Six higher-risk UK equity tips

Bargain-hunters had a purple patch in 2013. After a difficult few years, sensible firms had carried out extensive restructuring and tightened the purse strings.

With balance sheets repaired, many were well-placed to benefit when demand picked up and profits began to grow again.

And growing they are. We've chosen a trio of companies expected to generate double-digit profit growth for at least the next two years. Modest forward-earnings multiples mean our picks are an attractive mix of value and growth.

It's a similar story with the income plays. None of our picks can be considered overpriced and all offer generous dividends. But there is added spice, with the possibility of special dividends, particularly at Synthomer. More companies are returning excess cash to shareholders by way of dividends, which should please investors.

Higher-risk growth

Hayward Tyler (HAYT)

82p; P/E ratio 11; dividend yield 1.6%

Hayward Tyler's (HAYT) share price has tripled since summer 2013, and for good reason. The company has undergone a major restructuring, upgraded its manufacturing facilities in Luton, and exchanged one major shareholder for a collection of supportive City institutions. Now earnings are beginning to grow, and fast.

Power stations need Hayward's expensive boiler circulating pumps, and its motors end up on oil rigs and deep undersea. It's a growing market, and Hayward is one of the best in the business. Earnings per share (EPS) are expected to rise by 13% in the year to March 2015, and 11% in 2016.

InternetQ (INTQ)

280p; P/E ratio 7.3; no dividend

InternetQ is one of AIM's best-kept secrets. It owns mobile marketing platform Minimob and music streaming service Akazoo, where revenue is growing fast. First-half profits beat City forecasts and the shares trade on modest single-digit earnings multiples. If the market priced them sensibly they could be worth more.

Crucially, InternetQ now has over 300 million unique Minimob installations through more than 3,600 active application developers.

With a strong third quarter in the bag and the seasonally best quarter underway, the company is on track to hit broker forecasts for full-year sales growth of 33% and generate an earnings-per-share compound annual growth rate of 25% for 2013–16.

James Cropper (CRPR)

425p; P/E ratio 12; dividend yield 2.1%

Speciality paper company James Cropper provides the material for Remembrance Day poppies. It recently doubled half-year adjusted pre-tax profit; and new products, cost-cutting and capital investment all underpin bullish growth expectations.

Average annual forecast EPS growth of 28% over the next three years is not reflected in a forward earnings multiple of 12, dropping to just 9.3 in 2015.

Higher-risk income

Synthomer (SYNT)

245p; P/E ratio 10; prospective dividend yield 3.6%

Synthomer's polymers improve paint, adhesives, condoms and rubber gloves. The speciality chemicals company recently warned on profits, but a return to double-digit earnings growth is predicted for next year and 2016.

Strong cash generation and the reduction of dividend cover to 2.5 times mean Synthomer can afford an estimated full-year dividend of 8p. But the sale of unwanted land in Malaysia could mean a special payout of 11.8p a share.

Berkeley Group (BKG)

2,407p; P/E ratio 10.4; prospective dividend yield 7%

A recent first-quarter update from Berkeley Group largely matched expectations, and the residential property developer reckons full-year earnings will hit forecasts. Berkeley paid 90p a share dividend in September.

A further 180p is payable to meet the first milestone of paying 434p by September 2015. The firm says it will make regular dividend distributions and meet some of the next milestone of 433p a share in September 2018 through regular dividend payments.

Infinis Energy (INFI)

186p; P/E ratio 15.9; prospective dividend yield 8.7%

Concerns that a 'Yes' vote in the Scottish referendum could damage prospects for UK renewable energy firm Infinis Energy (INFI) have now passed; with the Union safe, certainty has returned; but it's the sector-leading dividend yield that is Infinis's selling point.

Management promises to pay £55 million, or 18.33p per share, in dividends this year, and to increase the payout in line with retail prices index inflation. It has a 2015 estimated calendarised yield of 8.7%. Infinis has the highest yield in the European utility sector. However, Terra Firma has now said it is considering selling its 68.6% stake. A sale in the market would create a stock overhang, while a sale to a private buyer could trigger a bid for Infinis.

This article was published in Money Observer's January 2015 edition.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.