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Your last chance to buy these 2 FTSE 250 growth heroes

Image: Berendsen. Fair use.

Everybody needs a few growth heroes in their investment portfolio to power things along. So how do the following two FTSE 250 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 insurance before. Its products combine risk management, financial indemnity and incident response services and investors will find plenty to admire in 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 the stock up 26% in the last six months alone, so I was expecting to see an aesthetically pleasing set of results when I clicked on May’s trading statement for the three months to 31 March. Imagine my surprise to discover that gross written premiums had fallen 2% to $573m, while premium rates for renewal business had dipped 1%. That’s 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. Beazley’s 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 core US market into Canada, with the recent acquisition of Creechurch Underwriters.

Despite recent stellar growth it trades at just 12.5 times earnings, which offers scope for a re-rating and makes now a surprisingly tempting time to buy. Today’s 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 that’s a beautiful thing.

Keep it clean

Investors in laundry services group Berendsen (LSE: BRSN) have cleaned up lately, with the share price leaping 25% 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.

The share price plummeted again in March after management warned that putting right ongoing 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 that Berendsen needs to invest in property, plant and equipment and is also facing increasing competition in the UK. The investment bank also warned that much of its equipment 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 France’s Elis Services, claiming the proposal significantly undervalues the company and the leveraged bid raised shareholder risk. It reckons its strategy can deliver value without a takeover, with the company forecasting adjusted 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 at 17.5 times earnings this is one to watch rather than rush out and buy.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended shares in Berendsen. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.