The best opportunities are often found in places other investors aren’t looking. And the Alternative Investment Market (AIM) in the UK is quite a way off the beaten track.

Overlooked opportunities

Fundamentally, investing well comes down to one thing. It’s about seeing a company’s shares trading at a price that doesn’t accurately reflect the quality of the underlying business. 

This depends on seeing something that other investors are missing. And that’s easier to do when there aren’t as many people paying attention to the stock. 

Two stocks I’ve been looking at recently are Churchill China (LSE:CHH) and FW Thorpe (LSE:TFW). In each case, I can’t find more than one analyst covering the stock. 

With this type of stock, investors have to do more of the work themselves. But I think there’s a much higher chance of seeing something others aren’t if not many of them are looking.

Churchill China

Churchill China has nothing to do with Asia – it designs and manufactures tableware. The firm focuses on the hospitality industry, since that’s where repeat business tends to come from. 

The stock’s down 45% since the start of the year, mostly due to end markets struggling. And there’s a risk things might continue with the government’s Budget increasing costs on businesses.

Despite this, the falling share price looks like an overreaction. The company has largely offset lower sales with operational efficiencies, resulting in stable operating profits.

Higher inventory should put the firm in a position to react quickly when demand starts to recover. When that will be I don’t know, but I think this is one to keep an eye on.

FW Thorpe

FW Thorpe manufactures industrial lighting equipment. Over the last decade, revenues have been growing at an average of 9% a year and earnings per share growth has been around 8%.

This has been driven by a wide transition to LED systems. But with this shift largely complete, there’s a risk for investors that growth might slow in the future. 

There are however, some strong reasons for thinking the stock could be a good investment over the long term. The first is that it owns its intellectual property and manufacturing facilities. 

This puts FW Thorpe in a strong competitive position. And at a price-to-earnings (P/E) multiple of 15, the valuation isn’t particularly demanding at the moment. 

Under-the-radar stocks

Investing well is about finding quality companies that are underestimated by the market. And to reiterate, this can be easier when there are fewer investors looking at them. 

Both Churchill China and FW Thorpe look like good candidates to me. I think investors should have both on their radars with a view to considering potential buying opportunities.

The post 2 small-cap ideas for a Stocks and Shares ISA appeared first on The Motley Fool UK.

Quality… at a price

No more table service. No more sitting outside (unless you want to!). The full re-opening of bars, pubs and nightclubs should play into the hands of FTSE 100 drinks giants Diageo (LSE: DGE). As such, I’d be happy to buy its shares on Monday.

For me however, Diageo’s appeal goes beyond the Covid recovery. I think it’s a great defensive stock to hold at the heart of a portfolio.

While trading will never be completely consistent year-to-year, its portfolio of premium brands and clout within the sector makes earnings (and dividend hikes) far more predictable than at other companies. High returns on capital and pricing power also make this a good hedge against inflation, in my opinion.

Sure, the valuation — a P/E of 27, as I type — is punchy. There’s a risk investors will prioritise value stocks in the months ahead, meaning some recent share price gains may be given up.

As a long-term investor, that wouldn’t bother me. As blue-chip companies go, I reckon Diageo is one of the best stocks to buy.

Summer holiday winner

Another stock that should benefit from the lifting of restrictions is Hollywood Bowl (LSE: BOWL). This might seem an odd choice as sites have been open for some time now. BOWL’s shares have also climbed 65% in value since this time last year.

However, I suspect the firm could benefit even more from the ongoing controversy and confusion surrounding overseas travel. Right now, booking a holiday abroad feels risky in both a health-related and financial sense.

Having probably exhausted streaming services over the multiple lockdowns, parents will also be looking for relatively cheap ways to entertain children over the school holidays. Step forward Hollywood Bowl.

Based on the numbers available to me, BOWL trades on a fairly attractive 17 times predicted FY22 earnings. Sure, nothing is nailed on and the company certainly carries more debt than it used to. Nevertheless, the above points and the ordinarily decent profit margins make the stock a ‘buy’ for me. 

