2 forgotten stocks with serious growth potential
Dairy Crest Group (LSE: DCG) has struggled lately, its share price standing at roughly the same level as two years ago. Many investors may have overlooked it as a result, but this 787m business still has plenty to offer investors.
Country living
Dairy Crest ownssome of the best known brands in the UK dairy sector, notably Country Life and Clover, and Britains favourite cheese, the now ubiquitous Cathedral City. What it doesnt actually sell is milk, havingcompleted the sale of its dairies operations to Germanys Muller for 80m in 2015.
Chief executive Mark Allen is keen to push into the lucrative global baby milk formula market instead, using added value dairy ingredients such as whey butter, a by-product of its spreads and cheese operations. The company hopes to make progress in China, where local product contamination scandals and the easing of the one-child rule should boost the infant formula market. Offloading milkmade sense, with the company losing143m over four years, primarily due toplunging prices.
Crest of a wave
Dairy Crestsfirst 12 months without dairies showed 5% growth in adjusted profit before tax to 60.6m in the year to 31 March. Revenue fell 1% to 416.6m, while profit before tax tumbled11% to 40.3m. Allen called it a robust performance in a tough marketwith key brands performing well as helooks to build a simple, lean and responsive businessof around 1,200 employees.
Growth prospects look solid andsteady, with earnings per share (EPS) growth expected toremain at 3% in 2017, then climb to5% in 2018, justifying its forecast valuation of 16.7 times earnings. The anticipatedyield of 4.2% adds income to the growth story. It is covered 1.6 times and nicely supported by the strong levels of cash generated from operations, which totalled 32.8m in 2017. Dairy Crest isnt the most exciting stock on the FTSE 250 but remains a good bread and butter portfolio holding.
Digital growth story
IT infrastructure services specialistComputacenter(LSE: CCC)is a very different beast. For a start, it has delivered far more exciting share price growth, rising 187% over the past five years. It continues to perform strongly with first-quarter group revenue up16%, or 9% on a constant currency basis. UK revenues did fall 1%, handily offset by an increase of 6% in French revenues, and 23% in Germany.
Itis benefitting from the trend to digitalise workplace operations, which has boosted its professional services and supply chain businesses in particular. Thishas helped offset the squeeze as customers battleto reduce their long-term support costs. However, this 1bn FTSE 250 company has the strength to turn this to its advantage, and even use it as an opportunity to take market share from rivals who cannot compete so well on costs.
Germany calling
Analysts foreseea slowdown in EPS growth, down from15% in 2016 to a forecast 4% in 2017, and 1% in 2018. A forecast valuation of 14.4 times earnings reflects this moderation. The forecast yield of 2.6% disappoints in these circumstances, even if it is nicely covered 2.6 times.
Barclays recently hiked its profit forecast for Computacenter by 5%-6%, largely based on increased expectations of German demand, and suggested that investors could even benefit from a possible cash return. Certainly the company could improve on last years 2% dividend hike to 16.3p.
Bothcompanies are worthfurther investigationbut I reckon we have an even more exciting growth prospect for you right here.
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