Vivo Energy (LSE: VVO) and UDG Healthcare (LSE: UDG) aren’t as well-known names as some of their FTSE 250 peers, like Royal Mail and WH Smith. Nor have they attracted intense interest on financial discussion boards, like fellow mid-caps Sirius Minerals and Plus500.
However, a low-key profile can be a good thing when it comes to investing. Such a company may have a bright future that isn’t yet widely recognised by the market. I believe Vivo Energy and UDG Healthcare are two such companies. They’re thriving, profitable businesses, and have long-term ‘structural’ growth drivers that could potentially make today’s investors seriously rich.
Rising prosperity in Africa
Vivo is a pan-African retailer and marketer of Shell and Engen-branded fuels and lubricants. It has a network of over 2,100 service stations in 23 countries, which also provide customers with non-fuel services including shops, card services and takeaway and casual dining restaurants in partnership with major brands such as KFC and Burger King. Its commercial arm serves customers across a wide range of industries.
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Vivo looks to me like a very good play on the long-term story of rising prosperity in Africa. Today, in a trading update ahead of its AGM, it reported “a positive start to 2019 with performance in line with expectations.”
City analysts expect the company to post earnings per share (EPS) of $0.133 (10.15p at current exchange rates) this year, rising 13.5% to $0.151 (11.5p) next year. At a share price of 125p (a little down on the day), we’re looking at an undemanding current-year price-to-earnings (P/E) ratio of 12.3, falling to 10.9 on the 2020 forecast. Dividend forecasts of $0.04 (3.05p), followed by $0.044 (3.36p), give handy yields of 2.4% and 2.7%.
The company floated at 165p a share just about a year ago. Its balance sheet looks decent, with modest debt. And given the near-term and long-term growth prospects, the shares look very buyable to me at their current level.
Health spending and outsourcing trends
The structural growth drivers I see over at UDG Healthcare are rising health spending in a world where people are living longer, and a trend in the industry to outsource the kinds of services UDG offers.
It enables and supports large pharmaceutical to small biotech companies to bring their products to market, ensuring patients can access these drugs and providing support to educate healthcare professionals and patients on the products. In short, it does a whole load of stuff that allows its clients (currently over 300, including the top 30 pharma companies) to concentrate on their core business. It has operations in 26 countries and delivers services in over 50.
I’m expecting 5% EPS growth this year to $0.486 (37.1p at current exchange rates), with growth accelerating to 10% next year and EPS rising to $0.534 (40.8p). At a share price of 678p, we have a P/E of 18.3, falling to 16.6. Dividend forecasts of $0.18 (13.7p), followed by $0.20 (15.3p), give yields of 2% and 2.3%.
While UDG’s P/Es are somewhat higher than Vivo’s and yields are somewhat lower, the healthcare stock also looks very buyable to me at its current valuation. In a defensive industry with good growth prospects, and the company having delivered dividend increases over three decades, the premium is well worth paying, in my book.
