The producer and owner of the now-world-famous Peppa Pig brand, Entertainment One has gone from strength to strength over the past five years. Since 2013, adjusted earnings per share have nearly doubled, rising from just 13.1p in 2013 to 25p for the fiscal year ended 31 March 2019, smashing City growth projections, (analysts had pencilled in adjusted earnings per share of 24.2 for 2019). 

Explosive growth 

Fiscal 2019 was a particularly impressive year of growth at the firm. According to Entertainment One’s full-year release, underlying group earnings before interest, tax, depreciation and amortisation (EBITDA) rose 21% during the 12 months to the end of March, “driven by strong growth in Family & Brands and higher margins in Film, Television & Music.“

On top of this, the group’s EBITDA margin for the period increased 5.1% to 21%. All of the above combined to help management report a 30% year-on-year increase in earnings per share for the year. 

And it doesn’t look as if this production powerhouse is going to slow down any time soon. It recently sealed the acquisition of Audio Network, which it describes as “one of the world’s largest independent creators and publishers of original, high-quality music for use in film, television, advertising and digital media.“

Management believes this business will help the group expand its existing music division as well as bringing “high margin, recurring revenues and significant cash generation to the group.” 

Considering all of the above, I reckon Entertainment One will smash the City’s growth targets for the company over the next 12 months. Analysts have pencilled in earnings growth of 13.6% to 27.5p for fiscal 2020. But after growth of 30% in 2019, this seems to me to be understating the firm’s potential. With that being the case, I think shares in the global entertainment business might be worth snapping up for your portfolio today. 

Long term potential 

Another FTSE 250 growth stock that’s recently caught my eye is wealth management business Quilter (LSE: QLT). There’s lots to like about this enterprise, in my opinion.

Formerly Old Mutual Wealth Management Ltd, Quilter is one of the UK’s largest wealth managers and a great way to play the rising demand for long-term savings and pension management.

Indeed, clients seem to be flocking to the group’s offering. It recently reported that net client cash flow, the difference between money received from and returned to customers for the year to the end of December, hit £4.7bn, growth of 5% during the reported period.

This inflow is all the more impressive considering the volatility that dogged global markets towards the end of 2018. Despite these inflows, thanks to market volatility, assets under management declined by 4% over the year. 

Still, despite this setback, I believe Quilter is well-placed for growth over the long-term. Analysts are expecting earnings growth of nearly 8% this year and 15% in 2020, putting the stock on a forward P/E of just 12.

That’s not a bad price to pay for a business with earnings growing at a double-digit rate. Income seekers can also look forward to a 3.6% dividend yield. 

The post I don’t think you can ignore these two FTSE 250 growth champions appeared first on The Twelfth Magpie.

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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.

Management is talking with other parties who might be interested in the format, but there’s no guarantee another channel will make an offer. The cancellation is not expected to have an impact on this year earnings, but it is likely to hit the next fiscal period. 

However, despite this setback, I’m still positive on the outlook for the company.

Look past the income

As I have covered before, I believe that Entertainment One’s real value is to be found on the group’s balance sheet, specifically, the value of its content library. 

At the end of March 2017, an independent evaluation put the value of this asset at $1.7bn, or around £1.3bn. At the time of writing, the firm’s market value is just £1.32bn, which implies (if the value of the content library is stripped out) there’s no value on Entertainment One’s future income stream. With this being the case, it’s clear to me that shares in the content company are a steal today.

As my Foolish colleague Royston Wild pointed out at the beginning of last month, Entertainment One’s Peppa Pig franchise has continued to drive growth at the group with earnings in its Family division predicted to have risen 50% year-on-year for the fiscal year to the end of March. 

Based on management’s upbeat forecast, City analysts are forecasting that Entertainment One will report earnings growth of 19% in the year ended March, followed by an expansion of 14% in fiscal 2019, which more than justifies the stock’s current forward P/E of 14.

