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Why I’d buy this secret growth star and this FTSE 100 growth giant

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NMC Health (LSE: NMC) probably isn’t the first FTSE 100 company that would spring to mind for most people. Indeed, some readers may not even be aware that this £7.5bn private hospitals group is a member of London’s top index, as it only joined the other elite blue-chips as recently as last September.

However, I believe NMC has every prospect of continuing the growth that powered its shares into the Footsie and that the current valuation remains highly attractive. Along with this growth giant, I see great value in a smaller company that released forecast-beating annual results today.

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PEG value

Brexit is something investors in NMC don’t need to be concerned about, which is one of the things I like about this business. The group is the leading private healthcare operator in the United Arab Emirates. It operates or manages over 150 assets across 13 countries and made a net profit of $209.2m on revenue of $1.6bn last year. That’s a good bottom-line margin of 13%, which is another of the things I like about the business.

Last but not least, the company has a terrific record of earnings growth, which continued last year with a 33% rise in adjusted earnings per share (EPS) to $1.036. According to a Reuters consensus, City analysts are forecasting a 42% increase this year to $1.47 (110.5p at current exchange rates), giving a price-to-earnings (P/E) ratio of over 32 at a share price of 3,580p. While the P/E is a premium one, the forecast 42% EPS growth means the price-to-earnings growth (PEG) ratio is 0.8. This ratio is well to the good value side of the PEG fair value marker of one and makes the stock a ‘buy’ in my book.

Buy-and-build

Marlowe  (LSE: MRL) was formed as a platform to create shareholder value through the acquisition and development of businesses in targeted outsourced service sectors across the UK. Commenting on today’s results, chief executive Alex Dacre said: “In our second year of trading as Marlowe plc we are pleased to report another strong financial performance and a year of substantial progress in developing the scale and breadth of our platform for growth.”

This sort of acquisitive business model doesn’t always appeal to me, but the chief executive has expertise in successfully executing buy-and-build growth strategies and I like the sectors Marlowe is targeting: namely, critical maintenance services in fire protection, security systems, water treatment and air hygiene. As many of these services are mandatory and necessitated by stringent legislation and regulation, I believe the business should prove more resilient than many through the economic cycle.

Today’s results for the company’s financial year ended 31 March saw a 72% increase in revenue to £80.6m (versus a Reuters consensus of £72.75m) and a 35% rise in adjusted EPS to 14p (consensus 12.7p). The shares are currently trading 3% higher on the day at 417p, which gives a market cap of £144m and a trailing P/E just shy of 30. As with NMC, this is a premium P/E but one I believe is justified by the high rate of EPS growth, which looks set to continue with further acquisitions and increasing economies of scale. I’d be happy to buy a slice of this smaller-cap company today, with its potential to become a mid-cap in due course.

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G A Chester 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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