Today I want to look at two stocks which I think should provide reliable dividends and growth for the foreseeable future.

An essential ingredient?

Tate & Lyle (LSE: TATE) is a familiar brand, but the Tate & Lyle-branded products you buy at the supermarket are probably made by American Sugar Refining, which bought Tate’s European sugar business in 2010.

Although the company does still produce some bulk ingredients, such as starch and corn fructose syrup, its main growth focus is specialist ingredients used by food producers.

Many of these products are used by major food brands. They are generally harder to substitute with cheaper alternatives than commodity-type ingredients like granulated sugar. This makes them more profitable.

Another very profitable area of the group’s business is its Sucralose sweetener division, whose main brand is Splenda.

Long-term opportunity

I’ve pulled some numbers from last year’s results so you can see how the group’s profit margins vary across its business:

In my view, this points to a long-term opportunity. Higher profit margins in the speciality ingredients and Sucralose businesses mean that if sales rise, profits will rise more quickly than they would from bulk ingredients sales.

Even if that doesn’t happen, I think Tate & Lyle has the qualities needed for a long-term investment. The group hasn’t cut its dividend for 21 years. Profits margins are fairly stable and cash generation is good, with only a limited amount of debt.

The stock also looks affordable to me, on 14 times 2019 earnings with a 4.2% dividend yield. I’d be happy to buy these shares today and never trade them again.

We can’t get enough

My second pick also comes from the food industry, which I see as a good defensive option for the long term. After all, whatever else happens, we can’t stop eating.

And it seems that one food we can’t get enough of is meat. Hilton Food Group (LSE: HFG) specialises in producing meat products for supermarket chains in the UK and other developed markets.

Hilton’s share price has risen by 80% over the last five years and by 430% since its flotation in 2007. Over the last five years, sales have risen by 50%, while pre-tax profits have risen by 72%.

More to come?

Management isn’t stopping there. The last two years have seen significant investment in the business. The acquisition of seafood supplier Seachill helped to expand the group’s product range into new markets. Meanwhile, new plants are expected to open in New Zealand and Australia in 2019 and 2020, supporting further growth.

One risk for investors is that most of the group’s sales come from just a handful of big customers. The shares aren’t cheap either. As I write, they trade on 21 times 2019 forecast earnings and offer a dividend yield of just 2.4%.

However, I see this as a good business that’s well run. For long-term investors, I think this could be a fair price to pay.

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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.

Superficially attractive

Marks & Spencer (LSE: MKS) is a case in point. As things stand, if you bought the stock at almost anytime in the last quarter of a century, and are still holding today, the share price is almost certainly lower than the price you paid. Factor in inflation and the picture is even less pretty.

The dividend record is also hugely disappointing. In nine of the last 20 years, the company has either slashed the payout, or failed to increase it from the prior year. Another flat dividend is expected for the current year. This would give a paltry and sub-inflationary five-year compound annual growth rate (CAGR) of 1.9%.

I view M&S’s current ‘cheap’ forward price-to-earnings (P/E) ratio of 11 and dividend yield of 6.5% as only superficially attractive. However, my Foolish colleague Roland Head reckons current chairman Archie Norman’s turnaround record with other retailers is a cause for optimism. But other well-qualified executives have previously tried and failed to put M&S on a path to sustainable growth. And with conditions on the high street being tougher than ever, this is a stock I’m happy to avoid.

Meaty but pricey

FTSE 250 firm Hilton Food Group (LSE: HFG) was established in 1994 to run a meat packing facility to supply Tesco UK. It’s since expanded its foods, customers and geographical reach. The shares have risen 550% since its stock market flotation in 2007 and its dividend has increased at a CAGR of around 10%.

The group is very well managed by an experienced team. Customers like Tesco can drive hard bargains when it comes to contractual renewal terms (at five- to 10-year intervals) and the competitive nature of the market is evident in Hilton’s operating margin, which is running at 2.7%. Despite this, the company delivers an impressively high return on capital employed.

One concern I have about Hilton. Although the business has grown and expanded, customer concentration remains a risk. Just four customers provide 96% of the group’s revenue, led by Tesco at 48%. I don’t see this as fatal to the investment case, but combined with Hilton’s pricey forward P/E of 24 and modest dividend yield of 2.2%, I’m inclined to avoid the stock at the present time.

