Two small-cap growth stocks that could make you brilliantly rich

Bilaal Mohamed uncovers two AIM-listed minnows with huge growth potantial.

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UK office services provider Restore (LSE: RST) this morning announced its interim results for 2017 revealing good operational and financial progress during the first half of the year. There was strong organic growth right across the group, with its shredding business performing better than expected following last year’s acquisition of PHS Data Solutions, which has now been successfully integrated.

Strong growth

The AIM-listed group continued its strong growth in turnover with revenues 57% higher than the previous year at £86.9m and adjusted pre-tax profits up 59% to £15.3m, compared to £9.6m for the same period a year earlier. However, much of the strength of these figures was due the impact of the acquisition of PHS Data Solutions in August 2016. Nevertheless, organic growth across the business was 7% over the period. The positive results sent the shares 4% higher by mid-afternoon.

Restore provides document management and relocation services to offices and workplaces in both the public and private sectors. The Document Management division comprises document storage (both physical and cloud storage), shredding, and scanning businesses, while the Relocation division is dominated by Harrow Green, the UK market leader in office relocation. Both divisions share a very similar customer base.

Further acquisitions

Restore’s strategy is to grow both organically and through further acquisitions, and has so far acquired seven small businesses since the start of 2017. The group has now acquired more than 30 companies of all sizes since 2010, taking it from a market capitalisation of just £8m to £597m.

The business’s success doesn’t come cheap, however. After a near-50% share price gain over the past 12 months Restore is now trading on a P/E rating of 24. However, this drops to 21 next year, and in my view still offers good value given the attractive growth prospects.

Build-to-rent

Meanwhile, another AIM-listed business that I believe has exciting growth prospects is Telford Homes (LSE: TEF). The London-focused residential property developer announced record full-year revenues earlier this year thanks to robust demand, with pre-tax profits of £34.1m exceeding market expectations.

Since then the Hertfordshire-based group has achieved further momentum in the build-to-rent sector and is assessing a number of new development opportunities to add to its £1.5bn development pipeline. According to management, the business also remains on track to exceed £40m in pre-tax profits for the current year to March 2018, and £50m the following year, having already secured over 80% of the anticipated gross profit for 2018 and over 60% for 2019.

Telford’s shares have performed well of late, rising in value by more than a quarter over the past year, but are still trading far too cheaply at just eight times forward earnings. Dividend payouts have also been rising rapidly in recent years, with a prospective yield of 4.3% enough to attract the attention of income investors as well as those looking for capital growth.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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