Today I’m looking at two interesting growth stocks at the smaller end of the market. Both have appealing long-term prospects in my view.
TT Electronics
£350m market cap TT Electronics (LSE: TTG) is a global provider of engineered-electronics for applications in the industrial, transportation, defence, aerospace and medical industries. The company develops products such as semiconductors, sensors and magnetics that can withstand harsh environments.
After a tough few years, today’s half-year results suggest TT is heading in the right direction. The company recorded revenue of £180m, growth of 13% on last year, while operating profit rose a significant 31% to £10.9m. Impressively, earnings per share doubled to 4.6p. Chief Executive Richard Tyson sounded particularly upbeat about the results, stating “we have been delighted with the performance of the business in the first half. We have reported strong organic revenue growth, an improved operating margin with excellent profit growth and cash conversion. Our first half performance and order momentum reinforce our confidence of making further progress in 2017.”
After trending sideways for the best part of two years, TT Electronics’ share price has roared back into life since November, surging over 50%. Is there more to come?
The company recently disposed of its transportation (TS&C) division, and this should place the company in a much stronger position to focus on its strategy of investing in structural growth markets. Indeed, management stated today that the disposal will make TT “a higher-margin, higher-quality business, with significantly improved financial capacity.”
City analysts currently forecast it to generate FY2017 earnings of 13.6p per share, a 13% increase on last year. At the current share price, that places the stock on a forward P/E ratio of 15.9. A dividend yield of 2.6% is also on offer. With demand for connected devices, more data and improved precision in the industries that TT services likely to remain robust, these metrics look attractive in my view.
Keller Group
Another company that looks to have considerable long-term potential is £600m market cap Keller Group (LSE: KLR). It is the world’s largest independent ground engineering company, specialising in providing advanced foundation solutions for complex projects. While over half of its revenues are generated in the US, the company has operations in over 40 countries across five continents, employing over 10,000 people.
Half-year results, released in late July, saw revenue increase 17% to a record £991m, and underlying earnings per share surge 28% to 35p. The group had a year-end order book of £1.1bn, an all-time high, 20% above last year on a constant currency basis. The performance in the US was a little lacklustre, but with US President Donald Trump planning to spend significantly on infrastructure in coming years, Keller could benefit.
The company has appealing dividend growth prospects, having increased its dividend payout from 22.8p to 28.5p per share over the last five years. Analysts expect dividend growth of 5.2% this year, taking the payout to 30p, a yield of a healthy 3.6%. Dividend coverage is forecast to be almost three times.
Revenue growth of 13% is anticipated this year, and consensus earnings estimates place the stock on a forward looking P/E ratio of just 9.4. After a 13% pullback in the share price since mid May, I believe value is on offer for long-term investors.
