Bumpy trading, but cheap

The Keller share price has wiggled about a bit in the meantime and essentially ended up close to where it was in March. Meanwhile, the valuation continues to look undemanding. The current share price near 636p throws out a forward-looking earnings multiple for 2020 of just over six, and the anticipated dividend yield runs near 6.3%.

There’s no doubt Keller has experienced a few troubles in recent years, and a restructuring programme started in 2018. But that hasn’t stopped the dividend progressing, and it’s up around 50% over the past five years. City analysts following the firm expect steady advances in the payment ahead measured in mid-single-digit percentages.

Yet today’s half-year figures reveal to us that trading started slowly at the beginning of the year, but there was “increased momentum” in the second quarter. Overall in the first half, constant currency revenue declined by 2% compared to the equivalent period the year before, and underlying earnings per share dropped 36%.

By geography, the revenue outcome was driven by growth in North America, Europe, the Middle East and Africa, which was offset by a decline in the Asia Pacific region.

The decline in profits was driven by the completion in 2018 of two large projects in the company’s Europe, Middle East and Africa division. Maybe we can expect new work to rebuild earnings down the road because the order book runs “in excess” of £1bn, and is “particularly strong” in North America. Although that’s offset by a decline in the order book of the restructured Asia Pacific division.

Flat revenue this year, positive outlook beyond

But there are some brighter spots in the numbers too. Net debt eased back by 11% to around £333m because of “an increased focus” on capital expenditure (CapEx) and working capital. The directors slapped another 5% on the interim dividend, thus keeping up the ongoing record of progression.

The company expects trading in the second half of the year to be “stronger”, which should deliver a revenue outcome for the year “broadly flat” compared to 2018. Chief executive Alain Michaelis has a positive view of the future for the company and said in the report “strong” underlying market fundamentals revolve around “ongoing global demand for urbanisation and infrastructure growth.”

I must admit I’m conflicted over this stock right now. If you’re expecting a global economic depression anytime soon you probably wouldn’t touch Keller with a barge pole. But it looks cheap, and if world economies soar away from here into a new era of prosperity, maybe Keller stock will do well.

I remain tempted but haven’t pulled the trigger on the shares yet. However, I do think Keller is too cheap to ignore and could be worth keeping an eye on.

The post Why I think this 6% dividend payer is too cheap to ignore appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any 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.

The company describes itself as “the world’s largest geotechnical specialist contractor providing a wide portfolio of advanced foundation and ground improvement techniques used across the entire construction sector.” One of the great worries I reckon investors have always had about this one is that it serves a notoriously cyclical industry. And that’s why the valuation has been kept pegged down by the market and the dividend yield has been running well above 6%. Indeed, if an economic slump arrives, earnings, the dividend and the share price could all plunge together.

Upside potential

But cyclical shares offer upside potential too. When things go unexpectedly well, we often see rapid share-price advances, and today’s action suggests that we could be at the start of a sustained up-move with Keller. I wouldn’t buy and hold a cyclical share like this for the long term, but it can be a decent strategy to buy and sell at opportune times to try to capture the big moves.

The report today tells us trading and earnings were in line with revised expectations and the figure for net debt came in “better than consensus,” at just over £286m. Borrowings are running around three times the level of underlying operating profit for 2018, which I think is high for a cyclical firm. If trade does fall off in a general economic slump down the road, the level of debt could be a problem. 

Constant currency revenue rose 11% compared to the year before, 6% because of organic growth and 5% following the acquisition in the period of a company called Moretrench in the USA, an area that already delivers around half the firm’s revenue. However, underlying diluted earnings per share declined by 20%.

Trouble overcome

There’s been some trouble in the enterprise because of “underperforming business units,” and the results show a restructuring charge of just over £61m. The bottom line showed a statutory loss of 13.8m, which compares to a profit of a little over £87m in 2017.

Chief executive Alain Michaels was candid in the report and said the outcome for the year is “deeply unsatisfactory.”  But he thinks the firm’s decisive action restructuring four of the business units has been successful. The company closed its heavy foundations business in Singapore and Malaysia, restructured its Waterway business in Australia and downsized its operations in Brazil and Africa because of adverse market conditions.

Looking forward, Michaels said the stable market outlook combines with Keller’s leading position in the industry and its £1bn order book to make the outlook for 2019 positive. The directors underlined their confidence by increasing the total dividend for the year by 5%.

