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2 great ‘hidden’ shares for growth investors

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Potential growth shares come in all shapes, and don’t always tick the same boxes. Here are two I think have serious long-term potential.

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M&C Saatchi (LSE: SAA) might not be an obvious candidate for growth investors, who are often looking for explosive growth over a short period.

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But the advertising agency’s record is impressive, with EPS having climbed from 15.1p in 2012 to 21.07p for the year ended in December 2016. That’s an overall rise of 40% over four years, and a 13% gain in 2016 alone.

As a result, the share price is up 136% in five years, while the FTSE 350 index has gained just 32% over the same period — and anything that beats the index by such a large margin definitely falls under my definition of growth.

Forecasts do suggest a slowing of earnings growth with just 9% on the cards for this year, to give a PEG of 1.8, which is high enough to fly above the limit that most growth investors look for. But to me that just hides a steady long-term growth prospect.

Revenue in 2016 grew by 26% to £225.3m (and up 19% at constant currency), with operating profit up 24% to £23m. And it’s not just the UK, where Brexit could signal a few tough years for the industry — Saatchi saw big revenue gains in the Americas, the Middle East, Africa, Asia and Australasia.

Chief executive David Kershaw called the year outstanding, adding that “we are confident that we will continue to make good progress in 2017 and beyond.

The dividend was raised by 15% to 8.29p per share, and while a yield of 2.3% on today’s share price is not a huge income, it’s a nice annual bonus to be added to any future share price growth.

Jam tomorrow?

Oxford Biomedica (LSE: OXB) shares have lost 59% over two years to 5.3p, so you might wonder what growth I see there. I could point out that we’ve seen a bit of a recovery of late, and that the price is actually up 68% from its recent low in October 2016, but that’s only part of the picture.

The bigger picture is one of ‘growth tomorrow’, hopefully, as Oxford Biomedica is a small biotech firm specialising in gene and cell therapy. It is not making any profits yet — and isn’t expected to this year nor next either, though the forecast loss per share should drop considerably in 2018.

The key to the firm’s 2016 results announcement was not in its finances, though it appears to have enough cash for now, especially after fundraising £17.5m during the year. But the key is in the collaboration agreements it has with other firms making use of its “world-leading lentiviral vector delivery platform for gene and cell therapy” (to use the words of chief executive John Dawson).

The firm’s collaboration with Novartis for what it calls a “blockbuster potential product” is said to be progressing well and is “close to market“, and collaborations with Orchard Therapeutics, Immune Design and others have been expanded with a new research and development collaboration with Green Cross LabCell.

The company’s own proprietary developments, which target conditions including Parkinson’s, cancer tumours and corneal graft rejection, also appear to be progressing well, though they’re mostly at relatively early stages of development.

Oxford Biomedica is a classic blue sky investment right now, but I think we’re looking at a future growth star.

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Alan Oscroft 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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