Looking on these numbers and considering the hidden value in the group’s content portfolio, I believe shares in Entertainment One seem too cheap to pass up at current prices. 

Dirt cheap

Another stock that looks to me to offer hidden value is Just (LSE: JUST). The investment case for this insurance and financial services group is simple… the shares are dirt cheap. 

On every single metric, the company looks undervalued. It’s trading at a price-to-book value of 0.8 and an enterprise-to-earnings, before interest tax depreciation and amortisation value (EV/EBITDA), of 3.4. For some comparison, the market median EV/EBITDA ratio is 11.4! The forward price to earnings ratio is 8.6. 

Too pessimistic? 

On all metrics, the company looks undervalued by around 50% compared to the broader market, that is apart from dividend yield, where 2.8% is below the market average. Still, as the dividend is covered four times by earnings per share, there’s plenty of scope for management to hike the payout further as earnings grow.

Unfortunately, earnings growth is not set to be the group’s strong point. Analysts have pencilled in a fall in earnings per share of 16% in 2018, but growth is expected to return in 2019 with net income rising by 11%.

In my opinion, this bad news is already factored into the stock. What’s not factored in, however, is any possibility of good news. And I believe if the company does perform better than expected, shares in Just could leap substantially higher.

The post Two dirt-cheap FTSE 250 growth stocks I’d buy with £2,000 in June appeared first on The Twelfth Magpie.

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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.

Even though sales growth might slow a few percentage points, Reckitt still owns a portfolio of highly defensive brands, and over time, this portfolio will continue to yield results.  

However, even though I believe the future is bright for Reckitt, I’m not buying the company after recent declines. Instead, I’ve decided to take a position in Entertainment One (LSE: ETO). 

Enormous potential 

The reason why I’ve chosen Entertainment One over Reckitt comes down to valuation. 

Reckitt is one of the highest quality stocks in the FTSE 100. Over the past six years, the firm’s operating margin has remained stable at around 25% and return on capital employed – a measure of how much the company makes for every pound invested – has fallen from around 28% in 2011 to 19% for 2016… disappointing, but 19% is still an attractive number. These high returns mean that management has plenty of cash to reinvest in the business and return to investors. Shareholder equity has expanded at a compound annual rate of 8% per annum for the last six years while the dividend has grown at 4% per annum. 

Reckitt should be able to continue to produce these returns for many years to come, thanks to its portfolio of household brands. Assuming book value continues to expand at 8% per annum, within two decades it will have grown from £8.4bn to £39.2bn. 

Right now the shares are trading at 5.7x book value. This valuation imposed on a prospective book value of £39.2bn gives a share price of £312, up from today’s £6.78. This is just a rough calculation, but I believe it shows Reckitt’s potential. 

The one downside is at nearly 19 times forward earnings, Reckitt’s shares are relatively expensive. 

Undervalued growth 

Compared to Reckitt, Entertainment One looks cheap. Shares in the company are trading at a forward P/E of 11.2 and EV to EBITDA ratio of 3.1, compared to the market median of 11.4. In a trading update issued today, the creator of the Pepper Pig franchise announced that it is on track to meet City forecasts for the full year.

Analysts have pencilled in earnings per share growth of 5% for the fiscal year ending 31 March 2018, followed by growth of 14% for the following fiscal year. 

As well as Entertainment One’s low earnings valuation, I also believe that there’s hidden value in the group’s content portfolio. According to today’s trading update, an independent assessment of the company’s content library has valued this unique asset at $1.7bn, up from the last valuation of $1.5bn. At the time of writing, the group’s market value is only $1.5bn. 

Entertainment One has long been touted as a takeover candidate, and if a buyer does swoop, it’s likely they’ll have to offer at least the value of the content portfolio to get management interested. On this basis, the shares should be worth at least 293p. 

The post Why I bought this beaten-up growth stock instead of Reckitt Benckiser Group plc appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares in Entertainment One. The Motley Fool UK has recommended Reckitt Benckiser. 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.

