However, despite this growth, I’m wary that the group’s future may not be as bright as its past. With this in mind, today I’m looking another growth stock that might be a better buy for your portfolio. 

Uncertain outlook 

After growing EPS at an average annual rate of 16.5% per annum for the past six years, City analysts are expecting Schroders’ growth to slow substantially for the last years of this decade. Analysts are predicting growth of just 3.4% for 2018, and 5% for 2019, a far cry from the increase of 24% printed for 2017. 

It seems analysts are concerned that the company’s offering is no longer attracting customers. The group’s asset management division reported a slight fall in assets under management (AUM) for the first half, although overall assets under administration increased by £2bn to £449bn. 

AUM figures for the first half of 2018 were disappointing, but it seems that the market was even more upset by the lack of dividend growth from the company. 

Since 2012, the payout has grown at a staggering 21% per annum, more than doubling from 43p to 114p. However, as earnings stagnate, it now looks as if this growth has come to an end. Even though the stock still supports a dividend yield of 3.8%, it’s disappointing to see that analysts are predicting almost no payout growth for the next two years. 

In comparison, analysts seem to be extremely excited about the dividend prospects for Curtis Banks (LSE: CBP). 

Growth superstar

One of the UK’s leading SIPP providers, Curtis Banks is working flat out to transform itself into the next Schroders. And it seems the strategy management has deployed is working. 

According to the company’s interim results published earlier today, assets under administration increased by 9% in the first half to £25.1bn. Operating revenue generated from SIPP management rose 7.5% to £23m and, thanks to economies of scale gained from managing a larger asset base, adjusted diluted earnings per share increase to 16% to 8.3p. 

This first-half performance puts the company well on the way to meeting full-year City expectations. Analysts have pencilled in EPS growth of 22% for the full-year, alongside a dividend increase of 18%. Based on these numbers, shares in the asset manager are changing hands for 16.3 times forward earnings which, in my opinion, isn’t that expensive considering the growth on offer. 

After factoring 2018’s projected dividend growth, the stock yields 2.6%. A net cash surplus of £9m provides support for the dividend and gives the company plenty of financial firepower to chase acquisitions in the rapidly consolidating wealth management sector. 

So, if you are looking for a replacement for Schroders in your portfolio, I reckon Curtis Banks won’t let you down.

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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. 

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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That’s particularly the case with smaller companies, where valuations may not have risen by as much as their larger stock market peers in recent years. With that in mind, here are two small-cap stocks which could deliver high returns this year.

Encouraging performance

Reporting on Tuesday was SIPP provider Curtis Banks (LSE: CBP). The company’s performance in 2017 was encouraging, making strong progress with the integration of Suffolk Life Group. It traded in line with management expectations, with new SIPPs during the year amounting to 8,798, and overall SIPP numbers increasing to 76,474. Attrition rates on own SIPPs have remained in line with previous years at 5.7%, with the company’s assets under administration totalling £24.7bn, versus £20.4bn last year.

Looking ahead, Curtis Banks is expected to report a rise in its bottom line of 12% in the current year, followed by further growth of 10% next year. Despite such a strong rate of growth, its shares trade on a price-to-earnings growth (PEG) ratio of only 1.5, which suggests that there could be upside potential ahead.

In addition, the company has improving income prospects. It’s expected to have a dividend yield of around 2.3% in the current year. But with dividends due to be covered 2.5 times by profit, there could be significant growth ahead here. As such, the total return on offer could be high in the long run.

Improving outlook

Also offering investment potential within the wealth management space is Brooks Macdonald (LSE: BRK). The company’s financial performance is linked to that of the stock market, so it’s perhaps to be expected that it’s forecast to deliver strong earnings growth in the near term. In fact next year, the company’s bottom line is expected to rise by 22%, which puts it on a PEG ratio of 0.6. This suggests that it may be deserving of a higher valuation if it’s able to deliver on the upbeat forecasts.

Shareholders are expected to benefit from rising earnings via a higher dividend. In fact, shareholder payouts are forecast to rise by 22% in the next financial year. This would put the stock on a dividend yield of 3.1%, with dividends being covered 2.3 times by profit. This suggests that further double digit dividend growth could be on the cards, which could make Brooks Macdonald a worthwhile income play.

Certainly, the company may not offer the stability of other income stocks over the long run. But for investors who are concerned about inflation, it could be a realistic alternative.

The post These promising small-cap stocks could be millionaire-makers in 2018 appeared first on The Motley Fool UK.

