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I’d choose this 7%+ bargain dividend stock over this FTSE 250 share

Harvey Jones

FTSE 250 engineering and industrial software group Aveva Group (LSE: AVV) is flying after publishing its final results that included a 6.8% rise in adjusted profit before tax to £162.8m and plans to make £25m of cost savings following its merger with Schneider Electric.

Viva Aveva

Revenues rose 8.6% to £704.6m and the share price jumped more than 13%, delighting investors who will have been disappointed by its longer-term performance, with the stock trading just 13.7% higher than five years ago. Aveva completed its reverse takeover of French giant Schneider on 1 March and now it is all systems go.

Chief executive Craig Hayman said: “The integration of the business has begun in earnest to drive top-line synergies.” The planned cost savings should be realised by 2020, while the hook-up is also expected to generate “material revenue synergies over the medium term” and capture the trend towards industry digitalisation.

How much?

My worry is that Aveva now trades at a monster forward valuation of more than 50 times earnings while City analysts are forecasting a 39% drop in earnings per share in the year to 31 March 2019, albeit followed by an 11% rise the year after. Perhaps there is a monster dividend to compensate? Nope. Unless you consider a forecast 1.3% monster-like.

My Foolish colleague Peter Stephens also banged his head against these unappealing numbers, and although today’s results are more than welcome, I remain unconvinced, especially as we don’t yet know what synergies the group can generate. Others clearly feel differently this morning, though.

Brown down

Manchester-based clothing and homeware retailer N Brown Group (LSE: BWNG) is out of vogue, sliding 1.62% after publishing its Q1 trading statement for the 13 weeks to 2 June. Investors are understandably wary with management only able to describe a “satisfactory performance in a challenging period” for fashion retail, while announcing a 0.4% rise in group revenue.

The group also announced it had launched a consultation to consider closing all of its 20 stores, in the latest bad news to hit the high street. However, its stores only account for just 2% of group revenue, with 75% now generated online, rising to 84% for new customers.

Smart work

CEO Angela Spindler was satisfied given strong comparatives and the tough industry backdrop, saying: “We continue at pace our journey to become a global online retailer, uniquely delivering fashion that fits. This will underpin our future growth, both in the UK and internationally.” 

It is a big prize, for a company with a market cap of £553m, whose brands include the relaunched JD Williams, Simply Be and Jacamo. The stock has fallen 30% in the year but the good news is that it now trades at just 8.6 times earnings. Roland Head reckons its decline has gone too far.

N Brown’s numbers are the reverse of Aveva’s, and look more attractive. Its earnings growth prospects do look sluggish but the yield is glorious at a forecast 7.2%, covered 1.6 times. Closing stores is sad but makes sense amid falling high street footfall. It looks an interesting contrarian opportunity to me.

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harveyj has no position in any of the shares mentioned. 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.