E of around 20 now, which is arguably modest for company with significant growth potential, but I’m also attracted by what I see as a hidden income opportunity too.
Deceptive dividend
Bunzl’s dividend yield might look deceptively low at only around 2%, but it’s been strongly progressive over the past few years. Forecasts suggest the rate of rise should slow a little but still keep comfortably ahead of inflation, and I think progressive long-term growth is more important than a higher-but-static yield today.
If you’d bought some shares near the end of 2012 at around 924p, you’d now be looking at an effective forecast dividend yield of 4.9% on your original purchase price — and you’d have enjoyed a share price appreciation of approximately 150%.
Overall, I see Bunzl as a company offering a solid and well-managed business where acquisition is a desirable strategy, and capable of providing an attractive stream of returns through capital growth and income.