I think the decisive action taken to bear down on underperforming operations could have set the firm up well for the future and I find the big and rising dividend attractive. I’m tempted to take a small position in the shares to see what happens next.

The post The Keller share price is up 15% today, here’s what I’d do now appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any 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.

Stanley’s road

Wealth manager Charles Stanley Group (LSE: CAY) is up more than 3% after reporting continued revenue growth across all divisions, with core business revenue up 5% to £77.7m.  It also announced a 5% increase in funds under management and administration to £25bn, with discretionary funds up by 7.3% to £13.2bn.

Core business profit before tax rose 5.6% to £5.7m, with profit margins increasing from 8.4% to 9.3%. Charles Stanley also boasted of a “robust balance sheet”, with net assets of £102.8m and cash balances of £67m. It’s also boosted its capital adequacy ratio 177% to 193%, while investors are clearly pleased with the 10% interim dividend increase to 2.75p per share.

Today’s interim results for the six months ended 30 September offer plenty of positives. They also confirm the success of its restructuring progress, after it posted a net loss of of £6.2m in 2015, due to tough competition and lack of volatility.

Up and down

The £152m group now trades at 14.5 times earnings, with a forecast yield of 3.7%. Earnings growth looks healthy too, forecast at 29% for the year to 31 March 2019, then 35% the year after. Charles Stanley expects to make continued progress in the second half of the financial year, although this will partly depend on trading levels which it has less control over. I’ve held this stock before and may be tempted to look at it again.

This hasn’t been such a good day for ground engineering specialists Keller Group (LSE: KLR), which is down 4% after reporting that its outlook for 2019 is “somewhat mixed.” Its trading update said that although its main markets remain healthy and the order book sound, “as previously indicated the contribution from major projects will be lower than this year.”

Going to ground

Last month, Keller’s stock plunged 25% after issuing a profit warning. Its APAC division is on course to make a pre-tax loss of between £12m-£15m in 2018, instead of the small profit expected, due to deteriorating ASEAN market conditions. Following a management review it’s exiting low margin activities in Singapore and Malaysia, with combined revenues of around £60m, to focus on higher-margin sectors where it holds a technological advantage. It hopes this will return its APAC operations to profit in 2019.

Its geotechnical businesses traded in line with expectations in North America, avoiding any material impact from Hurricanes Florence and Michael, although unusually poor weather in Texas in October has adversely affected its Suncoast business, already hit by rising steel prices.

Not my bag

Growth in Keller’s core European, Middle Eastern and North African markets has “continued to be offset by challenging market conditions in Brazil and South Africa, reflecting the geo-political environment in those countries.”

Somewhat mixed is an understatement. Trading at 595p, Keller has lost half its value since peaking at 1,281p in February 2014. You could take a punt on its tempting forecast valuation of 5.8 times earnings and forward yield of 5.8%, with cover of 2.3, but I won’t be joining you.

The post Why I’d buy this recovering dividend stock, but dodge this falling knife appeared first on The Motley Fool UK.

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harveyj 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.

I’m going to start this piece by looking at FTSE 100 defence giant BAE Systems (LSE: BA). The group’s share price is down by about 13% from its 52-week high of 680p. But despite the market sell-off, BAE shares are still up 3% this year, compared to a 7% drop for the FTSE.

Keep calm and carry on

I’ve said many times before that I view BAE Systems as a good long-term income stock.

The size and diversity of its business means that it should be able to adapt to changing requirements and new technology. And although its cash flow can be lumpy (depending on contract timings), over a 5-to-10-year timeframe this business tends to generate quite a lot of surplus cash.

Chief executive Charles Woodburn says that 2018 will be a “transition earnings year.” Adjusted earnings are expected to be broadly flat, but recent contract wins bode well for future growth, as my colleague Royston Wild recently explained.

Into the buy zone?

At current levels, BAE trades on a 2018 forecast P/E of 13.7, with a prospective yield of 3.8%. I think this is a fair price for long-term buyers, but given the trend towards rising interest rates and higher bond yields, I think there’s a chance the shares will keep on falling.

At 550p, the shares would yield about 4%. At 500p, the dividend yield would rise to 4.5%. I think there’s a chance that the stock will get down to 550p, if not a little lower. At that level, I’d be a buyer.

