Churchill China (LSE: CHH), which released its half-year results today, and fellow small-cap XP Power (LSE: XPP) are two stocks that have delivered terrific earnings growth and share price gains. Investors in the former have enjoyed a five-year annualised total return of 23.9% and those in the latter have seen 19.5%. These returns have smashed the FTSE 100‘s 7.1%. Can they continue to deliver growth and are their shares good value right now?
Export-led growth
Churchill today reported a strong performance in the first six months of the year. Group revenue was up 6% and a rise in operating margin to 11.9% from 10.3% saw operating profit up by 22%. Earnings per share (EPS) climbed 24% and the board hiked the interim dividend 18%.
Churchill is largely focused on selling its ceramic products into hospitality markets worldwide, where it enjoys a high level of repeat sales and long-term relationships with its customers. Revenue in this business increased 9% to £24.9m and now represents over 90% of total group revenue. In its shrinking retail business, revenue declined 19% to £2.4m, as anticipated.
Geographically, export revenues were up 17% and exports now represent 63% of total group takings. The company still has a relatively low market share outside the UK, giving it considerable scope to continue increasing its turnover. Add to the top-line growth a trend of improving profit margins (as a result of a rising proportion of sales of added-value product) and you’ve got very nice dynamics for continuing strong earnings and dividend growth.
The shares are up 1.2% on the day, as I’m writing, and at 1,012p, the company’s market cap is £110m. With its strong balance sheet (net cash and deposit balances of £13.7m at the period end) and excellent growth prospects, this AIM-listed stock is one I’d happily buy at its current rating of 16.8 times trailing 12-month EPS of 60.1p. There’s also a well-covered 25.9p dividend, giving a running yield of 2.6%.
Serving global blue-chips
XP Power develops and manufactures critical power control solutions for the electronics industry and has a global blue-chip customer base. It’s one of the larger companies in the FTSE SmallCap index, with a market value of close to £600m at a share price of 3,110p.
Net debt at the half-year-end was £46.5m when it released its results last month. This is relatively modest and came after a £33.4m acquisition in May that will further increase its addressable market. As it is, it’s growing strongly with new design wins entering their production phase.
First-half revenue increased 16%, underlying diluted EPS rose 24% and the board lifted the interim dividend 6%. At today’s share price, XP trades on 19 times trailing 12-month EPS of 163.4p and has a well-covered 80p dividend, giving a running yield that matches Churchill’s 2.6%.
With strong organic growth to come and earnings from the recent acquisition set to kick in, this is another stock I’d be happy to buy today.