Fag-tastic value

Returning to the FTSE 100, one company I’d be happy to buy right now is £25bn tobacco group Imperial Brands (LSE: IMB). This cash-generating machine trades on a forward P/E of 10, with a prospective dividend yield of 7%.

For decades, tobacco companies have overcome or adapted to all manner of obstacles and delivered excellent returns for investors in the process. Consolidation in the industry has left it dominated by a relatively small number of big players. And while there are new entrants in the emerging market of next generation products (electronic cigarettes and so on), the tobacco giants have the financial clout to dominate here, too.

Imperial has delivered nine consecutive years of 10% dividend growth and its policy is to maintain that rate over the medium term. It bodes well for the next generation of investors in the company.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands and Tesco. 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.

Both of these companies have a long track record of profitability and dividend growth. In my view they are both shares you could buy today and safely forget for 10 years.

Family owners take the long view

There aren’t many FTSE 100 stocks that are still family-owned and run. One exception is Associated British Foods (LSE: ABF). Chief executive George Weston is a member of the founding Weston family, which controls around 55% of the group’s shares.

ABF is an old-fashioned conglomerate. It owns budget fashion retailer Primark as well as a number of food and ingredients businesses. These include Twinings, Ovaltine, Jordans and Allied Bakeries plus AB Sugar, a major global sugar producer.

Primark has been a star performer in recent years and now accounts for more than half of all profits. Meanwhile, conditions have been tougher in some other parts of the business. The group has continued to invest selectively in new opportunities, including expanding Primark into the USA.

This conservative and long-term approach is typical of family-run businesses, who don’t want to risk the wealth they’ve built up over generations. After all, I estimate that the Weston holdings generate a dividend income from ABF of about £177m per year.

Is 28% fall a buying opportunity?

Investors have started to become wary of the group’s dependence on Primark for growth. Associated British Foods’ share price has fallen by 28% over the last year.

To some extent, this caution may be justified. This week’s trading update showed that total sales at Primark are expected to have risen by 6% this year, but like-for-like sales are down by 2%. This means that the retailer is increasing its sales by adding new stores, but that existing stores are selling less.

However, management guidance is for group profits to continue growing this year. Analysts expect earnings per share to rise by 5% and have pencilled in a 6.8% dividend increase.

With the shares now trading on just 16 times earnings and offering a 2% yield, I think it could be time for long-term investors to start buying ABF.

Packing a lot of growth

Another growth stock that’s been on my watch list for a long time is Hilton Food Group (LSE: HFG). Shares in this meat-packing business rose by more than 3% on Tuesday after it reported a 25% rise in half-year sales, which rose to £863.6m.

Pre-tax profit was 20.9% higher, at £22.3m and the group’s adjusted earnings rose by 10% to 21.2p per share. This supported a 12% increase in the interim dividend, which will rise to 5.6p per share.

This strong growth was driven by a 12.7% increase in the quantity of food sold. Higher pricing on fish helped lift sales, along with the launch of a fresh food offering in Central Europe.

I’d sit tight

The group’s share price has risen by 122% over the last five years, outperforming ABF by 100%. Hilton shares don’t look cheap at all on 23 times forecast earnings.

But the group’s return on capital employed of 16% makes it more profitable than its supermarket customers or indeed ABF. These high returns fuel strong cash generation and have allowed Hilton to expand while maintaining a net cash balance.

In my view this quality is probably worth paying for. I maintain my buy rating on this firm.

The post Have £1,000 to invest? One FTSE 100 dividend stock I’d buy for my pension 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 recommended Associated British Foods. 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.

However, with the FTSE 100 and FTSE 250 both having made gains in recent years, the valuations of some dividend growth shares seem to be excessive. With that in mind, here is one FTSE 250 dividend share that seems overpriced to me, as well as a FTSE 100 income stock which I feel could be worth buying for the long term.

Improving performance

The FTSE 250 share in question is Hilton Food Group (LSE: HFG). The specialist food packing business recorded a positive performance in the 28 weeks to 15 July, with it being in line with management expectations. It has continued to grow the business through additional volumes, as well as through close cooperation with retail partners.

In the last four years, the company has grown dividends per share at an annualised rate of 10%. This is an undeniably impressive performance, and shows that the company has sought to reward its shareholders at the same time as profitability has increased. And with the stock having a payout ratio of around 50% of earnings, further dividend growth could be ahead.

