Improving outlook

Reporting a trading update on Tuesday was integrated healthcare provider in the United Arab Emirates, NMC Health (LSE: NMC). It now expects its full-year EBITDA (earnings before interest, tax, depreciation and amortisation) to be towards the top end of the current guidance range of $335m to $350m. This follows changes to regulations in the UAE, which could be set to benefit the company’s financial performance.

Looking ahead, NMC is expected to report a rise in its bottom line of 27% this year. This is forecast to be followed with growth of 28% next year. This puts the company’s shares on a price-to-earnings growth (PEG) ratio of just 0.7, which indicates they could offer a significant amount of upside potential.

Clearly, NMC lacks the geographic diversity of other healthcare providers. However, since it is not reliant on the UK or European economies for its revenue, it could act as a means of diversifying a UK or European-focused portfolio. And with it offering a wide margin of safety and clear growth potential, it could prove to be a stock that outperforms the FTSE 100. That’s despite its shares already doubling in the last year and leaving the wider index around 83% behind.

Sustainable growth

Also offering upbeat growth prospects in the current year is fresh produce distributor Total Produce (LSE: TOT). It is expected to report a rise in its bottom line of 35% in the current year. Since it trades on a price-to-earnings (P/E) ratio of around 16, this suggests that it offers excellent value for money. In fact, such a high rate of growth equates to a PEG ratio of just under 0.5.

Looking ahead, Total Produce is likely to post relatively robust and highly sustainable growth. In the last five years it has recorded a rising bottom line 80% of the time, with its earnings rising at an annualised rate of over 5% per annum. This suggests that a similar, resilient growth rate could be ahead. Given the uncertainty which the UK and European economies face, this could prove to be a useful ally for risk-averse investors.

While Total Produce may be seen as a stock lacking in a clear catalyst to push its share price higher, its low valuation and sound business model mean that it could be a strong long-term performer. It has delivered a more than doubling of the FTSE 100’s return in the last year and more outperformance could be ahead.

The post 2 cheap growth stocks set to beat the FTSE 100 appeared first on The Twelfth Magpie.

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Peter Stephens 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.

The primary focus for recent expansion efforts is the massive North American market and through a combination of organic growth and acquisitions it’s targeting $1bn in sales in the coming years. This number will only grow as the company redirects retained earnings into further acquisitions in the US as well as in operations further afield, including India.

The fresh produce market is a sector with very slim margins, which means economies of scale are incredibly important. With over €3.4bn in annual revenue, this works in Total Produce’s favour by creating a wide moat to entry for competitors. Likewise, the defensive nature of the sector gives it room to breathe during any economic downturn. The shares aren’t super cheap at 15 times forward earnings, but with a long history of successful acquisitions and a healthy balance sheet, I reckon there’s more growth on the cards for Total Produce.

Cashing in on cashless trend

Having only gone public in late 2015, card payment processor Worldpay Group (LSE: WPG) has flown under many investors’ radar despite a solid history of growth. Worldpay is benefitting from the global shift towards non-cash payments and in just the first six months of 2016 processed over 7.2bn payments worth over £200bn.

Taking a cut of these transactions provided Worldpay with net revenue of £539m during the period, a 16% increase from the same period a year prior. This is a highly cash generative business and the company has been ploughing proceeds back into growing its online payments business, as well as expanding into new countries. This is a growth tech stock with a commensurate lofty valuation, currently 23 times forward earnings. But with plenty of growth potential from the core UK market as well as new regions and platforms, Worldpay isn’t a stock to sleep on.

Margin marvel

One fast growing tech stock that may escape investors’ attention due to its ubiquity is online property platform Rightmove (LSE: RMV). With a 77% market share Rightmove is the dominant platform in the UK, a position that management has leveraged into high prices from the estate agents that list on it.

High prices combined with an asset-light business model equals high margins. In the first half of 2016 operating margins hit an astounding 74.6%. The low-cost nature of running a property portal also means it’s been relatively cheap and easy for Rightmove to expand overseas. In H1 it saw over 50m searches for homes overseas, which is a fraction of the total 750m searches in the period but is growing quickly.

With overseas growth presenting a huge opportunity, unbelievable cash generation from core UK operations and very high dividends and share buybacks, I believe Rightmove is worth a closer look, even with the shares trading at 27 times forward earnings.

Can investors beat Rightmove’s 200%+ five-year returns?

The post 3 top stocks you’ve been overlooking appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Rightmove and Worldpay. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Conviviality’s acquisitions of Matthew Clark, Peppermint and Bibendum PLB have transformed its financial performance, Sales of £783m were significantly higher than the £252m recorded in the previous year. Conviviality’s new business structure has the potential to continue to deliver strong growth. This follows the organic sales growth of 5.2% in its Direct division, 2.5% in its Retail division and 5.1% in Conviviality’s Trading segment in the first half of the year.