Time to dine

A final stock I’d consider buying on Freedom Day — and one I already own — is small-cap Churchill China (LSE: CHH). Like Diageo, the tabletop manufacturer could/should see another rebound in trading as more people feel confident to return to restaurants and attend events. 

This month’s update was encouraging. Revenue in both May and June was back at 2019 levels. News that an interim dividend will be paid also suggests management is confident in the outlook. 

Having also increased by 65% in 12 months, Churchill’s share price now looks up to date with events. Moreover, the company’s small-cap status means the valuation could prove more volatile than your typical blue-chip if Covid takes hold again. As a result, I’m not sure I’d throw excessive amounts of cash at the firm now.

Notwithstanding this, I’d consider a small top-up, bearing in mind the company’s order book may receive another boost as vaccination programmes overseas pick up speed. 

The post 3 of the best stocks to buy on ‘Freedom Day’ appeared first on The Motley Fool UK.

Contrarian pick

As might be expected, Churchill’s share price tumbled last year as the hospitality sector closed its doors. As setbacks go, it’s hard to imagine anything worse for this ‘picks and shovels’ business than a raging pandemic. Today’s full-year numbers for 2020 show just how bad things were for the company. 

Total revenues fell a whopping 46% to £36.4m in 2020. The bottom line was even worse. After one-off costs are taken out, Churchill made just £100,000 in reported pre-tax profit over 2020. Contrast that to the £11.3m achieved in 2019.

Still, I think there are reasons to be optimistic. According to the company “there is now growing evidence from enquiries, order levels and sales that activity levels are recovering.” I can only see this momentum growing as we approach Boris Johnson’s full reopening target date of June 21. 

On top of this, Churchill remains financially robust. It had net cash and deposits of £14m at the end of last year. That’s only slightly down from the £15.6m war chest it had in 2019. Factor in “an improved competitive position” (according to chairman Alan McWalter) and developments like a new European distribution centre, I think Churchill could do very well post-pandemic. 

That’s not to say it’s plain sailing from here. A third Covid-19 wave most definitely can’t be ruled out. Moreover, the rush to start eating out again could moderate fairly quickly as the full financial impact of the virus is realised.

Another potential drawback is the lack of dividends right now. That doesn’t bother me as someone looking primarily for capital growth. However, it might be enough to put income-focused investors off. 

Churchill’s share price is now up around 64% since its March 2020 low. I think there could be more to come, especially given today’s positive reaction to the aforementioned dreadful numbers.

Another winner

Since I covered Somero in the same article last year, it makes sense to mention it again here. Like Churchill China, this is a position I’ve been steadily accumulating over the last year. And, like Churchill, this small UK share has done well for me so far. Its share price is up 162% since March 2020, thanks to a swift rebound in trading. 

So, a home run then? Not necessarily. Although operating in a completely different industry, Somero faces many of the same risks. A significant third wave may be enough to put construction projects on hold again. It could also force businesses to rein in spending and postpone buying any of its concrete-levelling equipment. Naturally, shares in Somero aren’t as cheap to acquire as they once were either. A P/E of 16 is certainly a lot dearer than the 7 times earnings or so I paid. 

For me, however, these risks are outweighed by Somero’s quality. It’s a leader in a niche market and generates consistently high margins and returns on capital. What’s more, the £230m-cap has the financial firepower to weather any extension to the coronavirus storm with lots of cash on its balance sheet.

As such, I’d be willing to buy more of the stock today. 

The post These UK shares still look like great buys to me appeared first on The Motley Fool UK.

Tom Rodgers: Sylvania Platinum

Sylvania Platinum (LSE: SLP) is one of those stocks I think will become increasingly strategically important. The platinum group metals the company processes at a low cost from its base in South Africa are used in practically every modern electrical appliance. Prices for rhodium and palladium have rocketed to near all time highs this year as demand outstrips supply.

With $55m cash and no debt, profits and earnings per share both doubling from 2019 to 2020, and investors in line for a special windfall dividend in 2021, this is one of the most obvious micro-cap no-brainers I’ve seen for years. 

Tom Rodgers owns shares in Sylvania Platinum.

