One hot growth share I’d buy and one I’d sell

Morrisons supermarket store

Miton Group (LSE: MGR) was sailing ahead in Wednesday trade following the release of latest trading details. The stock was last 5% higher on the day and a whisker of setting fresh three-year highs.

The asset manager advised that it had made a “solid start to the year,” with net inflows of £195m during January-June taking total assets under management (AUM) to £3.35bn.

Group AUMs were up from £2.91bn at the start of 2017, with market and investment performance during the first half adding an extra £254m to the total.

Miton clearly has good momentum behind it, with assets still improving rapidly from the middle of 2016 and investment performance being strong across a number of funds. Indeed, 12 out of 15 funds were first or second quartile since manager tenure to June 30.

The City expects Miton to record a 2% earnings uptick in 2017. But earnings are expected to detonate in the following 12 months, a 20% surge predicted for 2018.

The London-based company subsequently carries a forward P/E multiple of 16.8 times, just outside the widely-regarded value yardstick of 15 times or below. Still, I reckon this is a decent level at which to latch onto Miton, and expect its improving scale to deliver exceptional earnings growth.

Share slips

I remain less than convinced by the long-term earnings prospects of WM Morrison Supermarkets (LSE: MRW) however, even if sales numbers have improved of late.

According to industry researcher Kantar Worldpanel, Morrisons posted the largest sales increase among the UK’s so-called Big Four supermarkets in June’s report, till rolls at the Bradford chain advancing 3.7% in the 12 weeks to June 18.

However, this meaty uptick could not prevent the grocer’s market share falling 20 basis points to 10.6%. Instead, new kids on the block Aldi and Lidl continued to grab custom, their revenues climbing 18.7% and 18.8% respectively in the three-month period. As a result, their combined market share is now up 1.4% year-on-year, standing at 5% for Lidl and 6.9% for its German counterpart.

Spreading their wings

And the discounters are embarking on huge expansion schemes to attract even more cost-conscious Britons through their doors. Just this week Aldi announced it was adding a further 4,000 staff, and affirmed its target to have 1,000 stores up and running by 2022.

On top of this, Amazon made another statement of intent with the acquisition of Whole Foods for $13.7bn, improving its operations in cyberspace, as well as giving it a hefty entrance point in the ‘real’ world.

City brokers expect earnings at Morrisons to rise 13% and 7% in the years to January 2018 and 2019. I have little faith in these projections however, as competition in-store and online worsens and cost pressures intensify.

And I believe the retailer’s toppy prospective P/E ratio of 20 times leaves plenty of room for a painful share price retracement should its share of the market continue to erode. I reckon investors should consider cutting Morrisons adrift.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. 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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