Top investors love to buy shares in successful companies.
As one fund manager once told me: "If a company's earnings and dividends are rising then the shares have the habit of catching up."
I trawled the market to find 10 companies that have been more successful than the rest. To qualify for my list, a company needs a minimum of seven years of dividend increases, and a compound annual growth rate over the last five years satisfying these criteria:
- Dividend growth greater than 8% pa.
- Sales growth of 20% pa.
- Earnings per share (eps) growth of at least 13% pa.
|Company||Market Cap (£m)||Price (p)||EPS growth forecast (%)||P/E|
|Aggreko (LSE: AGK)||5,306||1952||9.8||20.6|
|Petrofac (LSE: PFC)||4,700||1361||19.2||13.5|
|Intertek (LSE: ITRK)||4,161||2623||36.3||28.3|
|Weir (LSE: WEIR)||3,052||1440||22.4||11.5|
|Babcock International (LSE: BAB)||3,037||846||51.4||18.6|
|Chemring (LSE: CHG)||560||290||28.9||8.0|
|Anglo Pacific (LSE: APF)||267||244||-33.9||16.1|
|Albemarle and Bond Hldg (LSE: ABM)||137||246||10.8||8.2|
|First Derivatives (LSE: FDP)||79||470||32.6||15.5|
|Wynnstay (LSE: WYN)||64||385||4.7||11.5|
Though these companies have been previously successful, that does not necessarily mean the shares should be bought. Lists like these are simply a place to start your research.
I've picked out four that look particularly interesting.
1) Babcock International
In the early part of the Noughties, Babcock International reinvented itself as an outsourced engineering support services business. This -- and a number of successful acquisitions -- helped propel the company into the FTSE 100 (UKX).
Around half of Babcock's work is in defence. Babcock is currently working on the assembly of Britain's two new aircraft carriers for the Royal Navy.
Babcock's executives correctly anticipated big industry's move toward outsourced services. The company manages huge swathes of the Ministry of Defence's facilities and property portfolio. This includes Rosyth and Faslane dockyards. Some of the most profitable work comes from the nuclear services sectors. Here, Babcock aims to supply the nuclear power industry from construction through to decommissioning.
The nature of this work means contracts are often long term. This results in high visibility of earnings, something investors always value as it reduces the possibility of nasty surprises.
Babcock has now moved into overseas markets. For example, the company provides significant support to the Australian Navy's submarine fleet.
Analysts forecast further earnings growth at the company. Today, Babcock trades on an historic price-to-earnings (P/E) ratio of 19 times 2012 earnings, and 12.7 times the consensus 2013 forecast.
2) Weir Group
Strong commodity prices have led to a worldwide boom in exploration activity.
Weir Group itself is not a natural resources company. Instead, Weir makes its money from supplying equipment to the exploration firms. It is this 'picks and shovels' approach that has delivered strong growth.
Oil prices have declined recently and shares in Weir have suffered. However, if the forecast growth can be delivered, the shares may be cheap right now.
A trading statement issued by the company in May suggested this year would be another one of growth. Today, the shares trade on just 9.2 times the expected result for 2012. That's not particularly expensive for such a successful, growing company.
Intertek is one of the least well-known companies in the FTSE 100. The company operates as an outsourced testing department for industry. It seems regulators worldwide are demanding more standards on more products. Testing and certification is a niche that Intertek has exploited to great effect.
One of the big drivers of Intertek's revenue has been the globalisation of trade. This means products have to be tested to the standards of each country they are being sold in.
The market expects growth at Intertek to continue. A hefty 36.3% rise in eps is forecast for 2012, to be followed by another 14.4% rise in 2013.
Intertek's success has earned the company a premium rating. The shares trade on almost 30 times the achieved profits for 2011, and 20.5 times the 2012 forecast. Although dividend growth at the company has been impressive, the shares yield just over 1%.
Anyone looking at Intertek has to ask what would be needed for the shares to move higher from here. Similarly, if the company failed to deliver on the market's growth expectations, then the shares could fall hard.
4) Anglo Pacific Group
Anglo Pacific has increased eps from 7.6p in 2006 to 21.7p in 2011.
Anglo Pacific invests in mineral exploration and production projects in exchange for long-term royalties. Today, the company has assets around the world. Just under two thirds of Anglo Pacific's revenue comes from coal rights. Most of the rest is iron ore with small amounts of gold and uranium.
Unlike many of the companies listed above, Anglo Pacific's profit growth has not been consistent. The company's five-year profit record is one of some small steps back followed by large rises. However, Anglo Pacific's dividend has been rising steadily year-in, year-out. The average dividend increase in the last six years has been 10.1% per annum.
The consensus forecasts for Anglo Pacific suggest the forthcoming dividend will equate to a 4.2% yield. The shares trade on 16.9 times the forecast for the current year.
In addition to these four, there has been some encouraging recent news from First Derivatives and Wynnstay Group. On Tuesday, Wynnstay announced a 14% increase in earnings with their interim results. This leaves the 4.7% forecast increase in eps looking ripe for an upgrade. Today, First Derivatives delivered a trading statement confirming trading was in line with market expectations.
Finally, let me finish by adding that more share ideas can be found within this Motley Fool report: "8 Shares Held By Britain's Super Investor". The guide reviews the investing approach and portfolio of City dividend legend Neil Woodford and is free to download today.
Further investment opportunities:
> David does not own shares in any of the above companies.