I’m certainly no stranger to championing the investment case for Redrow (LSE: RDW) thanks to its exceptional growth performances over many years.
The FTSE 250 business has its work cut out for it to replicate the sort of stunning profits rises of yesteryear, however. The builder had stratospheric property price growth to thank in large part for these previous advances. And conditions have become a lot tougher over the past year as the political and economic fallout of the Brexit saga has dented homebuyer confidence.
On strong foundations
Having said that, the gaping supply/demand chasm in the housing market means that those expecting reliable earnings growth can do a lot worse than to check out Redrow today. While homebuyer demand may have weakened more recently, mortgage rates still remain extremely generous as far as keeping purchasing activity ticking over is concerned.
The favourable trading backdrop was illustrated by Redrow last week announcing record interim profit of £890m, up 20%, with pre-tax profit rising more than a quarter to £176m. Legal completions rose 14% in July-December to 2,811 units, and the company struck a positive tone looking ahead by commenting: “Reservations in the first five weeks of the second half have been in line with the strong comparable period last year. We entered the second half with a record order book, and customer traffic and sales remain robust.”
As a consequence, City analysts are expecting earnings at Redrow to rise by a still-healthy 11% and 9% in the 12 months to June 2018 and 2019 respectively. And so there is plenty of fuel for dividends to keep shooting skywards as well.
The Square Mile thinks so, and is predicting that last year’s 17p per share reward will charge to 21.4p this year and to 25.9p in fiscal 2019. These predicted payments yield a chunky 3.5% and 4.2% respectively.
A forward P/E ratio of 7.8 times is far too cheap for Redrow’s excellent growth and dividend credentials, in my opinion.
Medical marvel
Those seeking hot growth shares on a shoestring should also pay Alliance Pharma (LSE: APH) close attention today.
The AIM-listed business, which specialises in the acquisition, licensing and delivery of drugs and healthcare products, has proven a dependable deliverer of single-digit percentage improvements in recent years. And the bottom line is expected to heat up from the current year onwards — a predicted 2% advance in 2017 is anticipated by City analysts to swell to 16% in 2018 and again to 11% in 2019.
As a result, Alliance Pharma deals on a dirt-cheap prospective earnings multiple of 14.7 times (not to mention a corresponding PEG reading of 0.9).
Predictions of dynamite profits growth is not a surprise given the progress the Chippenham business is making in foreign markets, with sales of its Kelo-Cote and MacuShield lines leaping 33% and 37% respectively last year.
What’s more, Alliance Pharma’s exceptional cash generation gives it plenty of ammunition to bolster earnings through M&A. It made two acquisitions in December for a combined £20.5m. The healthcare giant is one to watch in the years ahead, in my opinion.