A tricky situation

One stock in my own portfolio that’s been hit hard today is geotechnical specialist Keller Group (LSE: KLR), which is down more than 25% following a profit warning.

Keller is the world’s largest groundworks contractor. It’s a highly specialist business, working on construction projects such as oil refineries, major tunnels and skyscrapers.

Today’s profit warning has been triggered by problems in the group’s Asia-Pacific (APAC) business. Operations in this region were loss-making last year, but were expected to return to profit this year. The company says market conditions have deteriorated in this region, especially in Malaysia.

But there’s also a second problem — a change of management has led to “the reassessment of project performance.” My reading of this is that new managers in the region are taking a more realistic view of underperforming projects and have flagged up new losses.

What’s the damage?

Keller says that its APAC division is now expected to report a pre-tax loss of £12m-£15m this year.

Underlying pre-tax profit last year was £98.7m. Before today, analysts’ forecasts suggested a fairly flat performance this year. So this profit warning seems to suggest that earnings could be around 15% lower than expected this year.

The shares have fallen much further than this and are down by 27% at the time of writing. I estimate this slump puts the stock on a forecast P/E of 8.2, with a prospective yield of 5.1%.

That could be cheap, if the group’s core US and EMEA markets remain strong. The risk is that there could be more bad news to come. I wouldn’t buy at this level until we know more.

The post Is the BAE Systems share price heading for 500p? appeared first on The Motley Fool UK.

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Roland Head owns shares of Keller Group. 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.

I’ll come back to IQE in a moment, but first I want to take a closer look at the latest figures from £780m geotechnical engineering contractor Keller Group (LSE: KLR).

This FTSE 250 firm is a high-end groundworks specialist. Past projects include work on the London Crossrail project. When tunnels were bored under important historic buildings, Keller’s “compensation grouting” ensured that the surface of the ground moved by no more than 1mm. Keller is also involved in large-scale projects such as oil refineries, skyscrapers and dams.

Today’s half-year results suggest that demand for the group’s services remains strong. Underlying pre-tax profit rose by 7% to £42.2m. Underlying earnings rose by 24% to 41p per share. The firm’s legendary dividend growth continues — the interim payout will rise by 24% to 12p per share.

What could go wrong?

Keller is one of the market leaders in its field and operates globally. Although it is a cyclical business, today’s results showed profits that are stable or improving in all regions.

The company says that full-year results are expected to be in line with expectations. Based on the latest analyst forecasts, this puts the stock on a forecast P/E of 11, with a prospective yield of 3.3%. I continue to rate the shares as a buy.

A tech growth story

Semiconductor wafer specialist IQE plans to double the number of reactors qualified for photonics in its Newport factory from five to 10 this year. The company plans to have built 20 “fully serviced reactor bays” by the middle of 2019, with more planned beyond that.

Photonics (devices that emit or detect light, such as lasers) are the most rapidly growing part of the firm’s business. In its latest trading update, the company says that sales of these products rose by 30% during the first half, excluding exchange rate effects.

Alongside this, the company’s more mature Wireless business continues to sell large volumes of compound semiconductor products, which are required for high-speed wireless services.

IQE said last week that it expects to report half-year sales of £73m, up from £70m for the same period last year. However, this figure was affected by a 9.5% currency headwind. I estimate that sales at constant exchange rates would have risen by about 14% to £80m.

On track for growth targets?

Sales are expected to be 50% higher during the second half of the year than during H1. This puts the group on track to hit full-year forecasts of about £180m. The Cardiff-based firm says that the heavy second-half weighting is due to the time needed to replenish inventories of certain components after rapid photonics growth last year.

I can see no reason to doubt this guidance, but in my view there’s always some risk of disappointment when sales growth is ‘lumpy’ in this way. Despite this year’s share price drop, IQE stock still trades on a 2018 forecast price/earnings ratio of 28. This drops to a forecast P/E of 19 for 2019. This looks high enough to me, so I wouldn’t buy the stock at this level.

The post The IQE share price is falling. Should you be buying? appeared first on The Motley Fool UK.

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Roland Head owns shares of Keller Group. 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.

The small-cap area of the market shouldn’t be ignored when hunting for dividend growth stocks. There are some fantastic under-the-radar investment opportunities available outside the FTSE 100. Here’s a look at two stocks I rate highly for their dividend prospects.