For the year, the company’s revenue grew by 35% to £1.1bn and group reported underlying EBITDA rose by 24% to £160m. Adjusted earnings per share came in at 20p, and net debt has been reduced from 1.4 times EBITDA to 1.2 times.

Unfortunately, higher costs hit the group’s bottom line with pre-tax profit falling to £37.2m, from £47.9m in the year before. This was due to one-off costs it incurred in relation to moves management made to reshape the group’s film business and the renegotiation of a distribution arrangement. These costs should not be repeated and should help improve margins going forward.

The best performing division for the year was the group’s Television and Family arm, which grew by 85% and 33% respectively. Film revenue increased by 7%. The company also revealed today that its leading Peppa Pig television programme will return to screens from spring 2019 with a further 117 episodes set to be created.

Further growth ahead for the company?

Entertainment One has gone from strength to strength over the past five years and today’s results show that the firm still has plenty of energy left for growth.

After this year’s earning blip, analysts expect the company’s earnings per share to grow by 18% for the year ending 31 March 2018 and a further 10% for the following financial year. Based on these forecasts, the company is trading at a forward P/E multiple of 10.6, which seems exceptionally cheap considering Entertainment One’s growth over the past five years (pre-tax profit has exploded from £5.5m to £125m).

This low valuation almost certainly undervalues the business and gives Foolish investors a great opportunity to buy a high quality business at a low price.

Steady momentum

Aveva Group (LSE: AVV) also reported its figures today and just like Entertainment One, the earnings report was upbeat. The company reported a massive 60% increase in pre-tax profit as revenue rose from £201.5m to £216m and costs declined. Profit from operations rose to £44.8m, versus £29.4m in the year-ago period. Net cash increase by 21% to £131m from £108m, which gave management confidence to hike the total dividend for the year by 11% to 40p.

Shares in Aveva are falling after this upbeat release because the market has extremely high expectations for the company. Indeed, the shares are currently trading at a forward P/E of 27.9, despite the fact analysts only expects earnings per share to grow by 9% for the year ending 31 March 2018. The dividend yield of 2.1% hardly compensates investors.

Still, over the past year shares in the company have shown resilience, rising 23.2% and outperforming the FTSE 100. If this outperformance continues, investors should be well rewarded. Aveva has grown steadily over the past few years and the group’s high valuation should remain in place on the back of ongoing expansion.

The post 2 cheap momentum growth stocks that could fund your retirement 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. 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.

Television titan

The Footsie rumour mill was dominated on Thursday by news that broadcasting colossus ITV (LSE: ITV) is considering making a takeover bid for production giant Entertainment One (LSE: ETO).

The owner of hits like Peppa Pig has issued a statement saying that no offer has been made, but a tie-up would fit in nicely with ITV’s busy acquisition drive. The London broadcaster has made a flurry of global acquisitions in hot growth areas like reality TV in recent years, a strategy that helped push revenues at its ITV Studios arm 33% higher last year, to £1.2bn.

ITV has proved extremely adept at evolving to thrive in a rapidly-changing broadcasting environment —  the company racked up a sixth successive year of double-digit profit growth in 2015.

And the number crunchers expect ITV to keep on pulling up trees. Earnings expansion of 9% and 7% is pencilled in for 2016 and 2017 respectively. And I believe consequent P/E ratings of 13.3 times and 12.4 times provide terrific value given the broadcaster’s exciting growth philosophy.

Sign it up

Recruitment specialists Hays (LSE: HAS) greeted the market with positive trading numbers on Thursday, a development which shoved the share price 7% higher on the day.

Although like-for-like British fees declined between January and March, the strength of Hays’ international operations propelled group underlying fees 4% higher in the period. Indeed, the recruiter saw fees grow by double-digit percentages in 17 countries, providing Hays with a twelfth consecutive quarter of growth.

