Today I am looking at four FTSE-listed plays set for explosive earnings growth.
British American Tobacco
Although declining consumer spending power and escalating attacks by regulators have damaged revenues at British American Tobacco (LSE: BATS) more recently, I am convinced that recovering economic conditions in traditional and developing regions alike should blast earnings skywards in the coming years. And the firm’s decision to bolster investment on key labels like Lucky Strike and Rothmans — volumes of these brands rose 5.7% in January-March, bucking the wider industry slowdown — should drive sales still higher.
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Against this backdrop the City expects British American Tobacco to bounce back from last year’s rare 4% earnings decline, and have slated a marginal rise for 2015 and a meatier 8% improvement in 2016. While it is true these figures create P/E ratios above the touchstone of 15 times that represents attractive value, at 17.3 times and 16.1 times correspondingly, I believe that the firm’s top-tier labels and increasing emerging market exposure merits this slightly-elevated premium.
Building materials play CRH (LSE: CRH) is a great way to cotton onto improving construction activity across the world, in my opinion. The business has long followed an acquisition-based approach to deliver long-term earnings growth, so news this week that cement mixers Holcim and Lafarge had formally agreed to sell assets to the FTSE firm for €6.5bn comes as a significant boost. All in all CRH has completed half a dozen deals so far this year in a bid to turbocharge growth.
As a consequence the number crunchers expect the materials supplier to punch a 45% bottom-line bounce in 2015, creating a P/E ratio of 22.5 times. But this elevated reading falls to just 17.1 times for 2016 amid forecasts for a further 32% earnings increase. And I expect a combination of improving market conditions and the prospect of further asset purchases to keep blasting profits higher in the coming years.
Like CRH, I reckon that surging output across the construction sector, combined with lively industrial activity, should boost demand for Ashtead’s (LSE: AHT) goods and services. The firm’s A-Plant and Sunbelt brands are helping to power sales higher — group revenues leapt by 25% in November-January, to $462.9m — while the wide application of its product range, from digging and heating through to pumping and lifting, gives it an exceptional footprint across the modern construction site.
Ashtead has long been a reliable deliverer of double-digit earnings growth, and the City does not expect this trend to cease any time soon. Indeed, a 32% rise for the year concluding April 2015 is anticipated to advance a further 26% in the current period and by a further 16% in 2017. Consequently an earnings multiple of 15.3 times for fiscal 2016 drops to just 13.2 times for the following year, while PEG readings of 0.6 and 0.8 for these years further illustrate Ashtead’s brilliant value — a number below 1 is widely considered too good to miss.
With housing demand continuing to outstrip the rate at which Britain can increase its housing stock, the earnings picture over at Barratt Developments (LSE: BDEV) appears as rosy as ever. Lenders continue to slash their mortgage rates week after week, while the fruits of an improving British economy on potential homebuyers’ wallets can only be a promising omen for homes demand looking ahead, too.
As a result the City expects Barratt Developments to clock up a hefty 41% earnings advance in the year concluding June 2015, and an extra 18% rise is chalked in for 2016. Not only do these numbers generate brilliant P/E readings of 13.6 times for this year and 11.5 times for the following 12 months, but PEG numbers of 0.3 and 0.6 for these years underline the housebuilder’s excellent value relative to its growth potential.