These 2 exciting growth stocks still look cheap

Berkeley Group

Investors were expecting a positive set of final results from housebuilder Berkeley Group Holdings (LSE: BKG) today and they certainly got them.

Berkeley squared

The headline figures showed annual profits before tax up 53% to £812.4m, against £530.9m last year. Net cash soared from £107.4m in April 2016 to £285.5m today, and that’s after dividend payments of £254.6m and share buy-backs of £64.5m. Revenues rose 33% to £2.72bn with sales rising 3.4% and the average selling price leaping 31% to £675,000. Net asset value per share rose 18.4% to £15.56. 

Forward sales at the Cobham-based builder dipped slightly, from £3.25bn last April to £2.74bn, but its land bank posted a solid 8.1% increase to 46,351 plots with 16 new sites added to the land bank. Berkeley shows outstanding balance sheet strength with cash due on forward sales of £2.74bn, estimated future land bank gross margin of £6.4bn and net cash of £285.5m.

Brum, here we come

Chairman Tony Pidgley said Berkeley “is in excellent shape with further additions to our unrivalled land bank in the period” while warning that “it is an inescapable fact that we are facing a number of headwinds and a period of prolonged uncertainty”. Brexit and global economic uncertainty are the main concerns. The housebuilders generally have recovered well since last year’s referendum shock, helped by low mortgage rates and the shortage of property, yet Berkeley is yours at a lowly forecast valuation of 7.4 times earnings.

Berkeley is confidently moving out of its London and southern England comfort zone into Birmingham and beyond. Its share price is up 150% over five years and the firm remains on target to hit £3bn of pre-tax profit in the five years beginning 1 May 2016. It seems very nicely priced to me, especially on a forecast yield of 6.1%, covered 2.2 times.

Beaz knees

Some people think insurance is boring but investors in Lloyds of London insurer Beazley (LSE: BEZ) have enjoyed a high old time lately, with the stock up a barnstorming 30% in a year and 251% over five years. However, it has hardly been a party animal lately, posting a 2% drop in gross premiums written to $573m in the three months ending 31 March 2017, while premium rates on renewal business fell 1%. It has posted a year-to-date investment return of 0.9%.

Chief executive officer Andrew Horton nonetheless hailed a solid start to the year with the speciality-risk insurer and reinsurer announcing the acquisition of Canadian insurer Creechurch Underwriters in February, as part of its longer-term strategy to develop its non-US speciality lines business, in parallel with its growing US operations.

Terror threat

Beazley has warned investors that the rating environment remains challenging due to terrorism, war and catastrophe and the business looks set for a choppy time, with earnings per share forecast to fall 17% this year, before recovering to rise 6% in 2018. Pre-tax profits may flatten this year and next at around £196m. Today’s valuation of 12.5 times earnings is forecast to rise to 15 times.

The insurer’s forecast yield of 3.3% is covered two times by profit, while the ongoing reorganisation should boost profits in the longer run. Today Berkeley would be my pick of the two.

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Harvey Jones 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.

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