Earnings could explode at these FTSE 250 stocks

Royston Wild looks at two FTSE 250 (INDEXFTSE: MCX) stars with brilliant growth potential.

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A positive trading update has seen shares in Homeserve (LSE: HSV) spiral starwards in Thursday’s session. The home repairs play was last dealing 8% higher from the mid-week closing price and around 11-week highs.

Homeserve announced that it had “a very good year” during the 12 months to March 2017 and that it expects to punch pre-tax profits at the upper end of current projections. City analysts have chalked-in profits of between £105m and £112m.

Euro-smash

Stock pickers have been piling in as the update has affirmed Homeserve’s bubbly outlook on both sides of the Atlantic.

In its UK marketplace — from where the company generates 43% of total revenues — Homeserve saw sales edge 1% higher during fiscal 2017, helped by robust retention rates around 80% and high income per customer.

And looking across the continent, Homeserve also announced that the number of customers on its books continued to swell in Spain and France last year. The emergency repairs business entered the Italian marketplace in March after linking up with Edison Energia, Italy’s third-biggest energy provider, to further bolster its European footprint.

Stateside star

However, it is Homeserve’s position in the US which is really making investors excited. The company now provides services to 50m households in the States via partner agreements, representing half of the group’s 100m global total. It sees big potential in the territory and eventually plans to have 80m homes on its books.

In addition, it has seen the number of North American direct customers rise to 3m as of March from 2.3m 12 months earlier. And the business has high hopes that the acquisition of Utility Services Partners in 2016 should keep driving client numbers.

The City certainly expects revenues to keep streaming in at Homeserve in the near term and beyond, and has consequently projected earnings expansion of 18% and 10% in 2018 and 2019 respectively.

Although a forward P/E ratio of 20.1 times appears a tad expensive on paper, I reckon Homeserve’s roaring progress on both sides of the Pond warrants such a premium.

Home comforts

I also believe a robust UK housing market sets Countryside Properties (LSE: CSP) up for exceptional earnings growth.

The abacus bashers have pencilled-in bottom-line expansion of 54% during the 12 months to September 2017, and further growth of 28% is anticipated for fiscal 2018. As such, Countryside currently sports a bargain-basement forward P/E ratio of 10.3 times.

It said in January: “While there remains some uncertainty over the Brexit transition, strong customer demand, low interest rates and continued government support give us great confidence that we remain firmly on track to deliver our medium-term growth targets.”

So while the results of June’s  EU referendum is likely to cool house price growth more immediately, I reckon a combination of strong demand and a lack of government action to address Britain’s housing shortage should keep earnings at Countryside and its peers rising long into the future.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Homeserve. 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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