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2 ‘under the radar’ growth and income stocks

Finding reasonably priced stocks likely to register solid earnings growth while also returning a decent proportion of cash to shareholders isn’t easy. So long as you’re prepared to look lower down the market spectrum, however, I think there are a number that warrant your attention.

On a roll

£127m cap Accrol (LSE: ACRL) is unlikely to get your pulse racing. It makes toilet rolls, kitchen rolls and facial tissues. Stay awake now.

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As an investment, things are more interesting. Since coming to the market last year, the shares have climbed a very respectable 25%.

Full year results (released in July) revealed a 14.2% increase in revenue and 57.3% increase in adjusted profit after tax to £11m. Those with an aversion to debt should also note how Accrol’s ability to generate bundles of cash allowed it to reduce the amount on its books from just under £61m to £19m over the previous 12 months.

During its first year as a listed business, Accrol opened a new 168,000 sq. ft. manufacturing facility and unveiled a plan to make its supply chain more efficient through the creation of a centralised finished goods hub in Skelmersdale, Lancashire. Both developments should allow the company to continue growing its market share, which now stands at over 50% of the Discount Sector following recent contract wins.

The fact that Accrol produces a dull but essential product means that its earnings — and share price — should remain fairly resilient in the event of any general economic wobbles. Indeed, as CEO Steve Crossley recently stated, the recent rise in inflation should “drive shoppers to seek value” in discount stores, even if the full impact of price increases is still to be felt.

Trading on a forecast price-to-earnings (P/E) ratio of just 11 for the current year (based on predicted earnings per share growth of 27%) and offering a 5.4% yield, Accrol looks a solid buy.

More growth ahead

With a market cap of just £68m, minnow Miton Group (LSE: MGR) might not be the first investment manager that springs to mind but recent results suggest that highly-rated Gervais Williams and co are doing a great job of attracting clients.

The company’s trading update for the first half of 2017 reflected on a “strong start to the year” with total assets under management (equity funds, multi-asset funds and investment trusts) increasing 15% to £3.35bn from £2.91bn back in January. 

While the popularity of investment management companies is heavily correlated with the twists and turns of markets, CEO David Barron stated he was “optimistic” that the kind of performance achieved over H1 would continue into the second half of the year.

Analysts are equally optimistic, having predicted a 14% increase in earnings per share in 2017 with an even bigger 20% rise expected in 2018. Based on today’s share price, that would leave the stock trading on price-to-earnings (P/E) ratios of 16 and 13 respectively. That sounds very reasonable, especially as Miton also boasts a significant net cash position — £21m at the end of its last financial year. And while its easily-covered-by-profits 2.8% dividend yield may not be the biggest payout available on the market, there are already suggestions that this will be hiked by no less than 27% in the 2018/19 financial year.

Miton next reports to the market towards the end of September. Assuming recent momentum has been sustained, I can see the shares moving higher.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.