Zaven Boyrazian: Tristel

Throughout 2020, medical centres around the world have adopted far more rigorous cleaning standards. In light of recent news, a Covid-19 vaccine may soon be ready.

However, even after this pandemic comes to an end, the increased disinfecting practises are likely to continue with stricter legislation. This creates a vast opportunity for Tristel (LSE:TSTL).

The firm manufactures infection prevention products that are widely used throughout hospitals. Given each of their products are consumables, they create a recurring income from existing customers.

As all products require FDA approval, Tristel faces little competition within a rapidly expanding market space.

Zaven Boyrazian does not own shares in Tristel.

Kirsteen Mackay: Tracsis

Tracsis (LSE:TRCS) is a UK tech stock that makes software specifically designed for the transportation industry, with railways being a main beneficiary. The company has been publicly listed for 13 years and its share price has risen approximately 1,075% during this time.

With the pandemic pausing travel, this has caused a sharp shock to the company, but it’s still winning government contracts. Although the Tracsis share price has seen extreme volatility this year, I think it will renew its growth trajectory once normality resumes. It has a £150m market cap. Its price-to-earnings ratio is 28 and earnings per share are 17p. 

Kirsteen does not own shares in Tracsis.

Edward Sheldon: Cerillion

My top micro-cap stock for November is Cerillion (LSE:CER). It’s a leading provider of cloud-based (SaaS) billing, charging, and customer management systems.

Cerillion appears to have plenty of momentum at the moment. In October, the group advised that trading in the second half of the year ended 30 September was strong. During this period, the company signed its largest-ever contract. Meanwhile, it said that its back-order book was at record highs and that it expects revenue and adjusted EBITDA for the year to be ahead of current market expectations.

At the time of writing, Cerillion has a market cap of under £100m, meaning there’s plenty of potential for growth. All things considered, I think this micro-cap stock looks pretty exciting.

Edward Sheldon has no position in Cerillion.

Rupert Hargreaves: Inspecs

I have my eye on UK-based designer, manufacturer and distributor of eyewear frames, Inspecs (LSE: SPEC).

The UK eyewear market is vast, and it’s only expected to continue to expand over the next few decades. This growth is projected to show through in Inspecs’ top line next year. Sales set to jump by a third in the next two years.

A cash-rich balance sheet could also hint at the prospect of large dividends from this consumer-focused business.

In my opinion, as Inspecs’ sales expand over the next few years, the stock has the potential to jump higher.

Rupert Hargreaves does not own shares in Inspecs.

Royston Wild: Bloomsbury Publishing

Bloomsbury Publishing is a share I’d buy today and hold for all time. It’s not just the eternal appeal of the Harry Potter franchise which makes this UK share a great long-term buy. I’m also encouraged by the huge profits potential of its move into academic publishing.

Bloomsbury’s shares recently soared to their most expensive since February on some blowout trading numbers. First-half earnings clocked in at twelve-year highs as sales of the publisher’s online books and e-books rocketed. The performance of its digital academic products was also impressive as institutions switched to remote learning due to the pandemic. As a consequence sales of these particular products surged by almost half year on year.

With organic sales rocketing, and its cash-packed balance sheet also creating chances for more profits-boosting acquisitions, I reckon Bloomsbury is a terrific buy right now.

Royston Wild does not own shares in Bloomsbury Publishing.

Kevin Godbold: MPAC

Global packaging company MPAC (LSE: MPA) aims to become a market leader in the “pharmaceutical, healthcare, food and beverage sectors.”

I think MPAC’s niche in those defensive sectors looks attractive. The business is bouncing back from the first wave of Covid-19 lockdowns. And in September the directors announced an acquisition in the US, followed in October by the relaunch of the MPAC brand along with a new corporate website.

City analysts expect earnings to resurge more than 50% in 2021. And with the stock near 400p, the forward-looking earnings multiple is just below 11. With growth on the agenda, I’d buy the micro-cap stock for November and beyond.

Kevin Godbold does not own shares in MPAC.

