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SPO vs SPI: which cracking growth prospect should you buy?

License: CC0 Public Domain.

Two stocks with tasty growth prospects, Sportech (LSE: SPO) and Spire Healthcare (LSE: SPI), both reported today, but which one should you go for? Let’s take a look at them.

Sporting boost

Sportech shares are up 6% as I write, as the markets are ingesting a whole load of news from the sports betting operator and technology supplier. Headlines from 2016 full-year results include an adjusted pre-tax profit rise of 17% to £13.8m, with adjusted earnings per share up 18% to 5.2p.

But the big item is the change in the company’s cash position. Despite a non-cash impairment of £63.7m due to a review of assets, the overall balance sheet strengthened by £22.6m — and Sportech turned a £57.7m adjusted net debt at the end of 2015 into adjusted net cash of £36.5m.

Some of that cash is set to find its way back to shareholders in the form of a tender offer through which the company will invest approximately £20m in buying back around 10% of its ordinary shares.

Sportech also said its eight-year £97m VAT refund appeal has been successful, and tells us it it has agreed to sell its Football Pools subsidiary for £83m.

With the shares having almost doubled to 103p over the past 12 months, is it still time to buy?

With chief executive Ian Penrose calling it a transformational year and saying the firm is “in a strong position and more focused to take advantage of the strategic positioning of its predominantly US based businesses“, I think we could be in for good times. And analysts agree, suggesting EPS growth by 2018 that would put the shares on a lowly PEG of 0.4.

Hospital expansion

Full-year results gave shares in Spire Healthcare a 5% boost in early trading, but they’ve dropped back to 333p as I write, just 1% ahead. The price has been erratic with no overall change for around two years, so where are the growth prospects?

With 2016 revenue up 5.4% to £926.4m, adjusted profit after tax grew by 4.9% to £76.6m and adjusted EPS picked up the same percentage to 19.2p. The dividend was lifted by 2.7% to 3.8p, modestly beating inflation. The only minor downside is a 3.1% rise in net debt to £432.3m.

Cash flow conversion was strong, and the firm is expanding its operations, literally — five new operating theatres were opened in the year. A number of the firm’s hospitals saw new developments too.

Executive chairman Garry Watts said that “integration issues” at Spire St Anthony’s Hospital had impacted performance and that “the first half of 2017 will still be a period of recovery at St Anthony’s“. And with further start-up costs still to be faced at the company’s newest two hospitals, EBITDA for 2017 should be pretty much flat.

But Mr Watts reckons EPS growth will return in 2018, with demographics and pressure on the NHS helping boost Spire’s long-term prospects.

Analysts appear to think so too, and have pencilled-in a 14% rise in EPS for 2018, with the forecast dividend rising to yield 1.2%. That dividend is low, but it’s well covered, and I can see a greater proportion of Spire’s earnings being paid out in future years as the company matures further into a growing market.

The forecast suggests a P/E of around 16.5 for 2018, and I think that’s a good price — for a long-term growth prospect rather than a get-rich-quick punt.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.