Liontrust Asset Management

I identified asset manager Liontrust (LSE: LIO) as a top stock for 2018 back in the first week of January. Three months later and the shares are up 18%, which is not a bad return at all when you consider the volatility across global markets in that time.

Liontrust runs a range of active funds including global equity and sustainable investing mandates. While many investors are concerned that passive investment management is a significant threat to the long-term future of active management, a trading update from the firm today suggests that the demand for active management remains robust.

Indeed, for the three-month period to the end of March, the asset manager enjoyed net inflows of £255m, up from £200m in the same period last year. For the financial year to 31 March, net inflows were £1,004m, up from £482m last year. Total assets under management rose to £10.5bn at 31 March, up from £6.5bn last year, boosted by the acquisition of Alliance Trust Investments.

Liontrust’s dividend prospects look attractive, in my view. Since reinstating its dividend in 2013 with a 1p per share payout, it has increased its distribution by 1,400% to 15p per per share last year. City analysts expect a hike of around 24% for FY2018, which would take the payout to 18.7p, a yield of 3.2% at the current share price. A further hike of 16% is anticipated for FY2019, which would push the prospective yield to almost 4%.

Despite the 18% share price rise this year, the stock remains attractively valued, trading on a forward-looking P/E ratio of just 13.2. I see the potential for further gains.

Keller Group

Another under-the-radar dividend growth stock that looks to have investment appeal is Keller Group (LSE: KLR), the world’s largest independent ground engineering company. It specialises in providing advanced foundation solutions for complex projects and has operations in 40 countries across five continents.

The company has an impressive dividend history, having not cut its payout since it paid its first dividend way back in 1998. In this time, the dividend has been increased from 6.5p per share to 34.2p, an increase of 426%. The stock has a trailing yield of 3.5% at present.

Recent FY2017 results were solid, with revenue rising 10% at constant currency and underlying EPS surging 30%. The company advised that it expects 2018 to be another year of “underlying progress” and that leads me to believe there could be further dividend hikes on the horizon. City analysts expect the dividend to be increased 5% and 6% this year and next, yet with dividend coverage looking strong I think there could be potential for greater increases. Trading on a forward P/E of just 10.1, Keller offers strong dividend growth appeal, in my view.

The post Two dividend growth stocks that could outperform the FTSE 100 this year appeared first on The Motley Fool UK.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Liontrust Asset Management. 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.

The trust takes a long-term approach to investing in mainly UK-based early-stage firms, which Neil Woodford believes will go on to deliver attractive returns to investors over time. As you’d expect, the trust focuses on the fundamentals of investee companies, but it also aims to support businesses through to commercialisation and fulfilment of their long-term potential. To me, as an individual investor, ‘supporting businesses’ is a bit of an alien concept that has hitherto found no place in my investing philosophy. My relatively small investments in individual firms don’t usually prop up a firm’s business model, and my aim is for the company to support me financially, not the other way round.

Attractive potential long-term rewards

Indeed, the Woodford website admits that investing in early-stage companies means “the risks are undoubtedly higher than in the more mainstream investment universe.”  Since the trust got going in the spring of 2015 the share price is down around 25%, suggesting that such risks have been biting. But the Woodford team is adamant that “when adjusted for these additional risks, the potential long-term rewards are extremely attractive.”

We don’t yet know if Woodford Patient Capital Trust will go on to perform well in the end, but we do know that by investing in it we can participate in a diversified range of early-stage businesses, which spreads the risk. One popular approach to investing in trusts and funds is to go for those that are underperforming based on the theory that they could be tomorrow’s winners and have their time in the sun. If Woodford is picking badly, he’ll be learning fast. If he’s unlucky, statistically he’ll likely be luckier down the road!

I think we can take diversification even further by mixing a trust like this with shares in individual firms. Woodford Patient Capital Trust invests in early-stage firms so why not hold shares in a more mature firm in your portfolio too, such as groundworks and engineering firm Keller Group (LSE: KLR)?

Trading well with a strong order book

Today’s full-year results from the firm show stellar progress. Revenue at constant currency rates came in 10% higher than a year ago and underlying earnings per share lifted 30%. The directors expressed their confidence in the outlook by pushing up the total dividend for the year by 20%.

