2 stunning growth stocks to watch in 2018

Royston Wild looks at two shares with hot earnings prospects.

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Landscaping products specialist Marshalls (LSE: MSLH) was recently dealing 3% higher on Wednesday after the release of robust full-year trading details.

It advised that group revenues jumped 8% during the 12 months to December, to £430m, and like-for-like sales (excluding recently-acquired drainage expert CPM Group) marched 6% higher in the period.

Sales in the Domestic end market chugged 12% higher in the period and sales in the Public Sector and Commercial end market (again, excluding CPM), which comprises 61% of group sales, rose by 2% in the period.

Reflecting current market turbulence, the FTSE 250 business alluded to the Construction Products Association’s (CPA) autumn update in which it downgraded its 2018 forecast.

Despite these troubles Marshalls still adopted a flowery tone, commenting: “To date the Group continues to outperform the CPA growth figures.” And it added: “The Board confirms it is confident of meeting its 2017 expectations… Marshalls’ innovative product range and strong market positions will continue to support our growth objectives and operational profit improvements through the delivery of its 2020 Strategy.”

A great all-rounder

Marshalls has a long track record of generating double-digit earnings growth and I am confident, like the City, that it has what it takes to keep the bottom line swelling at a rapid rate (the business is expected to defy current market turbulence and follow a predicted 12% earnings rise in 2017 with an 18% rise in the current period).

An added bonus is that the West Yorkshire business is in great shape to keep dividends sprinting northwards. For last year, a 12p per share total reward is forecast, which would represent a huge upgrade from the 11.7p paid in 2016. And this is expected to rise again to 12.3p in the current period.

Consequently Marshalls carries a 2.7% yield and, with its 2020 Strategy on track to keep driving growth through product development, extra M&A action and waves of cost-cutting, I expect dividends to keep tearing higher.

In my opinion the construction play is a terrific growth and income selection worthy of its slightly-toppy forward P/E ratio of 19 times.

About to impress

Morgan Sindall Group (LSE: MGNS) is, like Marshalls, also tipped by the Square Mile to remain a solid earnings generator in the years ahead.

City analysts are expecting growth to cool a little in the near-term — a 7% rise is forecast for 2018. By comparison, profits are expected to have jumped 36% last year, broadly matching the advances of recent years.

But latest trading details from the firm suggest that brokers could be upscaling their expectations very soon. In November the small-cap said that full-year expectations for 2017 should surpass previous expectations thanks to further margin progression over at its Construction & Infrastructure and Fit Out divisions. Accelerating progress here bodes extremely well for the current year and beyond.

In other news, Morgan Sindall marked up its cash expectations for the full year (it expects average daily net cash of £100m+ versus prior expectations around £75m), providing the firm’s dividend picture with extra rocket fuel. At the moment, a 44.1p per share dividend for 2017 is expected to move to 47.6p this year, resulting in a chunky 3.4% yield.

At the moment Morgan Sindall can be picked up on a forward P/E multiple of 11.4 times. This is far too cheap in my opinion given the company’s impressive bottom-line momentum.

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Royston Wild has no position in any of the 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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