Two penny shares I want to take a closer look at are Alternative Income REIT (LSE: AIRE) and Ebiquity (LSE: EBQ).
Let’s dive into the investment case of each to help me decide whether or not I should buy some shares.
Alternative Income REIT
Setup as a real estate investment trust REIT), Alternative makes money from income-producing properties. These can range from office space and housing to logistics facilities and more.
One of the biggest draws of investing in these types of trusts is that they’re mandated to return 90% of profits to shareholders.
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From a bullish view, I’m a fan of Alternative’s diversification. I’ve found that the majority of REITs tend to focus on one type of property, be it housing or healthcare space, to provide a couple of examples. Alternative has assets across a few industries. The good thing here is that diversification mitigates risk.
Next, the shares offer a mammoth dividend yield of 8.9%. This is significantly higher than the FTSE 100 average of 3.9%. However, I do understand that dividends are never guaranteed.
Plus, based on its net asset value of around 80p per share, the shares are 14% undervalued. The shares currently trade for 70p.
From a bearish view, high interest rates are putting significant pressure on REITs from a rent collection, growth, and net asset value perspective. If these rates come down, earnings and returns could climb. While rates remain high, they present a real risk to shareholder value.
I’d be willing to buy some Alternative Income shares when I next have some free funds.
Ebiquity
Marketing analytics and media consultancy firm Ebiquity is a bit of an enigma. Firmly in the penny stock category, the business is small on paper, but there are lots of pros when I dig into the investment case.
Firstly, the shares look undervalued by approximately 70% based on the discounted cash flow (DCF) model.
Next, the business has a decent track record of performance to fall back on. It has grown earnings each year at a rate of just over 6% for the past five years. Although it’s not a spectacular rate of growth, it represents what looks like a steady ship in the volatile world that is penny shares. I do understand past performance isn’t a guarantee of the future.
Finally, analyst forecasts are tipping remarkable growth for the coming years. However, I always take analyst forecasts with a pinch of salt, especially for small-cap shares. They may not come to fruition.
Looking at cons, it’s obvious that Ebiquity is a small fish in a large pond. Competition from larger firms in the space with bigger muscles to flex could present growth challenges moving forward. Alternatively, it may be bought out and swallowed by a larger firm in the space. Plus, marketing is usually one of the first cuts to budgets when economic volatility hits, like now.
Overall I’m going to watch Ebiquity shares for now, and may be tempted to buy some soon as things develop.