Big in SIPPs

The company started up in 2009 to focus on the pension market and now administers many of the UK’s Self-Invested Pension Products (SIPPs) and a few Small Self-Administered Schemes (SSASs). Organic and acquisitive expansion drive growth, and a big part of the good figures we see today derive from a full contribution from the May 2016 acquisition of Suffolk Life Group Ltd.

However, the Suffolk Life Brand isn’t responsible for all of the good news. The directors insist that strong organic growth played a part too, and organic new business is running at an annualised rate of expansion of over 9,000 SIPPs. The firm has around 75,000 SIPP clients generating assets under administration around £23bn. So organic growth is running at about 12% per year. In the firm’s eight years of existence, it has grown to become the UK’s largest dedicated Full SIPP provider.

I reckon the Suffolk Life purchase was good value. Back in May 2016, Curtis Banks raised £27m through a placing of new shares to fund the acquisition along with existing cash resources and new debt. At the time, the placing diluted existing shareholders by about 19%. Meanwhile, borrowings sit at around £95m, which compares to the current market capitalisation of £151m or so.

More to come?

The firm reckons it has long-standing relationships with regulated advisory firms that introduce clients, and high levels of repeat business make the directors confident that customers are pleased with the service and organic growth will continue. City analysts following the firm expect earnings to advance 37% for the whole of 2017 and 10% during 2018.

But just as the acquisition of Suffolk Life was transformational for Curtis Banks, Michelmersh Brick Holdings (LSE: MBH) is also digesting an acquisition that looks set to launch the firm’s figures into a quantum leap. The specialist brick manufacturer released its half-year report today with revenue up 6% and earnings per share declining almost 8%, but the results to the 30 June show just seven days of trading after the £31m acquisition of Carlton Main Brickworks.

Another transformation?

The directors expect the acquisition to deliver a “significant” increase in the output of bricks and financial performance for the firm during the second half of the year, which means we could see a spectacular change along the lines of Curtis Banks’s recent performance. Meanwhile, Michelmersh offset some of the cost of the acquisition with the sale of its Dunton site for £2.68m, but still increased net debt to £20.7m after drawing £24m to meet the full cost. Prior to that, the firm had £2.7m in net cash.

Although both Curtis Banks and Michelmersh Brick have geared up their balance sheets to make their big acquisitions, I reckon future cash flows could help both firms pay down borrowings in reasonable time. From an investing point of view, I think these two are worthy of your further research right now.

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Strong start

Reporting on Thursday was acquisition specialist Marlowe (LSE: MRL). In its first year trading as Marlowe plc it was able to deliver eight acquisitions, with one further acquisition after the year-end. During the period, it has established a platform for growth which is focused on the fragmented fire & security and water treatment markets. It was able to achieve run rate revenues of £65m, while adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) was £4m.

With net cash of £3m and debt headroom of £15.3m, there seems to be scope for further M&A activity over the medium term. In fact, the company has identified a well-developed pipeline of attractive opportunities which could add scale to the business. This could help it to achieve its goal of building a leading UK support services group in critical asset maintenance.

Looking ahead, Marlowe is forecast to record a rise in its bottom line of 24% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.4, which suggests it could offer capital growth potential. That’s despite its shares having risen by 26% in the last three months. With investor sentiment on the up and its financial performance set to improve, now could prove to be the right time to buy a slice of the company.

Wide-ranging potential

Also making gains in recent months have been shares in Curtis Banks (LSE: CBP). The pension administration services provider has risen by 14% since the start of the year. However, it continues to trade on a relatively enticing valuation. For example, it has a price-to-earnings (P/E) ratio of 23 despite being forecast to post a rise in earnings of 33% in the current year, followed by further growth of 13% next year. This translates into a PEG ratio of 1, which indicates its share price could move considerably higher over the medium term.

As well as growth and value appeal, Curtis Banks also offers significant income potential. It may only yield 1.5% at the present time, but it is expected to record a rise in dividends of 25% this year, and 20% next year. This puts it on forward yields of 1.9% in the current year and 2.3% next year. Despite this, it is expected to cover shareholder payouts almost three times next year. This suggests dividend growth could easily beat earnings growth over the coming years. With inflation moving higher, this could increase the appeal of the stock and help to push its share price higher.

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An appealing business

I manage my own investments within a SIPP and suspect that many other folk reading this article do, too. In this world of advanced communications technology, the nuts and bolts of buying, selling and researching shares and investments is easier than it has ever been, making do-it-yourself investing much more appealing, so I can see how the SIPP business may be attractive.

