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2 growth stars to perk up your portfolio

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Growth comes in many forms, and here I’m looking at two very different companies showing growth prospects.

Electronics recovery

Shares in TT Electronics (LSE: TTG) haven’t really gone anywhere over the past couple of years, but they picked up 3.5% on the day that 2016 results were announced, to reach 169p.

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The manufacturer of electronics components reported a 40% rise in underlying pre-tax profit to £26.9m (up 20% at constant exchange rates), with underlying earnings per share up 36% and the dividend lifted modestly from 5.5p to 5.6p.

That beat expectations, with chief executive Richard Tyson speaking of “excellent” free cash flow. He added that “We have a clear and realistic strategy for TT to focus on structural growth markets where there is increasing electronic content“, and an ever-industrializing world can only help in that quest.

One thing that does concern me a little is net debt standing at £55.4m. While that’s probably not a big problem, for a company with a market cap of approximately £250m and in a low-margin business, I’d like to see it coming down.

Still, the results confirm that the expected reversal in TT’s fortunes is under way, and that the earnings falls that have blighted the previous two years are well into reversal. Analysts have a modest further EPS gain of 5% penciled in for 2017, though with 2016 results better than I expected I wouldn’t be surprised to see that rerated upwards now.

Forecasts suggest a P/E of 12 by 2018, and with the dividend yield approaching a very respectable 4% yield, I see TT as a decent growth opportunity.

Pottery success

Portmeirion Group (LSE: PMP) is a very different company, making a range of tableware products — as well as the Portmeirion brand itself, the group owns Spode and Royal Worcester.  It also owns Wax Lyrical, which produces candles, reed diffusers, scent oils and sprays.

The shares had a dreadful 2016, losing 40% of their value between a peak in May that year and a low point in October.

And 2016 results confirmed the expected falls, with pre-tax profit down 9.7% to £7.8m and earnings per share down a similar proportion to 59.6p. But it’s looking like a one-off, with the company putting its profit fall down to “increased amortisation and depreciation as a consequence of the Wax Lyrical acquisition and a full year’s depreciation of our new kiln“.

And with chairman Dick Steele telling us it was the firm’s “eighth consecutive year of record revenue“, and the dividend actually lifted by 7.5% to 32.25p per share, were the shares oversold in 2016?

Yes, I think they were, and at 960p today the price has already recovered 28% since their low last year. Looking forward to forecasts for this year and next, we see an expected resumption of EPS growth adding 13% to the bottom line this year and another 11% next.

The company’s very well covered dividend looks set to keep rising too, and should provide yields of around 3.5%. Year-end net debt at £2.3m is nothing to worry about, and it doesn’t damage the attractiveness of forward P/E multiples for this year and next of 14.3 and 12.9 for me.

While the screaming bargain days of late 2016 are over, I still think we see a lower-than-average valuation for a better-than-average company. And while PEG ratios of a little over one might not set the rapid-growth bells ringing, I think we’re in for slow and steady growth coupled with reliable and rising dividends. Can’t be bad.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Portmeirion Group. 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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