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This FTSE 100 growth stock just announced a 24% rise in profits. Here’s why I’m not buying yet

Thanks to a surge in the popularity of online shopping over recent years, warehouse and logistics companies are in high demand from both the retailers that require their services and investors who wish to own a slice of them.

While I can’t see this momentum being lost anytime soon, the question — from a Foolish perspective — is which UK-listed stocks are likely to give the best return? 

With a portfolio of property stretching across the UK and Europe, one candidate is FTSE 100 real estate investment trust SEGRO (LSE: SGRO).  

Today, the company reported a 24.4% rise in adjusted pre-tax profit in 2018 as a result of “high customer retention rates, like-for-like rental growth and a low vacancy rate.” At 650p per share, SEGRO’s net asset value was also a little under 17% higher than at end of 2017 (556p).

According to CEO David Sleath, the business now possesses a “portfolio of very high quality and well-located warehouses” and currently has 1.3m sqm of projects “under construction or in advanced pre-let discussions.” Once completed, these are forecast to return £46m in rent (almost 75% of which has already been secured).

Sleath added that SEGRO’s pipeline and land bank have “substantial potential” — an understandable comment given the company also chose today to announce it would be attempting to raise around £450m to fund new developments.

Some decent numbers and an encouraging outlook. What’s not to like from an investment point of view?

Well, having rallied strongly since the beginning of 2019, you’ll now need to pay 26 times forecast earnings to secure SEGRO’s stock. With a trailing yield of just over 2% following today’s 16.7% rise to the final payout (to 13.25p), dividends are certainly going in the right direction, but may not be sufficiently large for some wishing to generate an income from their portfolios

With Brexit on the horizon, I’d be looking for a cheaper entry point. One for the watchlist for now? 

Another option

If Segro doesn’t take your fancy (and you’re looking for better cash returns) then another real estate investment trust, Tritax Big Box (LSE: BBOX), might be a suitable alternative.

Having already secured tenants including Amazon, Argos and B&Q, the FTSE 250 constituent also appears determined to keep expanding its portfolio.  

On Monday, Tritax announced that it had raised roughly £250m to fund the purchase of a 87% stake in logistics business db Symmetry and that this is now expected to complete next Tuesday. According to non-executive chairman Sir Richard Jewson, this acquisition should allow Tritax “to continue to deliver strong earnings growth and a progressive dividend policy as well as significant valuation gains as these assets move through development to become income producing.

Still 12% below the price high hit last July, shares in Tritax currently trade almost 19 times expected earnings in 2019 — not screamingly cheap, but certainly far more attractive in valuation terms than those of its larger industry peer. A forecast dividend of 5.1% is also more generous.

Full-year results are due next month. Based on the market’s reaction to SEGRO’s stellar set of numbers this morning, I can’t see the shares rocketing anytime soon. For those looking to build a diversified portfolio of income-generating holdings, however, I certainly think Tritax warrants attention.

As I commented earlier this month, there are worse destinations for your cash at the current time. 

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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.