But despite its rapid dividend growth, Hilton Food Group appears to lack a margin of safety. It trades on a price-to-earnings (P/E) ratio of around 26, which suggests it is priced for rapid growth. But since its bottom line is due to rise by ‘only’ 8% this year and by 6% next year, it could prove to be a disappointing performer when it comes to capital returns.

Income potential

In contrast to that one, the income investing prospects of FTSE 100 water services company Pennon (LSE: PNN) seem to be highly appealing. The stock has a dividend yield of around 5% at the present time, and is due to raise dividends by 7% in the next financial year. Its stable track record of dividend growth suggests that inflation-beating income returns could be ahead over the medium term. This could appeal to a wide range of investors even though inflation has cooled in recent months.

While regulatory risk remains high across Pennon’s industry, the company appears to offer defensive characteristics relative to the rest of the FTSE 100. Although the current bull market may have a long way still to run, risks such as a trade war could mean that investor sentiment declines over the short run.

In such a scenario, the company could become increasingly popular due to its lower positive correlation with the performance of the wider economy. And with Brexit set to take place next year, it could offer a relatively certain income outlook in uncertain times.

The post Why I’d shun this FTSE 250 dividend growth stock and buy this FTSE 100 income share instead appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Pennon Group. The Motley Fool UK has recommended Pennon Group. 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.

Mr Buffett’s commitment to long-term investing in quality businesses has seen him become a billionaire. But finding stocks suitable for this long-term strategy isn’t always easy.

Today I’m looking at two companies I believe are potential Buffett-style investments.

Another strong year

Shares of meat-packer Hilton Food Group (LSE: HFG) rose this morning after the company said sales rose by 5.7% to £1,359.5m last year, excluding currency gains. Adjusted pre-tax profit rose by 7.9% to £37.4m, while adjusted earnings were 5.9% higher at 37.4p per share.

Hilton — which was founded with a single Cambridgeshire plant in 1994 — now operates factories in six European countries, plus Australia and New Zealand. The group is also involved in several joint ventures overseas.

Last year saw the company expand into the seafood market through the acquisition of Seachill UK. It also began to produce fresh food such as pizza, sandwiches and soups.

This business should keep growing

Hilton’s earnings have grown by an average of 6.5% per year since 2011. As you’d expect for a supermarket supplier, profit margins are slim. But the business benefits from strong cash generation and high returns on the capital it invests.

I believe this is one of the main reasons for the group’s success. Although sales have risen by 32% since 2012, net debt levels have actually fallen over the same period. The company ended last year with net cash of £25.4m

Shares in this Huntingdon-based firm have risen by 130% over the last five years. They now trade on a forecast P/E of 19 with a prospective yield of 2.6%. Although this isn’t cheap, I believe the quality of this business means that further gains are still possible.

A family-owned business

Businesses with family ownership are often run with a long-term view that leads to sustainable growth, rather than boom-and-bust scenarios.

A good example of this is FTSE 100 firm Associated British Foods (LSE: ABF). This diverse group owns budget fashion retailer Primark, grocery businesses such as Kingsmill and Silver Spoon, plus specialist agricultural and ingredients operations.

The company is run by chief executive George Weston, who is a member of the founding Weston family.

Profits have doubled since 2012 and adjusted earnings rose by 20% to 127.1p per share last year.

However, the firm warned that profit margins in the sugar business and at Primark would remain under pressure in 2018. This prompted a sharp drop in the group’s share price, which has fallen by 25% since October.

This could be a buying opportunity

ABF’s latest trading statement confirmed that adjusted profits are expected to rise this year. Analysts’ forecasts suggest this could translate into earnings per share growth of 6%, plus dividend growth of 9%.

The forward dividend yield here is only 1.9%, but this low yield reflects expected dividend cover of three times earnings. That’s the kind of long-term thinking and conservative management which makes it possible to increase the dividend during lean years.

In my view, ABF’s falling share price has created a buying opportunity. Trading on 18 times forecast earnings, I rate this as a long-term buy that could deliver healthy gains over the next decade.

The post This FTSE 100 firm isn’t the only dividend stock I’d buy today and hold forever 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 recommended Associated British Foods. 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.

