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Why BTG plc Trounces Barclays PLC And Carillion plc On Growth

Three shares in the news, but only one delivers on potential for decent growth, in my view.

Cyclical recovery

The newswires have it that troubled banking business Barclays (LSE: BARC) seems set to continue shrinking its investment operations, despite the ousting of the firm’s hatchet-wielding chief executive last week.

That strikes me as a good thing for those invested in Barclays. Investment banking activities can deliver the big bucks when things ‘click’, but when they don’t such highly geared punting can stuff up overall profitability, as we’ve seen lately with the firm.

Since mid 2014, Barclays’ share price crept up around 30%. However, even as the firm posts double-digit growth in earnings I’m still not expecting double-digit valuation multiples. An out and out cyclical firm like this, with recovering profits, doesn’t convince me that it has a growth ‘story’. A thirty percent gain over a year looks attractive. If I held the shares, I think I’d be looking for the exit door.

Slight expectations

Yesterday, Carillion (LSE: CLLN) told us it’s trading in line with expectations. According to City analysts following the firm that means a 1% decline in earnings this year followed by a 4% uplift during 2016.

That’s worrying. Carillion is another cyclical firm, this time operating as a support services company and construction contractor with many public/private partnership projects. If the firm isn’t flying now, when the economic sun is shining, when will it?

Carillion’s share price made good progress over the last few years — sideways! The company sports a tempting-looking 5.2% forward yield, but given the cyclical risks involved, I don’t want it.

I’m sure Carillion does a good job with the services it provides and we are all better off because of the companies that roll up their sleeves to make sure the UK thrives. However, I question whether such firms have utility as long-term investment vehicles. Short term, cyclical enterprises like Carillion can provide us with a decent punt on the up-leg of a macro cycle, but that trade finished as long ago as early 2011 for the current undulation, I reckon. Everything since is just ‘noise’!

Growth (oh yes!)

Specialist healthcare company BTG (LSE: BTG) updated the market today saying the business made a good start to the current financial year with overall trading in line with expectations. The City braces reckon that means the firm is on target to grow earnings 27% and they’ve pencilled in a further 41% uplift for next financial year.

That’s a cracking rate of growth and the firm reports that all its business lines are going well. In particular, the directors have high hopes for a product called Varithena, which the company describes as polidocanol injectable foam. In the US, a controlled launch is underway and BTG expects to take around two years from the first commercial sales in August 2014 to achieve widespread adoption and reordering of Varithena by physicians, and to establish a smooth reimbursement process from the American healthcare insurance sector.

With the directors’ strong growth expectations for the financial year starting in April 2016, Varithena looks like an exciting growth development for BTG shareholders.

Although BTG’s business is difficult to understand and lacks earnings visibility, it’s hard to ignore the growth numbers. In fact, I liked them so much I bought the company (or a tiny little slice of it, at least!).

To me, BTG is the standout investment opportunity of these three firms, and recent share-price weakness looks like something of a buying opportunity if you like the company after researching it yourself. However, BTG isn't the only firm that looks interesting. I'm also looking closely at a small-cap idea that our analysts are getting excited about here at the Motley Fool. You can find out why we're buzzing about this investment opportunity, free of charge and for a short while longer, by clicking here.

Kevin Godbold owns shares in BTG. The Motley Fool UK has recommended Barclays and BTG. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.