Everybody loves a multi-bagger. Here are two FTSE 250 stocks that have turned on the charm in recent years, but whose unglamorous nature makes them all too easy to overlook.
Animal spirits
FTSE 250 meat supplier Cranswick (LSE: CWK) has shown plenty of beef lately, its share price rising a meaty 245% over the past five years. It is up another 16% in the last six months, suggesting the growth story has yet to run its course. The company continues to report strong financial and strategic progress, with full-year revenues up 22.5% to £1.25bn, or 12.7% on a like-for-like basis, and adjusted profit before tax up 17.2% to £75.5m.
Management increase the recommended final dividend by 19.7% to 31p, with overall performance turbo-charged by further strong progress in key export markets, notably Asia, where revenues leapt 49%. Although net debt did increase last year, by £28.8m to £11m, this was cash wisely spent on corporate transactions and investment in its asset base, exactly what you want expect an expanding company to do.
Plenty of juice
Despite record capital expenditure of £47m to support its strong growth pipeline, Cranswick’s net debt totals just 2.6% of shareholders’ funds. Nothing to worry about here. It may describe itself as a conservatively managed company but there is nothing conservative about the rate of its share price growth. Three years of double-digit earnings per share (EPS) growth looks set to continue in 2018 with 12% pencilled-in, although dipping to 5% in 2019. Revenues and pre-tax profits are expected to continue rising, albeit at a slightly slower pace.
Cranswick now trades at a forecast 20.9 times earnings, so there is a price to pay for its growth prospects. Its price-to-earnings growth (PEG) ratio is 1.3, again, suggesting this stock is trading at a premium. The forecast yield of 1.8% is relatively low but covered 2.8 times so there is plenty of scope for further progression, and management certainly hasn’t disappointed on that front lately. There is still plenty for investors to sink their teeth into, although the share price may struggle to match recent stellar growth.
Strong growth
Funeral specialist Dignity (LSE: DTY) has also enjoyed a successful five years, its share price up 210% in that time, even if the last couple of years have been disappointingly flat. That is despite management recently reporting a 15% jump in Q1 revenues to £93.3m and restating that the company is set to meet its full-year expectations, as the number of deaths rose from 156,000 to 167,000.
Dying is a growing business, I guess, although you have to balance rapid increases in the UK population against increases in longevity. The group said it continues to assume that the number of deaths this year will be lower than in 2016, which may partly account for lower investor expectations.
Dignity has a successful pre-arranged funeral plan business, with sales rising significantly, and is steadily acquiring more funeral locations. Like Cranswick, share price success has led to a pricey valuation, currently 20 times earnings, although this is in line with recent years. Double-digit EPS growth, which hit a whopping 34% in 2015, looks set to slow to single-digits. The growth story should continue, but again, probably at a slightly slower pace.