Glorious food

The collective shoulder shrug could be due to the fact that the results blandly report that Hilton has “performed in line with the Board’s expectations”, posting growth in a number of existing and new markets, while also benefitting from the positive impact of foreign currency translation. Clearly, there are more exciting stocks around.

Turnover in the UK and Ireland grew noticeably, with smaller rises in Sweden and Denmark, and a slight sales dip in Holland. Moves to adapt the business model to the local environment in central Europe also appear to be paying off. This brief update concluded that the £683m company’s trading outlook remains positive as its looks to grow in Australia, Portugal, Central Europe and New Zealand, and exploit its recent Seachill acquisition. “The Group’s financial position is strong, positioning us well for further expansion,” it concluded.

Capital return

Investors will get more to sink their teeth into on 28 March, when full-year results are due. My main concern today is that Hilton now trades at a slightly pricey forward valuation of 21.4 times earnings. It also looks expensive as measured by a price-to-earnings growth (PEG) ratio of 2.3, given that figures over 1 start to look high.

However, predicted earnings per share (EPS) growth of 10% in 2017 and 9% in 2018, plus a forecast 2.3% yield covered twice, all make a solid investment case. So does Hilton’s healthy 29.8% return on capital employed (ROCE).

Star performer

Jupiter Fund Management (LSE: JUP) also issued a trading update after a strong year of 36% share price growth as stock markets boomed. However, the market is not quite so sanguine about today’s results, with the stock dipping 2.12% at time of writing following a slowdown in net fund inflows to £600m. 

Across 2017, total inflows were a buoyant £5.5bn, which compares favourably to just £1bn across 2016. Assets under management also increased, rising 24% over the year to £50.2bn. CEO Maarten Slendebroek hailed a year of “consistent progress” as strong investment performance provided positive returns for clients after fees.

New frontiers

Slendebroek said the £2.63bn group’s diversification strategy is paying off as it launches a number of new funds targeting emerging and frontier markets. Jupiter also expanded its geographic reach with flows from clients in Thailand and Latin America. Its timing was good and last year was certainly the right one to target emerging markets. The top performing global asset class returned 25%, figures from Fidelity show. The FTSE 100 also had a strong year.

I am wary about tipping a fund manager with global stock markets at record highs and people once again worrying about a correction. However, Jupiter’s forecast valuation of 16.7 times earnings does not look pricey, and EPS are forecast to have grown a healthy 18% in 2017, with another 9% expected in 2018. By then, the yield is forecast to be 5.1%. Jupiter could be an even hotter destination if the market dips.

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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.

I have to admit that some of my  holdings would be different if I knew I wouldn’t be able to sell them before 2022. So today I’m going to look at two companies I would buy if I couldn’t sell for the next five years.

Strong volume growth

A long-term investment needs to be a business that won’t go out of fashion, or be made redundant by new technology.

I’m fairly sure that meat-packing firm Hilton Food Group (LSE: HFG) fits this description. This £559m company operates across Europe and in Australia. Customers include most of Europe’s major supermarkets.

Today’s first-half results show a solid performance so far this year. Total volume rose by 8.7% to 160,848 tonnes, while revenue rose by 9.3% to £690.7m. The group’s operating profit rose by 9% to £18.8m, giving a 2.7% margin that’s consistent with the group’s long-term performance.

Although these figures were boosted by exchange rate movements, both revenue and profit growth were positive, even after the cost of setting up new facilities in Europe and Australia.

This performance highlights one of the firm’s main attractions, its high return on capital employed (ROCE). This is a measure of a company’s operating profit, relative to the value of its assets.  

Hilton Food has a ROCE of about 30%, which is unusually high. What this means in practice is that investment in new factories tends to be repaid with extra profits very quickly.

Today’s figures seem to confirm this. Net cash rose from £32.3m to £38.9m during the first half of the year. The interim dividend has been increased by 8.7%, in line with the five-year average growth rate of 9%.

Hilton Food’s stock trades on 21 times forecast earnings, with a prospective yield of 2.5%. That’s not cheap, but I think the firm’s track record suggests that it is still worth buying.

Essential goods

Another business with a foothold in the food industry is Avon Rubber (LSE: AVON). The group’s dairy division makes rubber fitments used for milking cows. But Avon also has a second division, Protection & Defence.

