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Two FTSE 250 stocks I’d buy before it’s too late

In the deluge of company results that have been released to the market over the past week, the figures from Kaz Minerals (LSE: KAZ) and Rentokil (LSE: RTO) are in a class of their own.

These two companies have both achieved impressive growth over the past year, through both improved efficiency and increased output. I expect these trends to continue going forward as both Kaz and Rentokil go from strength to strength.

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Copper profits

As one of the world’s largest copper producers, the future of Kaz Minerals is somewhat dependent on the copper price. However, the company has sought to take control of its own destiny by slashing production costs and hiking output. This cost-cutting drive has helped the firm expand profit margins to some of the widest in the industry, and the benefits clearly showed through in today’s figures.

The miner reported a massive 73% rise in group copper production to 140,000 tonnes from just 81,000 tonnes in 2015. Meanwhile, pre-profit rose 1,733% from $12m for fiscal 2015 to $220m for 2016. And over the next two years, Kaz’s production is only expected to increase further.

Management expects copper production to rise to 225,000 to 260,000 tonnes in 2017 and then 300,000 tonnes in 2018. When you consider the fact that copper prices have also increased by 10% since the beginning of 2017, it looks as if this year is set to be a blowout year for the company. City analysts are expecting the firm to report earnings per share of 47p for 2017 and 65p for 2018 indicating a 2018 forward P/E of 7.5.

Further growth ahead

Over the past five years, Rentokil has doubled pre-tax profit, and over the next two years, City analysts are expecting the company to repeat this performance once again. That kind of increase in the short space of seven years is no easy feat for an established business like Rentokil. Nonetheless, today’s numbers from the group show that it’s well on the way to meeting this target.

For 2016, group revenues expanded 24.2% or 12.6% at constant exchange rates (CER). Pre-tax profit for the period increased 32.5% or 16.7% CER and earnings per share jumped 34.6% or 16% CER. To help boost growth, the company acquired 41 businesses during the year for a total sum of £107m. While this may seem like a huge acquisition spree, the total cost of deals was well below group free cash flow of £156m for the period. Off the back of this positive trading, management has hiked the company’s dividend payout by 15%.

City analysts expect Rentokil’s earnings per share to grow by a further 11% this year and 7% for 2018 and based on these forecasts the shares trade at a forward P/E of 20. Unfortunately, thanks to its historical performance, investors have now placed a premium on shares in the company. But if management can continue to grow the business via acquisitions and organic growth as it has done over the past five years, it could be worth paying a premium for the shares.

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Rupert Hargreaves 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.

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