Jonathan Smith: Oxford Metrics

Oxford Metrics (LSE: OMG) is a UK based software and data analytics company, with offices worldwide. It has an asset management software arm called Yotta, that has been performing very well in recent times. I feel the business is well set to perform well even during an extended pandemic situation. The firm has no debt, and cash balances of over £14m as of Q2 2020. 

The nature of the business also means strong ‘annualised recurring revenue’, that was up 14.6% versus last year. This should aid continued growth in the future. The share price has doubled in value over the past 5 years.

Jonathan Smith does not own shares in Oxford Metrics.

Roland Head: Brickability

Recent results suggest the housebuilding market is enjoying a rapid recovery from the COVID-19 slump. One company I think could benefit from this strong demand is Brickability (LSE: BRCK).

This £115m firm sells bricks, roofing, and other building materials to housebuilders. Growth areas include heating, plumbing and doors. Chairman John Richards says that the company is seeing a “V shaped” recovery and the firm has just issued a solid set of half-year results.

The shares trade on just seven times 2021 forecast earnings and offer a well-covered 5% yield. I’d be happy to buy at these levels.

Roland Head does not own shares in Brickability.

Paul Summers: Churchill China

With things looking positive on the coronavirus vaccine front, my pick of the micro-cap stocks this month is ceramic tableware supplier Churchill China (LSE: CHH). 

Naturally, the £140m cap has seen its revenue, profits, and share price walloped by the virtual shutdown of the hospitality sector in 2020. However, I think the potential rewards now outweigh the risks.

While a full recovery won’t be immediate, earnings are expected to bounce back in 2021 as pubs, restaurants and hotels reopen. In the meantime, this high-quality, ‘family-owned’ company has cut costs where it can and remains debt-free.

Paul Summers owns shares in Churchill China.

Matthew Dumigan: Tatton Asset Management

Since flotation in 2017, shares in Tatton Asset Management (LSE: TAT) have been rather volatile. However, over the three years, the company’s share price has risen 45%, delivering a tidy return to investors. 

The company provides a range of on-platform only services ranging from discretionary fund management and compliance to mortgage provision. What’s more, the firm’s recent half-year results report was positive, with group revenue increasing by 12.6% year-on-year and adjusted operating profit rising by 21.9%.  

Ultimately, I’m impressed by the company’s earnings growth and I reckon Tatton can continue to deliver a strong performance in the years to come.  

Matthew Dumigan does not own shares in Tatton Asset Management.

G A Chester: Trans-Siberian Gold 

Trans-Siberian Gold (LSE: TSG) is a small but profitable miner with ambitions of becoming a premier mid-tier operator. Its strategy is to maintain a strong balance sheet, while both investing in growth opportunities and paying a base level of sustainable dividends through the commodities cycle. 

The base level’s set at around $3m a year (a 2.5% yield at the current share price), but the company regularly distributes more. This year’s interim dividend alone was $7m (5.9% yield). 

With its growth prospects and record of distributing surplus cash to shareholders, Trans-Siberian Gold is my top pick in the smaller companies space. 

G A Chester has no position in Trans-Siberian Gold.

James J. McCombie: Surface Transforms

Surface Transforms (LSE: SCE) recently won a contract worth £27.5m to supply an eighth global automotive customer with its high-performance carbon-ceramic brake discs. As a result, revenues should quadruple to £8m in 2022 versus 2020, and earnings per share should turn positive.

The high-performance brake market is worth £200m and growing, but a single supplier is dominant. Surface is now a credible alternative for manufacturers looking to diversify, and I think it will increase its market share significantly. 

Since electric vehicles need brake discs, Surface also looks good for the long-term, and I think it’s a great micro-cap stock pick.

James J. McCombie owns shares in Surface Transforms.

The post Top micro-cap stocks for November appeared first on The Motley Fool UK.

ISA buy

My first ISA purchase has been a small stake in small-cap ceramic tableware manufacturer and distributor Churchill China (LSE: CHH).

At first sight, this might seem a very odd move. After all, the company’s biggest customers are pubs, restaurants and hotels — the very places that have been closed for months. And yes, even if the government allows some of these sites to open in late June, trading could be very tough for quite a while.