This business makes gas masks for military and civilian markets all over the world. The company’s products encompass chemical, biological, radiological and nuclear hazards. Sadly, I suspect they are likely to remain in demand throughout my lifetime.

Like Hilton, Avon ticks the boxes for a quality business. The group’s average ROCE since 2011 has been 26%. Net cash was £12.6m at the end of March and the dividend has risen by about 26% per year over the last five years.

The group’s share price has pulled back this year and the stock currently trades on a forecast P/E of 14.5, falling to a P/E of 13.8 in 2018.

Although the yield is low at around 1.3%, the payout was covered six times by earnings last year. I’d expect dividend growth to remain high for the foreseeable future.

If I had to lock up my portfolio and throw away the key tomorrow, I’d probably buy some Avon shares today.

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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.

“With this acquisition ConvaTec Americas would create a new home distribution business unit, encapsulating the US distribution companies of 180 Medical, Symbius Medical, South Shore Medical Supply, Wilmington Medical Supply and Woodbury Health Products,” said CEO Paul Moraviec in today’s announcement.

Management further explained that the deal to buy Woodbury, which is valued at an enterprise value of $120.5m, would give the company “further breadth and reach” and strengthen its “leading position” in the market. Additionally, the acquisition is expected to be “immediately accretive” to ConvaTec’s earnings.

Encouraging track record

It’s too early to say how this move will work out, but given the company’s encouraging track record with previous acquisitions, I’m quite optimistic. Separately, the firm is working to improve its margins, expand its Advanced Wound Care franchise and develop new products for insulin and other drug delivery. With a diverse product portfolio and favourable demographic trends, ConvaTec is set to benefit from some advantageous tailwinds.

Last year, the FTSE 100 company’s adjusted operating profit rose by 8.1% to $472m, as operating margins improved 150 basis points to 28%. Looking ahead, I expect to see continued margin improvement, with City analysts forecasting adjusted operating profit growth of another 8% this year.

As such, I reckon its promising earnings outlook makes it worthy of a slightly-heady forward price-to-earnings ratio of 21.5 times.

Top-line growth

Elsewhere, Hilton Food Group (LSE: HFG) today released its trading update for the 28 weeks to 16 July.

The retail meat packing company is seeing top-line growth in the first half in the Sweden and Ireland, thanks to the launch of a new packaging format which extends shelf life and an expansion of the Ocado product range serviced from Ireland. Additionally, its UK turnover was higher than last year, thanks to unusually warm weather which contributed to a good start to the barbecue season, and thus rising volumes and higher prices.

In other countries, market conditions have been more challenging, particularly in the Netherlands and in Central Europe. Recent new product launches and rising development costs in these markets have also adversely impacted its bottom line.

Still, the company as a whole is set to continue to deliver positive earnings growth over the next two years. Hilton shares currently trade at 20.2 times its expected earnings this year, as City analysts currently expect adjusted earnings to climb 7% in 2017, with a further advance of 5% in 2018. And although growth is forecast to moderate in the coming years, there’s still room for dividends to grow at a steady clip as its payout ratio currently stands at just over 50%.

So although its shares currently carry a modest dividend yield of 2.5%, its dividend payout is forecast to grow by around 7%-8% over the next few years. This implies that shares in the company could yield as much as 3% in two years’ time. 

The post 2 promising growth stocks you probably haven’t considered appeared first on The Twelfth Magpie.

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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.

This is one dilemma that may be facing holders of IRN-BRU maker, AG Barr (LSE: BAG) and meat-packer Hilton Food (LSE: HFG). Over the past year, both stocks have performed admirably, rising 19% and 29% respectively. As expectations rise along with share prices however, are these stocks now overbought?

Running out of fizz?

Back in March, AG Barr revealed an encouraging set of full-year results to the market.

Sales of its key IRN-BRU and Rubicon brands rose 3.2% and 4.9% respectively on an underlying basis, allowing the company to report that it had successfully defended its overall share of the UK soft drinks market. The 27% revenue growth seen in its Funkin cocktail mixer range was also more-than-encouraging.

Overall, these figures saw the company realise a 4.4% rise in statutory profit before tax of just over £257m. In addition to reporting that a reorganisation of the business had reduced its overhead base by around £3m, management also announced a share repurchase programme of “up to £30m“. 

