The two companies I’m looking at today are both defensive stocks, but one has risen by 38% over the last year, while the other has notched up a 25% gain. That’s not too shabby, given that the FTSE 100 fell by 2.5% over the same period.

Feeding the animals

AIM-listed firm Anpario (LSE: ANP) produces animal feed additives for pigs and poultry. It operates in more than 70 countries, providing products aimed at improving nutrition, health and hygiene.

Sales rose by 20% to £29.2m last year, while operating profit rose by 28% to £3.4m. The standout performer in terms of growth was the United States, which now provides 7% of sales and 10% of gross profit. Anpario’s US salesforce is being expanded to take advantage of this opportunity.

One of the biggest drivers of growth was Orego-Stim, a product which is used by poultry producers to support antibiotic-free poultry production.

Given the growing problems with antibiotic resistance in humans, I think that demand for products of this kind could increase exponentially in coming years. If Anpario can gain a big market share, this could prove to be a long-term cash cow.

Growth + cash

Chairman Peter Lawrence warned today that the business does face potential headwinds as a result of the stronger pound. Raw materials prices can also affect profits.

Despite this, I was impressed by today’s numbers. My calculations suggest that free cash flow last year was around £4m, exceeding the group’s profits. Around £1.5m was returned to shareholders as dividends, while the remaining £2.5m was held in reserve for acquisitions or expansion.

Anpario now has net cash of £13m, which is about 13% of its market cap. Excluding this cash, the firm’s valuation leaves the stock trading on a cash-adjusted 2018 forecast P/E of about 22 and a prospective yield of 1.5%. That doesn’t seem excessive to me.

Food for thought

My second stock is also involved in food production, but is one step further along the chain. Cranswick (LSE: CWK) produces fresh pork and products such as sausage, bacon and cooked meats for UK supermarkets and restaurant suppliers.

These shares have tripled over the last five years, but profits have only doubled, making the stock more expensive than it was. It’s probably fair to question whether it’s now too late to profit from this success story.

I’d hold on

Broker forecasts for 2017/18 earnings have risen by 11% over the last year, as City analysts have upgraded their profit estimates for this year. Companies where earnings estimates are regularly upgraded are said to have strong momentum. Their shares often perform better than expected.

However, there are some signs this momentum could be slowing. The firm faces headwinds from falling pig prices and broker consensus estimates were cut this month, for the first time in at least a year.

Earnings per share are expected to rise by 17% this year, but growth is then expected to drop to 5% in 2018/19. I think growth could surpass this but the current forecast P/E of 20 seems quite full to me. I’d rate the stock as a hold at current levels and will keep watching.

The post 2 growth stocks that could beat the FTSE 100 again in 2018 appeared first on The Twelfth Magpie.

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Roland Head 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.

In the post

Today Escher published its results for the six months ended 30 June 2017 but the market response has been underwhelming, with the stock down 2.5% at time of writing. It could have been worse given that Escher, which provides point-of-service software for use in the postal, retail and financial industries, reported a drop in first-half revenues from $12.34m to $9.39m year-on-year.

Software licence sales fell from $3.62m to $840,000, while adjusted EBITDA fell from $3.35m to $1.36m, with a $30,000 loss before tax, against last year’s profit of $1.81m. That is despite a small drop in operating expenses from $6.39m to $5.83m. It leaves the company with the same net cash position as last year, $100,000.

Smart Riposte

Escher is a small player with a market cap of just £38m and chief executive Liam Church says that customer spending patterns make its traditional business model inherently volatile. “Our licence sales in the first half were modest as compared to those of H1 2016. Nevertheless, we were able to deliver US$1.4m in adjusted EBITDA.”

Church is banking on additional licence sales  from the company’s pipeline of opportunities to meet full-year expectations. He says the company’s recent investment in moving its Riposte platform to Android and IOS devices has been “keenly received” by customers, while recent operational highlights included the new licence sale of its mobile platform to the world’s largest – but unnamed – postal organisation. You can expect volatility with a stock like this, but so far the risks have outweighed the rewards, while the valuation looks high at 28 times earnings. 

