Everybody needs a few growth heroes in their investment portfolio to power things along. So how do the following two FTSE250 dynamos stack up?
Beauty is in the eye
Beazley (LSE: BEZ) sells beautifully designed insurance, its website tells us and I am duly impressed, because I have never heard that word applied to insurancebefore. Its products combine risk management, financial indemnity and incident response services and investors will find plenty to admirein its recent share price growth, with the stock up 250% in the past five years. Now that really is beautiful.
The growth story continues, with thestock up26% in the last sixmonths alone, so I was expecting to see an aesthetically pleasing set of results when I clicked on Mays trading statement for the three months to 31 March. Imagine my surprise to discover that gross written premiums had fallen 2% to $573m, while premiumrates for renewal business had dipped 1%. Thats somewhat ugly.
Birds and Beazley
There was better news further in the statement, with investment and cash rising from $4.3bn to$4.6bn and a year-to-date investment return of 0.9% versus 0.7% in 2016.Specialty lines, its largest division, achieved premium growth of 6% year-on-year. Beazleys last few sets of results have shown steady, reliable growth and investors are clearly buying into that, as well as its strategy of diversifying beyond its coreUS market into Canada, with the recent acquisition of Creechurch Underwriters.
Despite recent stellar growth it tradesat just 12.5 times earnings, which offersscope for a re-rating and makes now a surprisingly tempting time to buy. Todays yield of 2.8% is covered 3.7 times and that suggests there is plenty of scope for progression. This high flyer could continue to fly, and thats a beautiful thing.
Keep it clean
Investors in laundry services group Berendsen (LSE: BRSN)have cleaned up lately, with the share price leaping25% in the last six months, and 115% over five years. However, these figures mask a 17% drop in the share price last October after it issued a full-year profit warning following operational instability in its UK Flat Linen business, which serves the hotel and healthcare industries.
Theshare priceplummeted again in Marchafter managementwarned that putting rightongoing problems with plant and machinery would continue to weigh on earnings. Investors have recovered their poise, even shrugging off a Morgan Stanley downgrade in April, after it warned thatBerendsen needs to invest in property, plant and equipment andis also facing increasing competition in the UK. The investment bankalso warned that much of itsequipment dates from the 1970s and is often obsolete and not well maintained, which if true is a bit pathetic.
Lost in France
Management is fresh from fighting off an unwanted takeover offer from Frances Elis Services, claimingthe proposal significantly undervalues the company and the leveraged bid raised shareholder risk. Itreckons its strategy can deliver value without a takeover, with the company forecastingadjusted operating profit forecast of 170m in 2018, from a predicted 150m this year.
A forecast 8% drop in earnings per share this year adds to my concerns although they should recover from 2% in 2018. This looks like a turnaround opportunity but at17.5 times earnings this is one to watch rather than rush out and buy.
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