For those who seek out companies with robust balance sheets, AG Barr now more-than ticks the box. In contrast to the previous year’s net debt position of £11.3m, the company ended the financial year with positive net cash of almost £10m. 

So what’s my problem with the Cumbernauld-based business? Simply that EPS growth over the next year is forecast to be even lower than in 2016 at under 1%. Contrast that with 2015’s 6% rise.

This slowdown, when coupled with the company’s lofty valuation, leads to price/earnings-to-growth (PEG) ratios of 3.2 for 2018 and 3.5 for 2019. Given that anything under one signals great value, it might be argued that AG Barr’s recent share price gains aren’t completely justified.

Moreover, while I think concerns over the sugar tax have been overdone (especially as 90% of its brands contain less than 5g of the sweet stuff per 100ml, according to the company), there’s also the possibility that market sentiment on AG Barr may reverse as we approach the tax’s introduction next April.

Rich valuation

Like AG Barr, shares in Hilton have put in a stellar performance over the last 12 months, rising 29%.

Full-year figures for 2016, announced at the end of March, painted a positive picture of the business. Revenue and operating profit rose by 7.2% and 11.7% respectively on a like-for-like 52-week constant currency basis with basic earnings per share rising 15.4% to just under 34p.

With a new factory being built in Australia, expansion into fresh pizza production in Sweden and Central Europe, and a meat trading business launched in the UK, this is one company that certainly isn’t standing still. 

Trouble is, last year’s 20% earnings per share growth is expected to be less than half that in 2017, before dipping to 5% in 2018. This leaves the shares trading on rather steep valuations of 21 and 20 times earnings respectively. Based on PEG ratios for the next two years (four and 4.4), investors are now paying an awful lot relative to the amount of growth expected.

So, while I wouldn’t be surprised if Hilton’s next trading update caused a further (temporary) rise in the share price, I suspect that last year’s performance isn’t about to be replicated.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended AG Barr. 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.

There is good reason to be cautiously optimistic on the company’s near-term outlook. Many investors have been scared off by management’s disclosure that they expect margins to stagnate or reverse in H1 2017 as the increased national living wage and inflation take their toll on the company’s cost structure.

Yet management has still guided for increased profits during the year thanks to estate expansion and like-for-like sales growth as it rolls out new food-to-go offerings and concentrates on breakfast food and drinks. At the end of December the group was trading from 1,764 locations across the UK and guided for around 100 new store openings in 2017.

So far, this expansion looks to be on track as the company had a net increase of 28 shops in Q1 as it expanded its footprint in Northern Ireland and the south west. New stores, together with a 3.6% increase in like-for-like sales at company-managed outlets, led overall sales to rise 7.5% year-on-year.

Impressive same-store sales growth shows that the company’s push away from high street locations to travel outlets and food-to-go offerings is paying off with customers. While stagnant margins are a worry in the short term, the company is looking to mitigate the negative effects of increased staffing costs with distribution centre consolidation and cost savings in back office functions and procurement.

All told, Greggs’ shares may not be the bargain of the century but for investors who believe in its growth story now, it may not be a bad time to take a closer look.

An under-the-radar growth star

Another food group that is growing rapidly is meat packer Hilton Food (LSE: HFG). The company has been expanding through both organic growth from its existing customers, industry consolidation and geographic expansion with new sites in Europe.

All of these factors together led sales to rise 12.8% year-on-year in 2016 to £1.2bn. The weak pound exaggerated this growth but an 8.9% rise in sales on a constant currency basis shows the company’s business model is bearing fruit. Also of note is that volume growth was only 7.8% in the period, showing Hilton’s pricing power is increasing as it expands in size and scale compared to competitors.

Increased scale also helped boost the group’s operating margins from 2.6% in 2015 to 2.7% last year. Although these margins are razor thin they also represent a deep moat to entry for competitors, which together with a net cash position of £32.3m at year-end bodes well for the company’s ability to continue expanding over the medium term.

The bad news is that institutional investors have fallen in love with Hilton and the company’s shares now trade at a pricey 21 times forward earnings. This is a lofty valuation but the well-executed business model and rising 2.2% dividend yield mean I’ll be following closely for any dips in price.

The post Is this FTSE 250 growth stock an unmissable bargain at just 15 times earnings? appeared first on The Twelfth Magpie.

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Ian Pierce 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.