Nevertheless, I still think quite a lot of this is priced in. The share price is, after all, still down 40% from the highs hit at the start of the year. If you believe current estimates, this leaves Churchill trading on 13 times forecast earnings. That’s cheap relative to its five-year average of a little under 19.

Second, this firm has shown all the hallmarks of a quality business, namely fat margins and decent (and rising) returns on capital employed. It’s also got a sound balance sheet with net cash of £15.6m in April. 

Third, a large proportion of the company is still owned by the Roper family. That’s something I really like to see because it implies their interests will always be aligned with those of your typical retail investor. Another tick in the box.

Let’s be clear on this: Churchill’s 2020 numbers will likely be very poor and the shares could fall again when it next reports to the market.

As a medium-to-long-term recovery play, however, I’m cautiously optimistic that the margin of safety is now sufficient to begin investing.

Sometimes, you just have to press the buy button.  

Cost-cutting

A second market minnow I’ve been buying for my ISA in June has been laser-guided equipment manufacturer Somero Enterprises (LSE: SOM). Fortunately, this purchase went through before the recent trading update that saw the shares rise almost 4.3% on the day. 

In response to uncertainty over how long the coronavirus will be with us and what impact it will have on business, Somero announced another range of cost-cutting measures last week, designed to save around $5m. Roughly 20% of its staff have been furloughed and all bonus-related pay has been cancelled. Capital expenditure has also been reduced further, although product development is still ongoing. 

That’s not to say the small-cap is in financial distress. Management believes the company will have $24m in net cash at the end of this month. And while current revenues are already 25% below the $90m originally targeted by analysts in 2020, they reckon it will still be cash generative if they tumble another 20% from here.

Naturally, no one knows what happens next with Covid-19. Like Churchill, there’s always a chance the stock could fall in value. With its focus on construction projects, Somero is also undeniably cyclical, which explains why the market has long been reluctant to slap a high price on its shares. 

Even so, I can’t help but think that a company like this trading on less than eight times earnings already offers great value. Time will tell. 

The post 2 bargain small-cap stocks I’ve been buying for my ISA appeared first on The Motley Fool UK.

Today, I’m looking at a rarely-discussed firm that has done seriously well for those that were willing to back it. 

Outperformer

In the last 12 months, shares in self-storage business Safestore (LSE: SAFE) have climbed 40% in value. For comparison, the FTSE 250 index — of which the company is a constituent — is up ‘just’ 15%. 

Can this form continue? Quite possibly. 

This morning, the company revealed an 8.3% rise in total revenue (at constant exchange rates) over the three months from November to January. Like-for-like revenue for the quarter was up 5.9%.

Broken down, trading in the UK was particularly stellar. Aided by new acquisitions and store openings, revenue here was 8.2% higher (to £30.3m) compared to over the same period a year earlier. The firm’s operations in Paris also did well with revenue rising 6.7% to €11.1m.

Based on these numbers, CEO Frederic Vecchioli stated that the company is on course to meet its expectations for the full year. With new locations in Gateshead and Sheffield scheduled to open in the next few months (and another being unveiled in central Paris before the end of 2020), I certainly wouldn’t bet against this happening.

The only issue is that Safestore’s stock now looks expensive, trading as it does on 27 times forecast earnings. This — combined with lack of reaction in early trading — leads me to think that gains might be less impressive going forward.

So, while our penchant for accumulating more and more stuff makes this an area of the market worth following, the relatively low barriers to entry (listed competitors include Big Yellow and Lok ‘n Store) highlights the importance of not paying too much to get exposure. 

One for the watchlist, perhaps?

Bull in a china shop

Another example of a ‘boring’ company that’s been doing all the right things for its shareholders is ceramic tableware supplier Churchill China (LSE: CHH). The Stoke-on-Trent-based firm’s customers range from pub, restaurant and hotel chains to contract caterers to health and education organisations. 

Again, this a company that has outperformed its index. In the last year alone, the valuation has climbed 64%. The FTSE Small-Cap is up 11% in comparison.

January’s trading update for the whole of 2019 was encouraging with the company stating that it had seen decent trading in the UK and its overseas markets. Indeed, things have been going so well that management reported operating performance would likely be “slightly ahead of current market estimates“. 