Furthermore, the integration of the recent acquisitions is ahead of plan and Conviviality is on track to deliver the expected synergies from the deals. Not only do the acquisitions equate to higher potential sales and profit growth, they also help to diversify Conviviality. This provides the company with additional revenue streams beyond its Bargain Booze stores, with it having the potential to grow into a major food and drinks service operator.

Strong growth ahead

Looking ahead, Conviviality is forecast to increase its bottom line by 38% in the current year and by a further 17% next year. These are stunning rates of growth and show that even with an uncertain outlook for the wider UK economy, demand for alcoholic beverages is likely to remain high. This means that Conviviality could appeal as a relatively defensive stock that’s less affected by the potential impacts of Brexit than for many of its index peers.

Alongside its high growth rate is a valuation that has significant appeal. Conviviality trades on a price-to-earnings (P/E) ratio of just 10.5. When combined with its growth rate, this equates to a price-to-earnings growth (PEG) ratio of only 0.4, which shows that Conviviality has substantial upward rerating potential. It also shows that it has a wide margin of safety that could offer downside protection in case the wider market falls.

In terms of relative appeal, Conviviality’s growth rate and valuation are far superior to those of sector peer Total Produce (LSE: TOT). It trades on a P/E ratio of 14.9 and yet is forecast to grow its earnings by 7% this year and by a further 4% next year. While this growth rate is encouraging, it’s far below that of Conviviality and translates into a PEG ratio of 2.7, which is relatively unappealing.

Conviviality also has a superior yield to Total Produce. Conviviality yields 5.9% from a dividend covered a healthy 1.6 times by profit. This compares to Total Produce’s yield of 1.7%, which is covered 3.8 times by profit. Certainly, Conviviality’s acquisition spree may make it slightly riskier as a business than Total Produce, but its lower valuation, higher growth rate and superior income prospects make it a star buy for the long term.

The post 211% sales rise makes me bullish about this growth stock appeared first on The Twelfth Magpie.

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Peter Stephens 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.

Total’s global network of farms allow it to grow the wide variety of produce that we expect to be in our grocery baskets year round, seasons be damned. That gives it a huge moat to entry for competitors who would need large amounts of capital as well as local know-how to grow bananas in Belize, blueberries in Australia or avocados in Kenya and somehow turn a profit after shipping them across Europe.

The wrinkle is that margins for grocery stores aren’t exactly astronomical, so imagine how low they are for the suppliers of commodities like fresh produce.

Have a number in your head? Now halve it.

Interim results released this week showed operating margins of a mere 1.5% over the past six months.

Of course, the company can still boost profits by moving the top line. And that’s what Total has done through organic growth and acquisitions. Revenue was up a full 10.4% year-on-year to €1.9bn. The mover and shaker behind this rapid growth was its international markets such as the US and India where sales rose 65.4%.

Befitting its staid industry, international expansion has been cautious and set up to avoid major pitfalls. A key part of this is a conservative approach towards leverage that led to net debt of only €95.7m at the end of June, which is only 1.1 times annualised EBITDA.

With relatively low debt, a high moat to entry for competitors and growing dividend, Total is one to watch for cautious investors.

Down but not out

Unfortunately, these are all characteristics that pubco Punch Taverns (LSE: PUB) can’t boast. That’s because while all pub chains have been affected to some degree by the end of the beer-tie and falling foot traffic, Punch Taverns has done enough on its own to dig itself into a very deep hole over the past few years.

The culprits in this case are a whopping £1.2bn worth of nominal net debt sitting on the books and a bloated collection of 3,330 pubs that needs to be slashed to restore overall profitability.

However, management is working to solve both these problems. The company sold off £199m worth of properties over the past half-year, which allowed nominal net debt to come down by £191m during the period.

Like all competitors, Punch is also working on improving food and drink offerings in an effort to attract new customers. So far this is working out well with profit per pub up 3% in the past seven months and like-for-like net income rising 1.6% at core pubs.

Turnaround efforts are going well then but there’s still some way to go. The company is targeting reducing total pubs owned to around 2,800, leaving much work to be done. Likewise, it will take time to judge whether the company’s efforts to revamp the estate towards short-term tenancy agreements with landlords will pay off in the long run.

There are very valid reasons for shares trading at 5.5 times forward earnings, but if turnaround efforts continue to progress well Punch Taverns could be one to watch for bargain hunters.

The post Pubs and fresh produce: Selling boring essentials warrants a second look at these two shares appeared first on The Twelfth Magpie.

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• Why Barclays shares could have a huge second half of 2026
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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

Ian Pierce 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.