It’s not every day we find firms with quality businesses, decent growth prospects and momentum in operations and the share price. So I’m digging a bit deeper now that I’ve stumbled across two of them.
Attractive operations
iEnergizer (LSE: IBPO) describes itself as a global provider of Business Process Outsourcing (BPO) solutions and helps other firms increase their operating efficiency by dealing with their customer communications and by providing back-office functions. The firm claims to serve leading banking, healthcare, publishing, legal, financial services, gaming and utility companies through 11 delivery centres globally.
For many firms, large and small, outsourcing makes a lot of financial sense, so I’m not surprised to see iEnergizer’s business prospering. The quality of trade shows up in the numbers with return on capital running just over 18% and net cash from operations lending consistent robust support to profits.
One of the attractions of this type of operation is that much revenue is recurring. iEnergizer embeds itself into its customer operations and it then becomes difficult and expensive for these customer firms to switch to another provider.
Growth and value
City analysts watching the company expect earnings to lift around 5% for the year to March 2018 and the directors are optimistic about the firm’s long-term growth prospects. The shares are up almost 600% since last spring, demonstrating strong momentum, but the value on offer remains compelling.
At today’s share price around 82p, iEnergizer trades on a forward price-to-earnings (P/E) ratio of just under seven for the year to March 2018. There’s no dividend, but that’s not for the want of cash. Borrowings seem under control, running around twice the level of annual operating profit, and there’s a handy pile of cash sitting on the balance sheet.
My second quality, growth and momentum gem is Headlam Group (LSE: HEAD), which describes itself as Europe’s leading floor-covering distributor. The firm markets, supplies and distributes floor covering products in the UK, France, Switzerland and the Netherlands. Headlam buys from floor covering manufacturers and sells to independent floor covering retailers and contractors.
Trading well
Business has been good. The compound annual growth rate of earnings per share is running at around 9% for the last few years and the dividend growth rate at about 11%. The shares have responded well, up around 135% since autumn 2011 and continuing to show good momentum. A strong record of cash generation adds to the case for quality, as does a return-on-capital figure running around 19%.
At today’s 588p share price, you can pick up shares in the firm for a forward P/E rating just under 15 for 2017 and the forward dividend yield is around 4.7%. City analysts following Headlam expect earnings to cover the payout almost 1.5 times. Overall, this doesn’t strike me as an excessive valuation.
Both these firms seem to be trading in a sweet spot demonstrating quality, growth and momentum in their operations and on the share price chart. I think there could be more to come on total returns for investors in each case.
