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AIM-listed Stadium Group (LSE: SDM.L - news) (LSE: SDM) seems to offer a nice combination of value and growth at a reasonable price.

The Hartlepool-based company has been around since 1911, floating in 1996. Today, it is a specialist provider of integrated electronic manufacturing services to original equipment manufacturers in many different markets. In 2000, Stadium moved most of its electronics manufacturing to China.

Tough times

As you might imagine it's not been the easiest of markets of late. The final results for 2008, though remarkably resilient given the overall market, knocked the price heavily after the boss spoke of a "significant weakening of customer demand" since the turn of the year. Pre-tax profit was £2.78m versus £2.76m for 2007.

Then a trading statement in April, like those of so many other companies, spoke of challenging trading conditions. Again, it wasn't as bad as investors may have feared given the economic conditions. And Stadium has been doing the unfortunate necessaries; cutting salaries and other operating costs, keeping a close eye on working capital requirements, and reducing staff numbers to reflect the lower level of sales.

Steady growth

Taking a longer view, the company has been growing steadily in recent years -- though it has been acquiring businesses to achieve that growth. This is a bit of a red flag to many investors; growing by acquisition is so often the enemy of true value. 

Unsustainable growth and unrealistic forward earnings often come crashing down to earth with a bang as companies hell-bent on getting bigger quickly overextend themselves. Stadium bought a specialist distributor of power supplies in 2006, a power supplies company in 2007, and an EMC (NYSE: EMC - news) filters maker and an electronics manufacturer last year.

But the group's balance sheet still looked remarkably robust at the last count at the end of June, showing a net asset value of £10.6m, and net tangible assets of £7.8m. At the current mid price of 41.5p, the company is valued a shade short of £12m. There was also strong operating cash flow of £1.5m for the half year, and net bank borrowings were reduced to £0.7m; these figures don't suggest unwise or overly expensive acquisitions.

Turning things round

Half-year revenues were 3% lower at £22.3m and profits down 37% to £0.9m before tax -- though perhaps more significantly, there was talk of significant new business wins for which production began in the second half and which will peak next year.

The brokers have consensus earnings per share of 7.4p pencilled in for next year, placing the shares on a very temptingly low price-to-earnings ratio of 5.6. Of course, things change and forecasts are usually a little too optimistic. But anything like these potential earnings would make Stadium look startlingly good value given the strength of its balance sheet and historic performance of steadily improving profits year on year.

Value, income and growth

The dividend was cut at the half year to 0.8p. The broker anticipates a total return of 2p this year, rising to 2.5p next. Either way, the return should be a respectable 5% or so.

Stadium offers a blend of value and growth. It comes across as a sensibly run company and is one in which the directors have shown a fair degree of confidence buying shares in reasonable quantities around the current price last December. They must have thought they were bagging a bargain, but the prevailing market gloom took the shares to 30p at the point of maximum pessimism in late March. 

The shares have rallied, but nowhere near as much as most small caps. This seems unjustified given the company's previous performance. When you factor in new business wins, the potential for more of the same, the lowered cost base and debt levels, earnings should be looking a lot healthier a year or two from now.