Nice bite

Animal feed producer Anpario (LSE: ANP) is a much livelier beast with its share price up almost 12% at time of writing after it reported strong sales growth in today’s interim results to 30 June. Highlights include a 39% increase in revenue to £14.8m, a 42% rise in gross profits to £7.3m and 31% improvement in adjusted EBITDA to £2.6m. Management also unveiled a maiden interim dividend of 2p a share. The cash balance now stands at £12.6m up from £11.1m.

Anpario has been boosted by strong sales growth in Asia, the Americas and Middle East as it looks to raise its international profile with global branding and set up new subsidiaries in Thailand and Indonesia. Chairman Peter Lawrence hailed the firm’s strong balance sheet and positive cash generation, and said this gives it a sound platform for further acquisitions and investment in recruitment and infrastructure.

Growth story

He said the company’s first interim dividend reflected its strong growth prospects as it looks to drive sales by building stronger and closer relationships with customers. The AIM-listed group has a market cap of just £86m but share price growth has been strong, rising 50% in the past year to today’s 370p. It is still risky but trading at 19.88 times earnings and with dividend prospects, it may merit further investigation.

The post 2 fast-growing micro-cap stocks you’ve likely never heard of appeared first on The Twelfth Magpie.

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Harvey Jones 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.

Including one-off items, which in this case included a £3.7m loss on the company’s defined pension scheme, total income for the period fell from £2.1m in the year-ago period to -£2.1m. Fully diluted earnings per share slumped 27.6% to 2.1p, from 2.9p in the year-ago period. 

In addition to NWF’s earnings collapse, the group also reported a near doubling of net debt from £10.4m to £19.1m. Net debt to earnings before interest, tax, depreciation and amortisation rose from 0.8x to 1.6x. 

Top line growth 

Despite earnings coming under pressure, NWF reported a 14% rise in revenues for the period. Revenues increased from £224.6m to £255.9m as all three of NWF’s feeds, food and fuels divisions registered growth. Growth was driven by contributions from acquisitions, higher activity levels, and by increased commodity prices in its feeds and fuels units. 

However, low milk prices hit summer trading volumes in the group’s feeds division, while its fuels arm was bruised by a downturn in heating oil demand in the summer. Both of these uncontrollable factors dented margins. 

The good new is that even though margins have come under pressure NWF’s management believes the company is still on track to hit full-year figures. For the full-year, City analysts have pencilled in earnings per share of 13.4p, down 2% year-on-year and revenues of £487m, up from £466m last year. For the fiscal year ending 31 May 2018 analysts are expecting the group to return to growth with earnings per share growth of 5% projected. Based on these estimates share in NWF are currently trading at a 2018 forward P/E of 12.4. 

A warning to investors

While NWF has blamed the last half’s poor performance on factors out of its control, the figures send a worrying warning to investors. NWF is a low margin business and any unforeseen headwinds could have a significant impact on the company.

This year, NWF is on track to chalk up a pre-tax profit margin of 1.7% indicating that after tax the margin could be as low as 1.4%.  With almost no margin for error, the company’s shares look expensive, as they currently trade at a forward P/E of 13. 

On the other hand, NWF’s peer Anpario (LSE: ANP) looks more appropriately priced. 

Animal feed producer Anpario’s growth has exploded in recent years. Pre-tax profit has risen 150% since 2012 and analysts are expecting further pre-tax profit growth of 25% by 2018. Investors have placed a premium on the company’s shares thanks to this growth outlook, but based on the expected growth going forward, shares in Anpario still look attractive. 

City analysts have pencilled in earnings per share growth of around 10% per annum for the next few years. The shares currently trade at a forward P/E of 17.8 and unlike NWF, Anpario’s pre-tax margin is a healthy 17%. 

The bottom line 

NWF’s 30% profit slump shows that the company is not for the faint-hearted and the shares look expensive at current levels. As a result, peer Anpario may be a better buy. 

The post After income crashes by 30%, should you avoid NWF Group plc? appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.