Organic sales growth

Zotefoams (LSE: ZTF), a chemicals company which manufactures polymer foams for automotive, aerospace and industrial uses, looks poised to benefit from big investments over recent years.

Zotefoams recently acquired full ownership of its Chinese joint venture, Kunshan Zotek King Lai, which underscores the company’s confidence in the growth potential of T-Fit clean-room products and its ambition to extend the range of products under the T-Fit brand in the coming years.

The company is seeing strong trading across multiple markets, with full-year results showing continued margin improvement and strong organic growth for high performance products, despite softer-than-expected demand from Europe and the UK. And while North America was the standout performer in 2016, Zotefoams also made steady progress in the rest of the world — and, in particular China.

Overall, group revenue increased by 7% to £57.38m, with underlying pre-tax earnings up 20% to £7.23m, thanks to an improving sales mix and weaker sterling. Looking forward, City analysts expect underlying earnings to grow by 15% in 2017, with a further 17% expansion pencilled-in for 2018. Shares in Zotefoams have already risen by 16% since the start of the year, and the company now trades at 16.2 times its 2018 forecast earnings.

Given the huge organic opportunities opening up to the business and the company’s unique IP strength, I reckon valuations seem reasonable for a stock with double-digit earnings growth.

Income and growth

Meanwhile, self storage company Safestore Holdings (LSE: SAFE) is a stock to watch out for investors seeking growing dividends.

The stock has a 2.8% dividend yield and a strong track record of increasing its payout year-on-year. Annual dividends for the stock have grown by an average rate of nearly 20% over the past four years, with the company paying a total of 11.65p last year.

Looking forward, further dividend growth at a double-digit pace seems likely, since the company’s EPRA earnings — that is its earnings before property revaluation gains — cover dividend payments by almost 1.7 times.

Room for further improvement

With an occupancy rate of just 68.6%, the company also has plenty of room to boost earnings. Safestore has almost 1.8m square feet of unlet space at the end of its 2016/7 first quarter, which means there’s huge potential should its occupancy rate catch up with rival Big Yellow Group’s occupancy rate of over 75%.

And although a slowdown in UK economic growth poses big risks to continuing momentum for the business, underlying fundamentals remain broadly positive with average storage rates continuing to climb on a like-for-like basis.

Shares in Safestore have gained 20% year-to-date, but further upside seems possible given expectations of earnings and dividend growth in the medium term. City analysts forecast its underlying earnings to grow by around 10% over the next two years, with dividend growth in the low-to-mid double-digits. This means that although its shares currently yield 2.8%, they have the potential to rise to almost 3.5% by 2018.

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Jack Tang 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.

Platform Specialty is a chemicals industry consolidation vehicle — a cash shell, in other words — which is going around acquiring undervalued businesses in the chemical industry, and rolling them into one group. 

The industry consolidator is willing to pay a hefty premium for its targets. Today’s offer for Alent is 49% above Alent’s Friday closing price of 338p. Alent’s shareholders will have the option to receive to receive shares in the new company in lieu of cash, up to 21.9% of the new entity’s issued share capital. 

And taking a portion of the offer in stock might be a sensible decision for Alent’s shareholders. Platform Specialty is well placed for long-term growth. 

Cost saving synergies

As a standalone company, City analysts had expected Alent to report earnings per share growth of around 10% per annum during 2016 and again in 2017. A combination of cost savings, revenue growth and margin expansion were expected to help Alent to grow pre-tax profit by 44% during the next two years.

As part of the larger Platform Specialty group, Alent should be able to achieve significant cost efficiencies, widening margins further. Platform reckons the combined group can achieve annual pre-tax cost synergies of at least $50m.

What’s more, Platform already owns MacDermid Inc., a specialty chemicals company that is a direct competitor of Alent’s US-based Enthone division that produces coatings for mobile phones and cars.

So, there’s more to this deal than just simple cost-saving synergies. Platform Specialty is removing a key competitor from the market and increasing production simultaneously.  However, as the deal will create a company that has a certain amount of control over key markets, it will require antitrust approval.

Rapid growth

Platform Specialty’s strategy is to buy companies that are leaders in niche businesses and require little capital investment. These companies usually generate a large amount of cash, which can be used for future bolt-on acquisitions to further boost growth. 

Indeed, over the past 12 months Platform Specialty has been on an acquisition spree, rolling up several smaller peers into its group structure.

This bolt-on strategy is set to achieve results. According to Wall Street analysts, before today’s announcement Platform Specialty’s earnings per share were on track to jump 83% during 2016 and 24% during 2017. The acquisition of Alent should only boost this growth.

Using Wall Street estimates, Platform Specialty’s shares that trade on the New York Stock Exchange are currently trading at a 2017 P/E of 11.7. 

The bottom line

All in all, Platform Specialty’s offer to buy Alent looks to be a great deal for shareholders. Shareholders are receiving a hefty premium for their shares, and the enlarged Platform Specialty will be well placed to generate rapid growth in the short-term as synergies flow through, and the company dominates key markets. 

The post Alent PLC Jumps Over 40% On £1.4bn Offer From Platform Specialty Products Corp appeared first on The Twelfth Magpie.

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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.