Buying these 2 growth stocks today could help you retire with a million

Rupert Hargreaves — Mon, 26 Feb 2018 13:25:02 +0000

The last time I covered Avation (LSE: AVAP), I concluded that if the company can continue to produce investor returns as it has done in the past, the shares could double investors’ money every four years. It looks as if this remains the case. Shares in the aircraft leasing business have marched higher over the past two months, hitting a high of 242p in January, although they’ve recently been brought back down to earth by market turbulence.

Still, according to the company’s interim figures, which were published this morning, it looks as if Avation still has plenty of airspace to fly higher.

Restructuring the portfolio

According to today’s numbers, for the six months to the end of December, revenue increased 16% year-on-year as the value of the firm’s aircraft fleet rose 35% to just over $1bn. Unfortunately, earnings per share for the period declined 15% year-on-year, which management attributes to the sale of six ATR 72 aircraft in June 2017. These sales reportedly helped de-risk the portfolio by “lowering airline concentration” and unlocking funds for reinvestment into new planes.

Management’s actions to reposition the portfolio throughout the year mean that the average weighted age of the fleet has now decreased to 2.9 years (from 3.3 years) and the weighted average remaining lease term has increased to 7.9 years (from 7.5 years). The firm expects lease revenue to increase substantially in the second half thanks to these changes. So it seems that all in all, even though the sales of aircraft have dented profitability, the company is well positioned to continue to grow and reinvest in the years ahead.

As I mentioned before, Avation’s main method of value creation is via book value growth. Over the past five years, the company’s book value per share has expanded at a rate of 16% per annum. Growth slowed to just 4% in the period under review, although book value now stands at $3.32 per share or 237p, so today the shares are trading just below book.

City analysts are expecting earnings per share for the year to 30 June to fall by 21% before rebounding 23% to 25p next year. On this basis, the shares are trading at a forward P/E of 9.

Cash cow

Another investment that I believe can continue to produce returns for investors year after year is Amino Technologies (LSE: AMO). It produces technology for the pay-TV market, including set-top boxes, a highly lucrative business. Indeed, over the past five years, net profit has surged from £2.8m to £11.1m for fiscal 2017.

Management has returned the vast majority of this income to investors. The board has hiked Amino’s dividend per share by an average of 17.3% per annum over the past five years, leaving the shares yielding 3.7% today. This might not seem like much, but over the next five years, assuming the payout continues to expand at a rate of 10%, by 2023 the stock will yield just under 6%.

I have every confidence that the firm can keep up this rate of dividend growth. For the year to 30 November 2017, the distribution was covered 2.2 times by earnings per share and Amino’s balance sheet is stuffed full of cash with a cash balance per share of 13p reported at the end of fiscal 2017. On a valuation basis, the shares trade at a relatively modest forward P/E of 13.2 or 12.5 on a cash-adjusted basis.

The post Buying these 2 growth stocks today could help you retire with a million appeared first on The Twelfth Magpie.

More reading

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.

2 opportunities to make a million which won’t last for long

Rupert Hargreaves — Wed, 20 Dec 2017 12:59:59 +0000

If you want to make a million from shares, the best way to do so is to buy stocks that have a robust business model, competitive advantage and record of achieving excellent returns for investors.

With this in mind, I’ve picked out Microgen (LSE: MCGN) and Avation (LSE: AVAP) as two stocks that I believe could generate enormous returns for investors in the years ahead.

Increasing shareholder returns

Avation leases planes to airlines, a business which has grown tremendously in recent years.

Leasing companies like this can achieve a lower cost of financing than larger carriers, and their size means that they can buy planes at lower prices from manufacturers. Because airlines sign multi-year leases, income is stable and predictable. Meanwhile, cash generated from operations can be used to grow the business, as well as being returned to investors.

According to a pre-AGM statement published by Avation today, at the end of 2017, the group’s fleet will contain 37 aircraft worth over $1bn. The average aircraft age is 2.9 years and the average weighted lease duration is 7.9 years. For the 2017 financial year, management is forecasting total lease revenue growth of 32% to $94.2m and pre-tax profit growth of 18% to $21.4m.

Over the past five years, reinvestment of lease income into its operations has seen its book value per share grow at a rate of 16% per annum. Over the same period, the shares have continually traded at a discount to book, but the discount has closed in recent months.

If the firm can continue to reinvest at this rate, and the shares continue to trade at a price-to-book ratio of 0.9, the shares could return 16% or more per annum going forward. Add in the company’s 2.1% dividend yield, and you get a total return of 18% per annum. At this rate, you could double your money every four years.

Specialist provider

Microgen provides financial management software applications, which is a highly lucrative business. As more regulations are placed on the financial services industry, companies that can help enterprises to make sense of all the requirements, are seeing sales boom.

Indeed, for 2015 and 2016 Microgen’s earnings exploded by 28% and 34% respectively and City analysts are expecting growth of 24% for 2017, followed by 20% for 2018.

If the company can hit these targets, I believe that there could be further gains ahead for the stock. While the shares might seem expensive, trading at a forward P/E of 30, this value does not seem to be too demanding considering the growth on offer here. What’s more, due to the specialist nature of the service Microgen provides, clients tend to be sticky, so the likelihood that sales will vanish overnight is low.

And just like Avation, to help complement growth, Microgen is reinvesting earnings into the business. Bolt-on acquisitions are helping the firm expand its existing offering and expand into new areas. The latest deal was the £10m acquisition of US-based RevStream, a provider of revenue management enterprise software.

The post 2 opportunities to make a million which won’t last for long appeared first on The Twelfth Magpie.