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Why I’d buy growth machine Segro plc and this FTSE 100 bargain today

Shares in Segro (LSE: SGRO) have jumped 5.73% this morning on publication of a positive set of results for the year to 31 December. This completes a strong run for the FTSE 100 group, a real estate investment trust (REIT) specialising in logistics properties such as warehouses and distribution centres across the UK, France, Germany, Italy and Poland. Its share price is up 20% in the last 12 months. Over five years, it is up 130%.

Segro grows

Segro management heralded “another strong set of financial, operating and portfolio performance metrics, and a record level of development completions, almost all of which have been leased”. It also posted a 25.7% increase in adjusted pre-tax profit, which it pinned on high customer retention rates, like-for-like rental growth, low vacancy rates and a record level of development capital expenditure.

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Adjusted earnings per share (EPS) rose 5.9% to 19.9p, a number that incorporates its March rights issue, and the 13.6% increase in the value of its portfolio. Net asset value per share was up 16.3% to 556p.

Full house

Segro has significantly strengthened its balance sheet through the rights issue and £2.7bn of debt financing activity, reducing average debt costs to 2.1%. Future earnings prospects look promising and a 6.1% hike to the final dividend to 11.35p completes a positive picture. It currently yields 3.2%. 

Last October I said that Segro is a red hot growth stock so am glad to see it is still on fire. It has developed more warehouse space over the past year but demand keeps rising, especially from online retailers, trimming vacancy rates to just 4%, well below its 5%-7% target. The trust is expensive, trading at a forecast 25.3 times earnings, but that was my worry in October, and it hasn’t been a problem so far. Forecast EPS growth of 12% in 2018 and 10% in 2019 also brings cheer. Segro looks set to grow.

Stormy weather

FTSE 100 insurer RSA Insurance Group (LSE: RSA) has had a patchier year, its share price now trading at similar levels to a year ago. The general insurance specialist has been hit by a string of natural catastrophes, with chief executive Stephen Hester preparing investors for losses of up to £70m from last year’s hurricanes in the US and the Caribbean, Storm Ophelia in Ireland, and earthquakes in Mexico. 

However, RSA also reported steady group premium income growth of 8% last year, or 3% at constant exchange rates, with Scandinavia, Canada and the UK all growing. Last November I hailed the stock’s regal dividend prospects and City analysts now expect the yield to hit 5% in 2018, and 5.7% in 2019. The stock currently trades at a forecast 15.1 times earnings. EPS are expected to grow 30% in 2018 then 6% in 2019. 

This puts in a strong position to pull away from recent turbulence. Pre-tax profits look set to be on a sharp upwards trajectory, from a forecast £535m in the year to 31 December 2017 to £731m in 2019, a rise of 37% in just two years. That is quite rapid profit growth for a £6.31bn blue-chip insurer. RSA Insurance still looks like a solid long-term buy-and-hold to me, although if I had to choose just one of these two, Segro could offer a bit more excitement.

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Harvey Jones 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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