2 high-growth small-caps I’d buy to retire on

Portmeirion Botanic Garden Tea Set Teapot & Sugar Bowl

The production and sale of luxury interior furnishings is a highly profitable business for Walker Greenback (LSE: WGB). Indeed, over the past five years, demand for the company’s products has surged with revenue growing from £75.7m for the fiscal year ending 31 January 2013 to £92.4m for the year to January 2017. 

City analysts expect the company to report further growth this year with revenue of £119.6m projected, and off the back of this growth, analysts are expecting an earnings per share rise of 16% to 15.9p. If the company hits these targets, pre-tax profit will have grown by around 190% in six years, and earnings per share will be up 70%. 

As earnings have expanded over the past five years, shareholders have reaped the rewards. Management has hiked the company’s dividend payout per share by 200% since 2013 and shares in the company have produced a total return of around 240% since mid-2012.

Further growth ahead? 

I believe Walker’s returns can continue as the company builds on its existing presence to reach new customers. In October last year management completed the acquisition of Clarke & Clarke, an innovative design, fabrics and furnishing company with an international presence. 

Thanks to this acquisition, sales for the six months ended 31 July 2017 grew 35.6%. Excluding the new business, on a like-for-like basis sales increased 3.6% in reported currency. International sales are growing at a double-digit rate. During the reporting period, sales in Europe and the US rose 11.9% and 12.9% in reported currency, but sales in the UK declined by 1.8%. More lucrative licence income rose 18% in constant currency year-on-year for the period.

Despite Walker’s impressive growth, shares in the company trade at a relatively modest valuation of only 14.7 times forward earnings and support a dividend yield of 1.9%. As the company continues to use its reputation to drive global organic sales, while acquiring additional bolt-on growth, the group should be able to expand for many years to come.

Growth through acquisition 

Like Walker, Portmeirion Group’s (LSE: PMP) reputation and bespoke products have helped it grow steadily over the past five years, and these traits should ensure that the group has many more years of expansion ahead of it.

Over half a decade, Portmeirion’s revenue has grown by 50%, and over the same period, earnings per share increased 40%. Over the next two years, City analysts expect the company to report earnings growth of 11% for 2017 and 9% for 2018. These are hardly the market’s best growth rates. But Portmeirion has a strong reputation that should allow the group to continue to grow steadily over many years, so as a long-term investment the firm looks highly attractive. Shares in the company currently trade at a forward P/E of 13.8 and support a dividend yield of 3.7%.

Portmeirion is also executing select acquisitions to boost organic growth. Thanks to the purchase of Wax Lyrical, the UK’s largest manufacturer of home fragrances, for the six months ended 30 June 2017, total group sales rose 16%. With net debt of only £2.3m at the of the end of 2016 and a bank facility of £21m, the firm has plenty of financial headroom for further acquisitions to drive growth.

10 steps to a million

Long-term growth champions like Walker and Portmeirion are the perfect stocks to help you make a million from shares. This might seem like an impossible goal, but if you follow just 10 key steps, you’ll greatly increase your chances of hitting this key target.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Portmeirion Group. 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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