Chief executive Alain Michaelis said in the report that the results were “extremely strong” in the region of Europe, the Middle East and Africa (EMEA), and “solid” in North America, “but disappointing” in the Asia Pacific region. However, he thinks that ongoing operational improvements, strengthened leadership and a market recovery should return operations in the Asia Pacific region to profitability during 2018. The firm’s order book stands at an impressive £1bn or so, and most markets remain robust with bidding activity “at a healthy level.”

There’s bound to be a large element of cyclicality in the firm’s activities, but Keller is trading well and the outlook is robust. I think the tasty-looking quality and value metrics make the firm well worth your research time.

The post 1 stock I’d consider now alongside Woodford Patient Capital Trust plc appeared first on The Motley Fool UK.

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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.

Today the company announced yet another deal. It has agreed to acquire from Tarmac four quarries and an asphalt plant for a total consideration of £16.5m. These assets will be paid for by the transfer to Tarmac of 27 of Breedon’s ready-mixed concrete plants and a payment of £4.9m in cash.

This deal is part of the firm’s aim to expand its aggregate portfolio and streamline its ready-mixed concrete network. While it’s not expected to have a material impact on earnings, the deal does add approximately “25m tonnes to the group’s mineral reserves and resources.“

According to CEO Pat Ward: “This deal brings significant benefits: it adds to our reserve base; it is margin-enhancing; it releases value from peripheral ready-mix plants; and it will enable us to replace third-party aggregates providers with our own sources of supply.“

A good fit for the group

I have every confidence in management and believe that this deal is in the best interest of shareholders. You see, over the past five years, Breedon’s growth has been nothing short of impressive, and shareholders have been well rewarded. Since December 2012 the stock has returned 320%!

It has established its self as the UK’s leading construction materials group, which gives it a strong base to grow from in the years ahead. City analysts are projecting earnings per share growth of 14% for each of the next two years. If growth continues at this rate, earnings per share will have doubled within five years. And if the company can double earnings per share in that period, the shares look highly attractive today. 

Doubling 2016’s earnings of 3.5p per share gives 7p, or a forward (five-year) P/E of 12. For the past half-decade, the shares have traded at an average P/E of 28. If the valuation returns to this level, shares in Breedon could hit 196p, a gain of 133% from current levels. 

Undervalued growth 

Keller Group (LSE: KLR) can’t boast the same historical growth as Breedon, but during the next few years, shares in the engineering firm look set to produce huge returns for investors. 

It is the world’s largest geotechnical contractor, providing technically advanced geotechnical solutions to the construction industry, a highly specialist line of business. Since 2012, the company’s earnings per share have doubled as it has expanded into new markets, but earnings are lumpy. 

For example, this year is expected to be a record one for the group’s Europe, Middle East, and Asia arm thanks to a $180m contract in the Caspian region. However, after this contract is completed at the end of 2017, profit in 2018 is expected to be “materially below what should be an excellent 2017 result.“

The unpredictability of earnings is holding back Keller’s shares. Right now the stock is trading at a forward P/E of 10.6, despite analyst expectations for earnings growth of 18% this year. 

Still, in my opinion, Keller’s low valuation offers an opportunity for value investors. If the company can replicate its performance of the past five years, and double earnings per share again, the shares could double from current levels. 

The post 2 high-growth opportunities that could make you a million appeared first on The Motley Fool UK.

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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.

Next

Next (LSE: NXT) shares have endured a torrid two-year period. Back in November 2015, sentiment towards the retailer was high and the shares changed hands for around 7,600p. Today, you can pick up the stock for just 4,300p.

At that price, Next’s forward P/E ratio is a low 10.6, and its dividend yield has been pushed up to 3.7%. Does that make the stock the bargain of the year?

Personally, I’m not convinced that Next is a good stock to own right now. To me, the landscape for the retailer looks very challenging, and not dissimilar to the UK supermarket landscape. In the same way that Aldi and Lidl have eroded profitability at supermarkets such as Tesco and Sainsbury’s, new online entrants to the fashion market, such as Asos and Boohoo.Com have made life very difficult for Next.

This is evident in the group’s financial performance. Sales fell 2% last year and City analysts expect a further decline this year, followed by a rise of just 0.5% next year. In a recent trading statement, the retailer advised that it expects earnings per share to fall between 3.5% and 10% this year.

