There are some absolute peaches available for growth-seekers if you care to venture outside the FTSE 100. Here are just two.
First up is Record (LSE:REC), offering a juicy 6% dividend yield on a price-to-earnings ratio of just 12. The currency-hedging firm has a relatively small market cap of £75m, but two special dividends in the last 12 months show that its bosses are keen to divest surplus cash to pay back shareholders for their faith.
Companies of this size are frequently under pressure to load up their balance sheets with a ton of debt to bolster growth, but chief executive James Wood-Collins has shown remarkable restraint in this regard.
Profitability remains high compared to revenue and everything seems to be heading in the right direction.
Sign me up
The client base of pension funds, asset managers and big corporates is growing strongly, too. Three new institutions signing up from September to December 2019 took Record’s client number to 73. A third-quarter trading update for the three months to 31 December 2019 showed assets under management up 8% to $64.7bn with Wood-Collins highlighting the company’s demonstrable “momentum in terms of new business“.
Earnings per share have forged ahead from 2.66p five years ago to 3.27p. Over the same period, dividends per share have nearly doubled from 1.65p to 2.99p.
Tech specs
The second fast-growing share at the top of my watchlist is the £625m market cap Draper Esprit (LSE:GROW). This venture capital company uses its money to invest in the cream of the crop of profitable, private, fast-growing tech companies across Europe. Its analysts seem to have their heads screwed on right: there’s no cash-flashing here, nor overpaying for the sake of it.
Its bigger names include reviews site Trustpilot, French cloud call software firm Aircall and Bristol semiconductor company Graphcore, which manufactures high-grade computing processors to develop faster machine learning.
Firstly, I like the fact that these are investments you wouldn’t normally be able to get your hands on. Secondly, GROW is doing what its acronym suggests and multiplying its business nicely.
Real gains
Half-year results for the six months to the end of September 2019 showed a pre-tax profit 50% ahead of the same period last year at £58.7m. The Net Asset Value (NAV) of its investments saw a 10% hike to 574p across the six months, and on a current share price around 530p, you’d be getting a nice 7.5% discount if you were to buy now.
I like management’s approach to its investments: Draper Esprit chief executive Simon Cook says his focus is on “prudent” investment with a target of 20% fair value growth per year across the portfolio, along with “maintaining a disciplined approach to pricing and capital deployment“. GROW has 18 companies in its portfolio, suggesting it’s not spread too thinly, and has invested £42m in those businesses in the last six months.
Sensible growth is always better than a flash in the pan, here-today-gone-tomorrow business.
A closer look at the fundamentals also gives me confidence that the shares are not overvalued: the price-to-earnings growth ratio is just 0.2 while earnings per share jumped by 29% between 2018 and 2019.