The City expects Hays to enjoy earnings growth of 9% in the year to June 2016, resulting in a decent P/E ratio of 15 times. And the multiple plummets to an excellent 12.6 times for next year thanks to predictions of an 18% bottom-line bump. I reckon this represents terrific value given Hays’ solid upward momentum.

An electrifying stock pick

Network operator National Grid’s (LSE: NG) steady rise illustrates the degree of investor uncertainty still washing over financial markets. The share price has risen almost 25% over the past year alone, taking the power play above the 1,000p per share marker for the first time just this week.

National Grid is considered by many as the ultimate defensive stock, as electricity’s role as an essential ‘modern world’ commodity providing the firm with reliable earnings visibility regardless of the broader economic climate.

And I believe investor inflows into safe havens like National Grid are likely to pick up further in the months ahead as the klaxons concerning the health of the global economy become louder. Just this week the IMF cut its growth forecasts for 2016 and 2017, to 3.2% and 3.5% respectively, the body warning that “growth has been too slow for too long.”

I also believe National Grid still provides exceptional value for money despite these share price rises. Projected earnings growth of 1% for the years to March 2017 and 2018 result in reasonable P/E ratings of 16.4 times and 16.2 times for these years.

And National Grid’s robust earnings outlook is expected to keep throwing up market-bashing dividends. Predicted payouts of 44.8p per share for this year and 45.8p in 2018 yield an impressive 4.5% and 4.6% correspondingly.

The post Why Shrewd Investors Are Buying National Grid plc, ITV plc & Hays plc Today! appeared first on The Twelfth Magpie.

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Royston Wild 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.

Entertainment One is rising today after the company’s management attempted to reassure shareholders this morning. In a trading update, management announced that the group “continues to trade in line” with full-year earnings expectations. What’s more, the trading update reassured investors that the company “continues to have confidence in its target of doubling the size of the business by 2020, with strong organic growth and carefully targeted acquisitions”.

Alongside this positive statement, Entertainment One announced that Darren Throop, chief executive had spent £183,000 buying just under 140,000 shares in the company during Tuesday’s carnage. 

Underlying concerns 

However, while the director dealing and upbeat trading statement from Entertainment One have been received well by the market, they fail to address the underlying concerns that have weighed on the group’s shares for the last six months. 

Specifically, the market is concerned about Entertainment One’s lack of a “stable and predictable passage of trading”. In other words, while the group has had some success with its children’s animation Peppa Pig, and the distribution of zombie drama Fear the Walking Dead, the group is struggling to generate long-term sustainable growth. Granted, City analysts expect Entertainment One’s revenue to increase 3.4% year-on-year to £813m for the year ending 31/03/2016, but this is still 1.2% below the sales figure of £823m reported two years ago. 

A more concerning metric is Entertainment One’s rising cost of debt. The company announced on Friday that it is raising in £285m in new debt to replace existing facilities. This new seven-year debt will have an interest rate of 6.9%. Entertainment One’s current debt has an interest rate of only 4.3%. The higher cost of debt could be a reflection of wider market trends, or it could indicate that debt investors don’t trust the company’s financial projections.

Whatever the case, it’s clear that debt investors are now more cautious about lending to Entertainment One than they have been in the past and it’s easy to see why. According to credit rating agency Moody’s, at the end of the first quarter Entertainment One’s adjusted gross debt was about three-and-a-half times earnings before interest, taxation, depreciation and amortisation (EBITDA). A debt to EBITDA ratio of more than two is usually considered to be a cause for concern. The company’s financing costs nearly doubled in the six months to September. 

The bottom line 

So overall, Darren Throop may be willing to put his money where his mouth is and back Entertainment One, but if you don’t already own the company’s shares, it might be wise to stay away. With debt increasing and no clear path for growth, Entertainment One is hardly a top pick for me.

The post Should You Follow Director Buying At Entertainment One Ltd? appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

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.