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5 Growth Shares Set To Benefit From An Improving Economy: Ashtead Group plc, Aggreko plc, Diageo plc, Pendragon plc & Travis Perkins plc

Here are five growth shares that are poised to benefit from an improving economy:

Aggreko

Aggreko (LSE: AGK), the temporary power generation company, has seen its earnings tumble since 2013. The company failed to find sufficient demand to replace the loss of major projects, including the London Olympics, post-Fukushima reconstruction and military work in Iraq and Afghanistan.

Adjusted earnings per share (EPS) fell by 10.4% in 2014, to 82.49 pence, following a fall of 8.3% in the previous year. But, earnings is set to bottom out soon, as the market for power solutions continues to grow rapidly, despite the slowdown in emerging market economies. Analysts expect Aggreko’s adjusted EPS will grow by 3% in 2015 to 85.1 pence, which gives it a forward P/E of 17.4.

Diageo

News that Diageo (LSE: DGE) could become an acquisition target for Brazilian billionaire, Jorge Paulo Lemann, sent its shares more than 6% higher. Diageo is particularly attractive because of long term consumer trends in the consumption of branded spirits. But, the company is suffering from some turbulence in its earnings growth trajectory, because of the slowdown in emerging markets and a blip in the demand for scotch in China and North America.

With a forward P/E of 21.2, shares in Diageo seem quite expensive. But, Diageo does pay a reasonable prospective dividend yield of 2.8%.

Pendragon

Car dealer Pendragon (LSE: PDG) is seeing demand for luxury vehicles steadily grow over the recent years, as the economy recovers in the UK and US. Strong revenue growth from aftersales and used car sales helped lift adjusted EPS 34.7% higher, to 3.1 pence in 2014. The aftersales business is particularly important for the firm’s growth prospects because vehicle servicing is much higher-margin and the market is growing with the increase in the number of new cars on the road.

Pendragon has a forward P/E of 11.7, on expectations of 9% growth in adjusted EPS this year. Its prospective dividend yield of 3.2% is attractive for a growth stock.

Travis Perkins

Travis Perkins (LSE: TPK), the building and home improvement supplier, has benefited from robust growth in the UK construction sector, particularly with increased housebuilding activity. The company’s more specialised store format has helped it to capture market share from its competitors, as it widens the ranges of products, and eases the creation of tailored solutions for larger customers.

With expectations of adjusted EPS growth of 11% this year, Travis Perkins has a forward P/E of 16.4.

Ashtead Group

Saving the best to last, Ashtead Group (LSE: AHT) is most attractive because of its much faster earnings growth. Adjusted EPS has grown by an annual compounded rate of 53.2% over the past three years. Analysts expect EPS will grow by another 24% this year, with forecasts of EPS of 77.8 pence in 2015/6.

Ashtead has much to benefit from improving construction activity, as the markets served by the equipment rental company are both structural and cyclical. The company’s size is its key competitive advantage, as scale allows to negotiate better prices with suppliers, and expand its range of available products. Bolt-on acquisition made in recent years and organic investment has strengthened its range of specialist equipment, which should help it to drive continued earnings growth.

The company’s valuation is attractive on its near-term growth prospects. Aggreko has a forward P/E of just 14.7. Its forward P/E for 2016/7 is expected to fall to 12.5, given forecasts that EPS will grow by another 17%.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.