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One super growth stock I’d buy alongside Legal & General Group plc

Today’s full-year results from Harwood Wealth Management Group (LSE: HW), the financial planning and discretionary wealth management company, are ahead of the directors’ previous expectations, yet the share price is slipping this morning as I write.

It’s usually a good thing to hear that a firm’s performance is ahead of expectations, because news like that can drive decent share price gains as a stock moves to adjust for higher earnings or a better outlook. Sometimes the firm’s valuation re-rates up too, which can drive share prices higher still. However, in this case I reckon investors are looking for faster progress with earnings.

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Fast growth

Harwood is growing organically and by acquisition. The growth strategy appears to be working well judging by today’s numbers, which cover the trading year to 31 October 2017. Assets under influence increased 81% compared to the year before to £3.8bn, which is a lot of other people’s money for the firm to earn its living from. Revenue increased 123% and net cash from operations shot up more than 54% to £3.7m. The laggard in these results is profit after tax, which came in at £0.7m, well below the cash-flow figure.

I reckon it’s normal for earnings to be behind the curve when a company has been highly acquisitive. During the period, Harwood spent £2.3m on seven acquisitions and also raised £10m via a placing in April to fuel the ongoing acquisition strategy. Such activity can lead to murky accounts, and the directors attempted to peer through the haze by offering EBITDA figures that look at adjusted earnings before interest, taxation, depreciation, amortisation and exceptional costs. EBITDA increased by 59% to £4.3m suggesting that underlying earnings are on track.

The full-year dividend is 3.24p leading to a yield just over 2% at a share price around 140p. That’s not too bad for a fast-growing firm, and I think current weakness in the share price could end up being a good opportunity to hop onto a compelling growth story with Harwood.

Trading well with a positive outlook

I reckon Harwood Wealth Management would sit well in a portfolio with its larger financial services cousin Legal & General Group (LSE: LGEN). The company deals in life assurance, long-term savings, investment management and general insurance, and things have been going well, which reflects in solid share-price progress over recent years.

The directors describe 2017 as “a record year,” and reading through the December trading update I get the impression that the company is firing hard on all four cylinders. The outlook statement is positive too, and the directors emphasise that they think the firm is well set up to take advantage of ongoing global opportunities.

With such a rosy outlook we might expect a punchy valuation, but I’m not seeing that. Today’s share price around 274p leads to a forward price-to-earnings rating of just over 10 for 2019, and the forward dividend yield is more than 6%. I think Legal & General’s operational and share-price momentum looks set to continue.

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Kevin Godbold 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.

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