With decent margins, rising returns on the capital it puts to work, no debt and consistent dividend hikes, Churchill ticks a lot of my boxes when looking for great potential investments. The fact that a decent proportion of its shares are still owned by the Roper family — some of whom serve on the board — also gives me confidence that the business will continue to be managed with its shareholders in mind.   

Like Safestore, however, Churchill’s shares now trade on a lofty valuation (23 times expected earnings). Although short-term movements in the market are pretty much impossible to predict, this at least suggests to me that the share price may need to cool down a bit before moving higher.

The post This growth stock has thrashed the FTSE 250. Is there more to come? appeared first on The Motley Fool UK.

The company has been a big growth success story over recent years, but I can remember in the early years of the century the share used to pop up on value filters because of its poor growth outlook and low valuation. How times have changed! Over the past five years, earnings have increased by more than 160%, the dividend is up nearly 100% and the share price has soared more than 200% higher.

Five years of stunning growth

What a great investment Churchill would have been if you’d bought the shares on value grounds in, say, 2005 and simply held on until today. But it’s hard to pick value winners that go on to transition into growth. I reckon some value shares go the other way and cause investors to lose money.

But Churchill has grown its business well, expanding into Europe, America and to other countries. In 2018, 40% of overall revenue came from the UK market, 37% from the rest of Europe, 12% from North America and 11% from the rest of the world. Chairman Alan McWalter said in the report that the business and financial performance in 2018 exceeded the directors’ expectations and the new year has “started well.” Management expressed confidence in the outlook by pumping up the total dividend for the year by 18%.

The company’s revenues from export rose 17% in the period. Churchill has come a long way since its origins as a regional potter more than 200 years ago. McWalter explained in today’s narrative that the company has transformed itself over a long time period.  The business “has developed substantially over the last five years,” and sales to Hospitality customers have increased from £32.7m to £52.4m “at a compound annual rate of almost 10%.” The export story is impressive, I reckon. Over five years, trade overseas has risen from 39% to 60% of the firm’s business. On top of that, McWalter explained that the proportion of hospitality revenue from “added value products with higher margins” has increased from 10% to 44%, which has driven the operating margin up from 8% to more than 16%. 

More to come?

I’d always considered Churchill to be a cyclical business. It seems likely that trade in hospitality tableware would fluctuate along with prevailing general economic conditions. But I can’t deny that the company has delivered barnstorming growth within its cyclical sector. Looking forward, McWalter acknowledged that the trading environment in the UK is “subject to increased uncertainty,” but he said he believes the company has “a robust business model” and the directors will continue to aim for growing the export market.

City analysts following the firm are predicting single-digit percentage increases in earnings ahead. Meanwhile, the forward-looking price-to-earnings ratio is running just above 18 for 2020. It seems that Churchill has moved from a value rating to a growth rating over the years, and I reckon we could see a lot more expansion in operations ahead.

The post A top growth share I’d consider today appeared first on The Motley Fool UK.

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.

The post 2 top growth stocks I’d buy right now appeared first on The Motley Fool UK.

At a share price of 1,014p this AIM-listed manufacturer and global distributor of performance ceramics to hospitality and retail markets is valued at £111m. Its current valuation and that of another growth stock — listed in the FTSE SmallCap index — have a great deal of appeal to my eye. They’re two businesses I’d be happy to buy a slice of today.

Performance ceramics

Churchill has delivered earnings growth of between 20% and 30% in each of the last four years. The company, noting today “our record of improved performance established over several years,” reported another strong performance for the first half of the current year, with an earnings increase of 32%.

Helped by favourable currency rates, Churchill posted 8% higher revenue in the period. Growth across its hospitality export markets more than offset a more muted performance in the UK and in the retail segment generally. The impressive earnings growth on the single-digit revenue increase was driven by improved gross and operating margins, the latter increasing to 10.3% from 8.4%.

The earnings performance and strong balance sheet (net cash and deposit balances of £10.3m), together with management’s confidence in the future, led the board to increase the interim dividend by 17%.

