2 small-cap growth and income stocks you probably haven’t considered

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For the decade after Bloomsbury Publishing (LSE: BMY) signed up JK Rowling in 1996, sales exploded, but over the past 10 years, the company has struggled to repeat this success. Indeed, since mid-2007 shares in the company have lost 4.2%, excluding dividends. 

However, it now looks as if things are once again starting to pick up for the firm with management reporting today that total revenues for the three months to May 31 grew 19% year-on-year, or 13% at constant currencies. Both print and digital put in a strong showing with sales of digital resources growing by 16% year-on-year.

Robust year ahead? 

These initial figures bode well for the rest of the company’s financial year. According to today’s release, Bloomsbury’s first quarter traditionally generates the smallest profit of the fiscal year, so investors can expect more robust numbers from the company in the months ahead. 

Unfortunately, City analysts aren’t expecting much from the company for the full year. Analysts have pencilled in earnings per share for the year ending 28 February 2018 of 12.2p, down slightly from last year’s figure of 12.7p. Based on these figures, even though Bloomsbury’s top line is expected to expand during the year, this growth is not expected to translate into earnings rises. 

That being said, with the company’s first quarter trading update showing revenue growth of 13% at constant currencies, City analysts might come back to revise their forecasts for the full year. Even though analysts are expecting revenue growth for the year, they’ve only pencilled in year-on-year growth of 7.7%, around half of the figure reported by the company today. So, I would not be surprised if analysts revise their forecasts higher after today’s numbers. The shares currently trade at an attractive P/E of 13.6 and support a dividend yield of 4.2%.

Plenty of cash for returns 

Small-cap fund manager Miton Group (LSE: MGR) flies under the radar of most investors, but the company shouldn’t be ignored. Last week management reported that assets under management during the first half of 2017 rose by 13.4% to £3.2bn and company cash increased to £18.2m. This growth, as well as the group’s existing cash balance, gives plenty of room for additional shareholder returns – something management seems more than happy to do. 

At the end of February, it completed a £2.6m share buyback and at the beginning of May management authorised a 49.2% increase in the company’s per-share dividend payout. The shares currently trade at a forward P/E of 15.1 and support a dividend yield of 3%, although if you strip out the firm’s healthy cash balance of around 10p per share, the valuation falls to a much more attractive 12.3 times forward earnings. 

City analysts have pencilled in earnings per share growth of only 2% for 2017, which once again looks to underestimate Miton’s growth potential considering the increase in assets under management during the first few months of the year. If earnings continue to expand faster than expected, and management continues to return cash to investors, shares in Miton could be worth substantially more than their current price of 42p.

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Rupert Hargreaves owns shares in Miton Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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