The leading transport operator in the UK and North America FirstGroup (LSE: FGP), has barely seen any movement in its share price over the past 12 months, despite another year of earnings growth and pre-tax profits almost doubling in the space of just two years. With even more growth anticipated over the next couple of years, surely it’s time for investors to sit up and take notice of this overlooked growth stock?
Seasonal bias
In its most recent trading update, the Aberdeen-based transport operator reported a strong first half to its financial year, with encouraging performances in its North American business partially offset by tough trading conditions it its UK bus and rail operations.
The FTSE 250 bus and rail operator does, however, acknowledge that it faces uncertain economic conditions in the UK for the foreseeable future following the result of the EU referendum. Looking ahead, the group should benefit from normal seasonal bias in the second half of the year, and should benefit from favourable currency movements from its substantial North American operations.
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Our friends in the City are anticipating a 16% rise in underlying earnings to £144m for the current year to March, with a further 14% increase expected for fiscal 2018. In my view this leaves the shares significantly undervalued, trading on a P/E rating of nine for the current year, falling to just eight for the year to the end of March 2018.
Foreign exchange boost
Meanwhile, fellow mid-cap firm BTG (LSE: BTG) also posted a strong set of results for the first six months of its trading year. The international specialist healthcare firm that develops products targeting critical care, cancer and other disorders, delivered a 10% improvement in revenue on a constant exchange rate basis, although this was slightly held back by one-off back-royalties for Zytiga, Johnson & Johnson’s treatment for advanced prostate cancer.
Excluding the £8.5m back-royalties received in the first half of 2015/16, revenue growth was an even more impressive 14% at constant currency. This revenue growth was driven in particular by a 24% rise in Interventional Medicine and a 9% improvement in Speciality Pharmaceuticals, at constant exchange rates. At actual exchange rates, total revenue increased by 24% to £285.4m, compared to £229.6m for the first half of 2015/16, benefitting from significant foreign exchange tailwinds from weakened sterling.
Excellent track record
The first-time inclusion of revenues from US-based Galil Medical, which it acquired last May for £110m, contributed 2% to growth. Galil Medical is a leading provider of cryoablation products for the treatment of kidney and other cancers, and the acquisition should certainly strengthen BTG’s portfolio, adding to its capabilities and leadership in Interventional Medicine, which is the group’s fastest growing and highest revenue business. The shares currently look good value with the P/E ratio falling to 18 after an anticipated 48% rise in profits by FY2018.
