Today I am looking at four London-listed lovelies expected to deliver solid earnings expansion.
ARM Holdings
Thanks to its suite of industry-leading chips, I believe ARM Holdings (LSE: ARM) should continue to produce strong revenue growth from the smartphone and tablet markets. Despite fears of slowing demand in these critical markets, the likes of Intel cannot compete with ARM’s energy-saving hardware, making it a solid favourite with industry gallopers like Apple.
On top of this, the Cambridge firm’s decision to diversify into other exciting growth areas like servers, networks and the mysterious ‘Internet Of Things’ is also helping to keep licence wins trekking steadily skywards. ARM has seen earnings rocket at a compound annual growth rate of 18.2% since 2010, and rises of 66% and 14% are pencilled in for 2015 and 2016 respectively.
Next year’s figure leaves the tech giant dealing on an elevated P/E rating of 29.7 times. But I believe ARM’s stellar growth record fully justifies this premium.
Reckitt Benckiser Group
As the poor economic data from China continues to flow in, naturally emerging-market heavy stocks like Reckitt Benckiser (LSE: RB) could witness fresh share price volatility. But for patient investors I believe the household goods giant should enjoy splendid returns, as long-term predictions of accelerating income levels and surging populations remain undiminished.
Furthermore, Reckitt Benckiser’s vast array of market-straddling labels — from Durex condoms and Nurofen pain suppressants to Harpic bleach — carry terrific pricing power, enabling the firm to keep delivering solid revenues advances, regardless of wider macroeconomic pressures. Indeed, despite current troubles in China the business still hiked its 2015 underlying sales growth target last month, to 5%.
Consequently the City expects Reckitt Benckiser to follow earnings expansion of 3% in 2015 with a 7% advance next year, resulting in a P/E ratio of 24.6 times. Like ARM Holdings, I reckon the diversified manufacturer deserves this premium, thanks to its top-tier labels and wide global spread.
JD Sports Fashion
Trainer and leisurewear specialist JD Sports (LSE: JD) has seen its share price charge relentlessly higher during the past six months, the company having more than doubled in value since the start of April alone. And I believe the retailer has plenty more in the tank as its trendy fashion lines continue to fly off the shelves.
JD Sports saw sales rise by more than a fifth year-on-year during February-July, to £810m, a result that drove pre-tax profit an eye-watering 88% higher to £44.7m. Not only is the business benefitting from resplendent retail conditions in the UK, but a steady store rollout in Europe — the business unveiled another 27 outlets in the six-month period — is also bolstering the top line.
With the business also investing heavily in its product ranges, JD Sports is expected to follow a 25% earnings rise in the year to January 2016 with an 8% advance in the following period, creating a very appealing P/E rating of just 17.7 times for next year.
Ashtead Group
I believe that strong construction activity across the globe should deliver solid returns at power generator supplier Ashtead Group (LSE: AHT) in the years ahead. On top of this, the rampant progress of its Sunbelt and A-Plant banners in the US and UK continues to chomp away at the market share of its rivals, delivering solid sales growth.
Indeed, Ashtead saw underlying rental revenues advance 20% during May-July, to £539.6m, in turn driving pre-tax profit 23% higher from the corresponding 2014 period, to £160.7m. Despite the ongoing travails of the oil and gas industries, I believe the company’s leading presence across a multitude of sectors should still create resplendent earnings growth.
This view is shared by the City, and Ashtead is anticipated to enjoy bottom-line bumps of 25% and 17% for the years concluding April 2016 and 2017 respectively. And the latter figure leave the company changing hands on an earnings multiple of just 11 times.
