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When talking about top-performing UK shares, Rolls-Royce tends to grab all the attention. But while it’s been a darling of the FTSE 100, a smaller player called Yu Group has quietly delivered jaw-dropping results.
Up a staggering 1,682% over the past five years, this small energy supplier has turned plenty of heads. The big question now is whether the rally still has legs — or if investors have already missed the boat.
Digging deeper
Yu Group (LSE: YU.) isn’t a household name, but it’s carved out a profitable niche by supplying gas and electricity to small- and medium-sized businesses across the UK. It’s not a giant by any means — with a market-cap of only £275.4m — but its latest financial results tell quite the success story.
The company booked £673m in revenue and £35.3m in net income last year, reflecting strong operational execution. Its return on equity (ROE) sits at an eye-popping 53%, a figure its rivals probably envy.
Margins remain fairly slim, as is typical in the energy supply business, yet profitability has held up impressively well. Debt coverage is solid, and cash flow appears healthy.
By staying agile and focusing on independent business clients, it seems Yu Group has managed to thrive in a space typically dominated by utility heavyweights.
Dividends and valuation
What really surprises me is the share’s valuation. After such explosive growth, investors might be expecting it to be trading at nosebleed levels. Instead, its forward price-to-earnings (P/E) ratio sits at 8.9 — practically a bargain compared to Rolls-Royce’s bloated 39.5 multiple.
I’m sure that’s an attractive figure to even the most cautious of value-focused investors.
Better yet, Yu Group recently started rewarding shareholders with dividends. Its current yield stands at 3.66%, which is nothing to sneeze at, and the payout ratio’s a modest 29.9%. What’s particularly impressive is the trajectory: dividends have surged from just 3p per share to 22p in three years.
It’s not often a small-cap business shows this kind of consistency. If that growth continues, it could quickly become a name long-term income investors seriously consider.
So what’s the catch?
Of course, it’s not all plain sailing. The firm faces fierce competition from the likes of National Grid and SSE — industry titans with deeper pockets and bigger balance sheets. Any unexpected regulatory changes or sharp energy price spikes could put a dent in profits.
And with a relatively small market-cap, liquidity risks shouldn’t be ignored. A single bad earnings update or shift in sentiment could easily send the share price tumbling.
My verdict
On balance, Yu Group looks exceptionally well-run and attractively valued after its recent results. The dividend’s growing fast, the balance sheet’s rock-solid, and management seems focused on sustainable expansion rather than reckless growth.
For investors who like to spot potential among smaller UK shares, this is one to keep an eye on. It’s not without risk — small-caps rarely are — but the company’s track record suggests real staying power.
In a market still hunting for value, I think it’s the kind of stock worth considering when looking for future growth stories.