Previously, many SIPP providers offered the service as a ‘bolt-on’ to their many other, and often much larger, financial businesses. So, it’s interesting that Curtis Banks specialises in SIPPs and is beginning to grow by acquiring SIPP assets from other institutions that want to exit the SIPP business, presumably to focus on their core operations.

Chief executive Rupert Curtis explains that the acquisition of Suffolk Life during May 2016 “transformed” his company, with SIPP numbers up by 86%, driving a 75% revenue increase compared to a year ago. Assets under administration jumped from £9bn in 2015 to £18.8bn, but the effect on profits during the year is modest with basic earnings per share up just over 1.5%. It will be interesting to see how a full year of trading increases the firm’s profits, following the Suffolk Life acquisition, as the current period progresses.

A positive outlook

The directors describe the outlook for 2017 as “strong”,  and the firm plans to evaluate further acquisition opportunities as they materialise. Such potential consolidation within the industry could work well for Curtis Banks and drive total returns for shareholders from here.

At today’s share price of 265p, the company trades on a forward price-to-earnings (P/E) ratio of 18 for 2017 and the forward dividend yield runs at 1.9%. Meanwhile, shareholder’s cash offsets borrowings on the balance sheet, suggesting that the firm is well financed to grow from here.

Successful advertising campaign

Window and door replacement company Safestyle UK (SFE) continues to rampage through the British market, driven in no small part by its ‘unforgettable’ advertising campaign. In one interesting counter-intuitive statistic from today’s full-year results, the company said that leads generated from media and on-line marketing rose 23% during 2016, compared to the year before.

The results are good. Revenue ticked up 9.5% compared to a year ago, pre-tax profit climbed 9.7%, basic earnings per share increased 6.7%, and operating cash flow shot up 16%, all driven by installed volumes, which advanced 3.2%. Safestyle clearly continues to win market share.

Growing, but cyclical

The directors capped these achievements by hiking the final dividend 10.3%. At today’s share price of 290p, you can pick up a slice of Safestyle for a forward P/E ratio of just under 13, and the forward dividend yield for 2018 runs slightly above 4.5%. City analysts following the firm expect earnings to grow 3% during 2017 and 8% during 2018 and to cover the dividend payment 1.7 times.

The outlook is positive, the shares in an uptrend, and my only reservation is that the firm’s operations are cyclical, which could lead to an earnings and share-price reversal at some point down the road.

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In fact, National Grid’s share price has beaten the FTSE 100 by 52% in the last five years. Looking ahead, further outperformance is on the cards since the index is experiencing a hugely volatile and uncertain period where stocks such as National Grid could become increasingly popular. That’s because National Grid offers an excellent defensive profile and is likely to be less sensitive to the macroeconomic outlook than most of its index peers.

With National Grid trading on a price-to-earnings (P/E) ratio of 15.7, it’s hardly dirt cheap at the moment. However, there’s still upward rerating potential on offer since a number of the company’s utility peers trade on much higher valuations.

Long-term play

Of course, the outlook for the housing sector is a lot less certain than for utilities. That’s a key reason why the share price of housebuilder Inland Homes (LSE: INL) has fallen by 11% since the turn of the year. And with there being a good chance of an interest rate rise in the next year, the affordability of houses could come under pressure as mortgage costs rise.

Clearly, Inland Homes has a bright long term-future since the demand/supply imbalance in the housing market is likely to last for many years. However, its shares could come under further pressure in the short run – especially if the UK votes to leave the EU. But with the company having a relatively wide margin of safety as evidenced by a price-to-earnings growth (PEG) ratio of just 1, now could be a good time to buy for the long term.

Powering ahead

Meanwhile, pension administration specialist Curtis Banks (LSE: CBP) has had a superb year, with its share price rising by a whopping 71%. Although some investors may be concerned about the potential for profit-taking after such a stunning rise, Curtis Banks continues to offer strong growth prospects at a very reasonable price.

For example, the company is forecast to increase its bottom line by 38% in the current year and by a further 25% next year. When combined with a P/E ratio of 23.1, this equates to a PEG ratio of just 0.9 and this indicates that there’s capital gain potential over the medium-to-long term. And with dividends expected to rise by almost 42% next year, Curtis Banks seems to have confidence in its long-term future, while a forward yield of 2.3% holds at least some appeal for income-seeking investors.

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