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I'm always on the lookout for a promising value stock that pays decent dividends. One that caught my eye recently Public Policy Holding Company (LSE: PPHC). Written in CHECK December 2021.
According to Canaccord Genuity analysts, PPHC shares should be bought. The broker reiterated its 250p share price on 18 September.
With the stock currently at 129p, this target suggests a gain of around 93%. Of course, it may never reach that price, but the significant difference makes it worth a gander.
What it does
PPHC is a US-based group of consulting firms that helps clients navigate regulatory issues and influence government policy decisions. It provides bipartisan advice to more than 1,200 clients and directly represents nearly half of the Fortune 100.
In other words, this is a group of visitors. But it is an aspiration, and a set goal to be “a leading provider of government relations and integrated communications worldwide“.
The group has Republican attorney Benjamin Ginsberg on its board and has focused on buying into key political houses in London and Brussels. It is also expanding into US cities and has its eye on the Middle East and Africa.
In June, it made its first acquisition outside the US when it snapped up Pagefield, a UK public relations (PR) firm, for more than £30m. This was the tenth product to stay under the group's growing umbrella.
High profit margin
On September 18, PPHC released its half-year results and they looked strong. Revenue jumped 8% year-on-year to $71.1m, while underlying profit rose 4% to $13.2m. Free cash flow increased by 228% to $6m.
For the full year, I see revenue forecasts of $153m (13% growth), and projected earnings put the stock at a forward P/E ratio of just 7.8. That looks like a good deal to me.
Meanwhile, the company reiterated its medium-term guidance for organic revenue growth of 5%-10%, with incremental growth coming from additional sales, and an underlying EBITDA margin of 25%-30%.
CEO Stewart Hall commented: “All ten of our operating companies are well positioned to benefit from increased demand for their services as new governments and administrations are formed around the world, this year and beyond..”
It paid a dividend of 4.7 cents per share last term and an annual yield of 2.2%. The yield is more than 8%, and the payout for the last year is equal to about 62% of the underlying profit.
A stock to watch
One thing to note is that the company ended in June with a total debt of $28.3m. This is worth paying attention to as it continues to gain more.
Another potential risk is AI, which could replace some of the tasks usually performed by PR agencies, such as data analysis, media monitoring, or even content creation. This can put pressure on growth.
However, global government spending is predicted to increase in the future while regulation becomes more stringent. This suggests an ideal environment for lobbyists, as they can benefit from both increased revenue and the need to navigate complex regulatory environments.
Meanwhile, PPHC says the market “it's ripe for the taking“.
With a market cap of just £154m and growing profits alongside the budget, this stock could be considered at 129p. I've added it to my watch list while I investigate further.
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