Attractive valuation

Churchill’s trailing 12-month earnings per share (EPS) is 53p, with a well-covered dividend of 22.2p. At the current share price, the trailing price-to-earnings (P/E) ratio is just over 19 and the running yield is 2.2%.

The company has considerable scope for increasing export sales. For example, hospitality sales to North America and the Rest of the World grew by 20% and 27% in the first half. And with the company also increasing the proportion of higher margin added-value products, the earnings rating looks attractive and the dividend is a bonus for a growth stock.

Sea, sand and scalable business

With its shares trading at 429p, FTSE SmallCap firm On The Beach (LSE: OTB) is valued at £560m and is another growth stock that I reckon is an attractive proposition for investors today.

One of the UK’s largest online retailers of beach holidays, with a 20% share of the online short-haul beach holiday market, On The Beach has been growing fast since joining the stock market in 2015. With its scalable, flexible technology and low cost base, its business model is asset-light, profitable and cash-generative.

Multiple opportunities for growth

We’ve already witnessed its acquisition of Sunshine.co.uk, to consolidate its leading UK position, and the launch of websites in Sweden and Norway. And management sees “multiple opportunities to generate further growth.”

The company is forecast to deliver EPS of 17.4p for its financial year ending 30 September, giving a P/E of near to 25. That may sound a bit rich, but with EPS growth of 34%, the price-to-earnings growth (PEG) ratio of 0.7 is well on the value side of the fair value PEG marker of one. And, as with Churchill China, this growth stock also comes with the bonus of a modest dividend. A forecast payout of 2.9p, giving a yield of 0.7%, has scope for considerable future growth.

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

The first of these stocks is catering tableware manufacturer Churchill China (LSE: CHH). Its shares rose by 10% this morning after the firm said that its 2016 results would be ahead of expectations.

Profits from strong export performance have been boosted by the weaker pound. Management now expects operating profits to be “ahead of market estimates and well ahead of 2015”. The group’s net cash balance is also expected to be higher than expected.

Is Churchill ‘Brexit safe’?

Today’s statement — just three working days into the New Year — suggests to me that Churchill is a well-run company with good financial controls.

As a UK exporter, the firm is benefitting from the weaker pound, but this business was already profitable and cash generative before last year’s devaluation. Churchill has reported a net cash balance every year since at least 2010, during which time its dividend has risen by 35% and its share price has tripled.

The group exports to Europe, as well as to Australasia and the Americas. One risk is that the terms of these exports could change when Britain leaves the EU. For example, in last year’s results, the company said that anti-dumping duties on cheap Chinese ceramics were helping to make its products more competitive in Europe. UK exporters may lose this kind of protection outside the EU.

The other consideration is that Churchill shares already look quite fully priced. The firm’s stock trades on a 2017 forecast P/E of about 20 after today’s gains, with a prospective yield of 2.3%.

I’d hold onto Churchill shares, but I wouldn’t buy more at current levels.

A different approach

Churchill is a relatively small business, with a market cap of just £103m. If the UK heads for a hard Brexit, its export trade could face some short-term disruption.

That’s why my second Brexit stock suggestion is pharmaceutical giant GlaxoSmithKline (LSE: GSK). This £77bn behemoth is a genuine multinational. Truly global companies such as this have dedicated teams whose job is to manage political and currency risks. A localised event such as Brexit is unlikely to have much effect on long-term growth.

Glaxo stock also looks good value to me. The shares have pulled back from October’s high of 1,745p, and currently trade at about 1,580p. This puts the group on a forecast P/E of 15.7, with a prospective yield of 5.2%.

If you’re a growth investor, you may think Glaxo is too large and stodgy to suit your portfolio. But earnings per share are expected to rise by 8% in 2017 — that’s only 2% less than the 10% earnings growth forecast for Churchill.

I believe Glaxo is likely to be a profitable medium-term buy at current levels. The stock also offers the added bonus of a 5% yield. In my view, this could provide excellent protection from the unpredictable effects of Brexit.

The post Is today’s 10% riser Churchill China plc the perfect way to profit from Brexit? appeared first on The Motley Fool UK.