There is a price to pay for success. Where stocks are concerned, that typically comes in the form of a hefty valuation, which may be a price worth paying for these two FTSE 250 heroes.
Iron BRW
Wealth manager Brewin Dolphin Holdings (LSE: BRW) has struck it rich for investors lately, with its share price up 43% in the last 12 months. Performance looks just as impressive over five years, with a return of nearly 150%. They say a rising stock market floats all boats, and this is especially the case for financial stocks. These are impressive figures, whatever they say.
The question now is whether you should put money into a wealth manager just as the world seems to be convincing itself the stock market is going to crash. Don’t let that scare you away. People have been fretting over a crash every single day of this tremendous eight-year bull run.
Day of the dolphin
Brewin Dolphin’s growth figures are impressive, with total funds up 6.8% in the year to 31 March 2017 to £37.8bn and discretionary funds rising 9.4% year-on-year to £31.5bn. Basic earnings per share (EPS) increased by 13.1% to 9.5p while the interim first-half dividend of 4.25p per share rose 10.4%.
Growth prospects look promising, with City analysts forecasting a 15% rise in EPS in 2018, when the yield should hit 4.6%. Forecast operating margins of 22.3% also tempt but naturally there is a price to pay for all of this. It currently trades at a forecast valuation of 18.3 times earnings, and a forecast price-to-earnings growth ratio (PEG) of 2.5. That reflects its healthy growth prospects, provided you understand that at today’s price you are vulnerable if markets crash.
Silver screen
Cineworld Group (LSE: CINE) has been even more compelling viewing in recent years, its share price up 25% in 12 months, and a blockbusting 252% over five years. However, like Brewin Dolphin, it is also looking expensive at a forecast valuation of 18.3 times earnings, while its PEG ratio stands at 2.2. Is it worth the price of admission?
The global movie screen operator relies on a steady stream of audience-grabbing blockbuster movies to drive its profits and recent Hollywood output hasn’t disappointed. From 1 January to 11 May highest grossing films included Beauty and the Beast, La La Land, Sing, Guardians of the Galaxy Vol. 2, The Fate of the Furious and The Lego Batman Movie. These drove revenues up 15.8% with “particularly good performances” in the UK, Israel, Romania and Slovakia.
Cinephile
New screen openings and an ongoing refurbishment programme have also helped attract audiences, while new Starbucks outlets and VIP sites have driven retail revenues. Higher movie admissions also means higher advertising revenues.
Cineworld has posted double-digit EPS growth for each of the three years to 2016 and although this looks set to slow, few would turn up their noses at forecast 8% growth in 2017 and 9% growth next year. People still love a night at the movies. Yes, the stock is a little expensive, but this is a company that has driven revenues from £351m in 2012 to a forecast £951m in 2018, with few hiccups along the way. It also offers a forecast yield of 3%, covered 1.8 times. I’ll have some popcorn with that.
