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2 secret growth stars I’d buy and hold for 20 years

You might not have heard of Curtis Banks Group (LSE: CBP) before, but I predict that it won’t be long before this company becomes a leading UK financial sector champion. 

Curtis is one of the UK’s leading SIPP providers, a specialist service where reputation and size count for everything. Customers are already flocking to the group’s offering with the number of SIPPs under administration rising 14% to 76,474 by the end of December 2017. Assets under administration grew 21% to £24.7m, and the operating margin rose 1% to 25%, leading to an increase in profit before tax of 31% to £5.9m. 

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Curtis is growing through a combination of organic growth and bolt-on acquisitions. During the year the total number of organic new SIPP registrations hit 8,719, 40% higher than last year’s total of 6,236. 

Expanding business 

SIPP management is a highly regulated business due to the sensitive nature of pensions management, and if it’s going to succceed in the business, Curtis has to have a long-term outlook to convince new customers to migrate to its offering and achieve the best results for existing clients. 

And if the firm can continue on its current trajectory, then I believe it can achieve big things over the next decade or two.  

Indeed, even in the next five years, the company has a tremendous opportunity ahead of it. According to estimates, the SIPP market is expected to grow by 60% to £350bn by 2020 with 750,000 more clients expected to open accounts over the next three years. 

Figures also suggest that these new assets will fall into the hands of fewer providers as rising costs and low-interest rates, which have squeezed profit margins, force companies to leave the business. For Curtis, this is excellent news. City analysts have pencilled in earnings per share growth of 16% to 17.8p for 2018, a forecast that I believe is conservative, considering the tremendous opportunity in front of it. If the group can grab just a small share of the predicted growth in the SIPP market, then there’s no reason why earnings per share cannot grow at a double-digit rate for the next five years, a forecast that easily justifies the company’s current valuation of 17.6 times forward earnings. 

What’s behind the decline? 

As well as Curtis, I also believe Virgin Money (LSE: VM) is a misunderstood stock that deserves a place in your ISA. 

Virgin’s most attractive quality right now for investors is its valuation. The stock is trading at a forward P/E of just 6.8 and a price-to-book value of 0.6, making it one of the cheapest stocks in the UK banking sector. But why is this the case? Well, it seems City analysts are concerned with the company’s rate of expansion. They believe management has been overlooking borrower quality in favour of growth. 

However, as my Foolish colleague G A Chester noted at the end of February, this is something management refutes. In the challenger bank’s full-year results, management proclaimed the firm has an “uncompromising focus on asset quality,” which is why it was able to achieve a healthy 14% return on tangible equity for the year. As management has not yet given the market any reason to doubt its capability, I have no reason to doubt this statement, and with that in mind, I believe that the challenger bank is currently undervalued.

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Rupert Hargreaves owns no share 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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