With that in mind, there are plenty of other dividend stocks I’d buy before Next.

Keller Group

One dividend stock that does look tempting right now is Keller Group (LSE: KLR). It is the world’s largest independent ground engineering company, specialising in providing advanced foundation solutions for complex projects. It has operations in 40 countries across five continents, and generates a large proportion of its revenues from the US.

I last covered the stock back in August. At the time, Keller had a market cap of £600m. Today, the company is worth £660m, meaning the shares have risen 10%. However, I believe the stock still offers great value for long-term investors.

The ground engineering specialist released an upbeat trading update this morning, and stated that revenue and profit in the four months since its half-year results are ahead of the same period last year. The group remains on course to meet the board’s expectations for the full year, with “good” year-on-year growth in both revenue and operating profit.

Keller described the US construction market as “solid,” and said that while Hurricanes Harvey and Irma had resulted in lost production, and impacted profit by a one-off £3m, it expected “the heightened focus on hurricane and flood defences to lead to increased investment over time.” Growth was strong across the EMEA region, and while pricing remained challenging in some parts of Asia, the group said that it expected this region to return to profitability in 2018.

City analysts forecast earnings of 88p per share for Keller this year, a rise of 16% on last year. At the current share price, that estimate places the stock on a forward P/E of just 10.5. An expected dividend payout of 30p this year means that a yield of 3.3% is also on offer. Those metrics look attractive to me. I believe Keller has considerable potential for long-term investors.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo.com. 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.

Today I’m looking at two interesting growth stocks at the smaller end of the market. Both have appealing long-term prospects in my view.

TT Electronics

£350m market cap TT Electronics (LSE: TTG) is a global provider of engineered-electronics for applications in the industrial, transportation, defence, aerospace and medical industries. The company develops products such as semiconductors, sensors and magnetics that can withstand harsh environments.

After a tough few years, today’s half-year results suggest TT is heading in the right direction. The company recorded revenue of £180m, growth of 13% on last year, while operating profit rose a significant 31% to £10.9m. Impressively, earnings per share doubled to 4.6p. Chief Executive Richard Tyson sounded particularly upbeat about the results, stating “we have been delighted with the performance of the business in the first half. We have reported strong organic revenue growth, an improved operating margin with excellent profit growth and cash conversion. Our first half performance and order momentum reinforce our confidence of making further progress in 2017.”

After trending sideways for the best part of two years, TT Electronics’ share price has roared back into life since November, surging over 50%. Is there more to come?

The company recently disposed of its transportation (TS&C) division, and this should place the company in a much stronger position to focus on its strategy of investing in structural growth markets. Indeed, management stated today that the disposal will make TT “a higher-margin, higher-quality business, with significantly improved financial capacity.”  

City analysts currently forecast it to generate FY2017 earnings of 13.6p per share, a 13% increase on last year. At the current share price, that places the stock on a forward P/E ratio of 15.9. A dividend yield of 2.6% is also on offer. With demand for connected devices, more data and improved precision in the industries that TT services likely to remain robust, these metrics look attractive in my view.

Keller Group

Another company that looks to have considerable long-term potential is £600m market cap Keller Group (LSE: KLR). It is the world’s largest independent ground engineering company, specialising in providing advanced foundation solutions for complex projects. While over half of its revenues are generated in the US, the company has operations in over 40 countries across five continents, employing over 10,000 people. 

Half-year results, released in late July, saw revenue increase 17% to a record £991m, and underlying earnings per share surge 28% to 35p. The group had a year-end order book of £1.1bn, an all-time high, 20% above last year on a constant currency basis. The performance in the US was a little lacklustre, but with US President Donald Trump planning to spend significantly on infrastructure in coming years, Keller could benefit.

The company has appealing dividend growth prospects, having increased its dividend payout from 22.8p to 28.5p per share over the last five years. Analysts expect dividend growth of 5.2% this year, taking the payout to 30p, a yield of a healthy 3.6%. Dividend coverage is forecast to be almost three times.

Revenue growth of 13% is anticipated this year, and consensus earnings estimates place the stock on a forward looking P/E ratio of just 9.4. After a 13% pullback in the share price since mid May, I believe value is on offer for long-term investors.

The post 2 top growth stocks that could make you rich appeared first on The Motley Fool UK.

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Edward Sheldon has no position in any 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.