The FTSE 100 has risen by 5% since the start of the year. Given the uncertainty the index has faced, that seems to be a relatively positive result. Looking ahead, more growth could lie ahead for the index – especially if the pound weakens yet further. However, beating the index is still possible due to the relatively large number of stocks which offer above-average growth prospects. Here are two prime examples which also seem to offer enticing valuations.
Strategy improvements
Reporting on Wednesday was real estate investment trust (REIT) Workspace (LSE: WKP). The company announced positive results for the full year, with net rental income rising by 6.9%. This helped to push adjusted trading profit 15.5% higher, with the company’s strategy being a key reason for its improving financial performance.
Demand across a wide range of industries in London is gradually moving towards the type of personalised and flexible terms which Workspace offers. More businesses are prioritising connectivity and highly designed space, which has been the direction in which Workspace has sought to move in recent years. The business has a pipeline of refurbishments and redevelopments which are expected to deliver over 1m sq. ft. of new and upgraded space over the next three years. This could act as a catalyst on the company’s profitability over the medium term.
In terms of the company’s profit outlook, Workspace is forecast to record a rise in its bottom line of 21% in the current financial year, followed by further growth of 9% next year. With a price-to-earnings growth (PEG) ratio of just 1.2, it seems to offer a strong investment case for the long term.
Growth potential
Also offering upbeat growth forecasts is fellow REIT Derwent London (LSE: DLN). It is expected to report a rise in its bottom line of 16% in the current year, followed by growth of 12% next year. This follows a four-year period of growth which saw its earnings rise at an annualised rate of 11.5%. Therefore, it appears as though the company has a resilient business model which could perform well in what remains an uncertain environment for UK property.
As well as strong growth credentials, Derwent London also offers a wide margin of safety. It has a PEG ratio of only 1.9 which, given its track record of growth, seems to be a fair price to pay.
Additionally, its dividend growth potential remains high. It is due to raise dividends per share by 21% over the next two years, which is expected to put its shares on a forward dividend yield of 2.4%. Since dividends are still expected to be covered 1.6 times by profit in 2018, more above-inflation growth could be on the cards. This mix of high growth, fair value and improving income potential could help Derwent London to beat the FTSE 100 over the medium term.
