The following two FTSE 250 growth stocks may look cheap, but both offer potentially cheerful prospects.
Laing time man
John Laing Group (LSE: JLG) is one of the cheapest companies on the FTSE 250, trading at just 5.5 times earnings. I checked its performance charts expecting to see a car crash, but in fact the share price has been rolling along quite nicely, accelerating from 213p to 289p over the last 12 months, a rise of 36%.
The £1.06bn business, launched by James Laing back in 1848, offloaded its building, construction and property businesses 15 years ago to focus on renewable energy and public sector infrastructure projects across the UK, Europe, Asia Pacific and North America. It has performed strongly since relisting on the London Stock Exchange in February 2015. So why that shabby valuation?
It is nothing new. Last August it traded at just 6.7 times earnings, blamed on post-Brexit property and infrastructure uncertainty. Yet Brexit hasn’t been all bad news, driving up the value of the company’s overseas earnings, and boosting the value of its overseas investment portfolio. Management is anticipating a governmental shift from austerity to fiscal stimulus, a process already under way in Australia and Canada, with the UK and US potentially following suit.
Net asset value grew by 14.3% to £1bn last year, up from £889.6bn and the dividend is progressive, rising 7% to a total of 8.15p a share. Yet this year could prove sticky, with last year’s 88% surge in earnings per share (EPS) forecast to reverse with a 20% drop. In 2018, EPS should recover 8%. Its valuation is expected to stay low, with a forecast 6.4 times earnings by the end of 2018, so do not expect a sudden re-basing. By then the yield should have risen from 1.9% to 3.4%, so there are income consolations. Despite its challenges, John Laing looks a promising long-term buy to me.
Irish incorporated mining company Kenmare Resources (LSE: KMR) has had a stirring year, rising 61% over the past 12 months. This FTSE 250 listed company has a market cap of £306m and its principal activity is the Moma Titanium Minerals Mine in Mozambique. A globally diversified mining giant it is not.
The last year has been an exciting ride as it cashed in on the commodity boom, but this followed years of misery. In the pre-financial crisis summer of 2007 its share price flew to 13,400p. Today it trades at 290p. Its price-to-earnings ratio is a dismal -12.7 and it isn’t hard to see why. However, there is light at the end of the tunnel.
Beyond our Ken
After four straight years of losses, Kenmare is forecast to make a profit of £22.68m in 2017, which could more than double to £48.29m next year. Heavy mineral ilmonite, Zircon and excavated ore production rose sharply in the first quarter, while total shipments of finished products leapt 93% to 256,100 tonnes. EPS are expected to rise a stunning 120% in 2018, lifting its valuation to 8.5 times earnings.
Zircon has seen improvement in conditions, industry inventories are reducing and prices have increased modestly, my only concern is that China is slowing as stimulus wears off. Kenmare is clearly a risky play, but with plenty of potential upside.