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Should You Buy DS Smith plc, Photo-Me International plc, Cohort plc, Babcock International Group plc & ARM Holdings plc On Earnings Momentum?

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DS Smith

Today, DS Smith (LSE: SMDS) reported adjusted EPS for the full-year rose 14% to 24.5 pence, exceeding analysts’ expectations of 23.7 pence. Revenues did fall by 5%, though, owing to adverse currency translation.

DS Smith also announced today that it wants to buy Grupo Lantero’s corrugated business for €190 million, to expand its market position in Spain. The packaging market is highly fragmented in Europe, and further consolidation is likely.

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The corrugated box manufacturer, which earns most of its revenues in Euros, managed to continue with its earnings momentum by organically capturing market share from its competitors and expanding its margins. Corrugated box volumes have increased by 3.1 per cent year-on-year, despite sluggish economic growth in the Eurozone, as the changing retail landscape increases demand for packaging.

With demand for packaging likely to continue to exceed GDP growth, DS Smith should continue to deliver steady earnings growth.


Photo-Me International (LSE: PHTM) today reported an 18% increase in full-year adjusted EPS, to 6.7 pence. Although revenue fell 5% on stronger sterling, EBITDA margins widened 4.4 percentage points to 29.2%.

Looking forward, the growth prospects of the company are attractive. Photo-Me is accelerating the roll-out of its “Revolution” laundry product, which is an outdoor self-service automated laundrette. It deployed its 1,000th unit during March 2015, and expects to have 2,000 units in operation by the end of this year. By 2020, it plans to have 6,000 units in operation across Europe.

The company is continuing with the expansion of its photobooth estate, with plans to deploy an additional 1,000 booths in Japan to coincide with the launch of the new ID card in 2016.

Photo-Me trades at a forward P/E of 18.0. Although this may not seem cheap, the business is highly cash generative and is in a net cash position of £61 million. This allows it to pay a dividend yielding 3.5%; and on strong growth, analysts expect this will rise to 4.5% by 2016.


Defence and electronics contractor Cohort  (LSE: CHRT) saw its adjusted EPS rise 7% to 20.45 pence. Despite defence spending cuts, demand for electronic warfare, cyber security, communications and surveillance technology helped to lift revenues 40% higher for the year.

Its order book, which grew to £134 million, from £81.7 million in 2014, reflects Cohort’s focus on niche growth areas of defence spending. It would also help to underpin continued earnings growth in the medium term.

Shares in Cohort rose 5.7% to 279.5 pence during morning trading.


Babcock International Group (LSE: BAB) has a strong track record of delivering earnings growth. Over the past five years, adjusted EPS has grown by a compound average growth rate of 8.6%.

Babcock is benefiting from the increasing use of outsourcing to private companies for the delivery of public services. In addition to a series of bolt-on acquisitions, the company has secured a series of major contracts over the past two years, which should see Babcock deliver earnings growth in the double digits over the next few years.

With a forward P/E of 14.4, its shares seem cheap on strong earnings momentum.


Microchip designer ARM Holdings (LSE: ARM) has delivered a compound average growth rate for adjusted EPS of 27.3% over the past five years. Although ARM trades at a forward P/E of 35.3, the number of applications for its microchips are expanding quickly and the company has delivered consistently strong revenue growth.

However, slowing smartphone sales are a cause for concern in the medium term. To offset this, ARM will need to make similar strides into markets beyond mobile, such as PCs and servers, wearable technology, networking equipment and automotive infotainment. But, the company faces intensifying competition from Intel.

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

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