One hot growth stock I'd always buy over UK Oil & Gas Investments plc

The Motley Fool
Oil well, nodding donkey
Oil well, nodding donkey

Kingspan Group(LSE: KGP) was making waves in Friday business following the release of knockout trading details.

The firm, which provides insulation products for roofs, wall and floors, was last 9% higher in end-of-week business and trading at six-week peaks after declaring a stunning rise in half-year sales.

Kingspan saw revenues jump 19% between January and June, to EUR1.75bn, a result that pushed trading profit 6% higher to EUR177.8m.

At its core Insulation Boards division, the Irish company saw turnover rev to EUR1.1bn in the period, up 17% year-on-year. As well as enjoying continuing improvement in Western Europe and solid demand in the UK, Kingspan also noted resilient performances in North America and Eastern Europe, despite tougher trading conditions.

And chief executive Gene Murtagh painted a rosy picture for the rest of 2017, saying: "We expect end market activity to be broadly positive for the remainder of the year and at current exchange rates to deliver a full-year result at least in line with consensus. Whilst margins contracted somewhat, we anticipate further recovery of input increases in the second half."

He added that "our balance sheet is strong and ready to support our development agenda as the opportunities unfold." Kingspan noted that its bolt-on buys contributed 10% to sales growth, and 6% to trading profit growth, in the first half.

On the rise

City analysts certainly expect earnings to continue marching northwards, and have pencilled in advances of 5% and 7% for 2017 and 2018 respectively.

And it is easy to see why as environmental considerations drive healthy demand for Kingspan's insulation products steadily higher, and the company's ambitious acquisition plan sees it enter exciting new territories. Indeed, the Kingscourt company's appetite for bolt-on buys has seen it enter the lucrative South American marketplace recently.

While current projections leave the insulation play dealing on a forward P/E ratio of 19.7 times, I consider this to be fair value given its ambitious growth strategy and proven record of earnings generation.

Barrels of risk

I am not as enthused by the investment case over at UK Oil & Gas(LSE: UKOG), however.

The London company, which invests in fossil fuel assets in southern England, has seen its share price explode in recent weeks following a spate of positive operational releases.

In the latest update last week it advised that a sidetrack for its Broadford Bridge-1 exploration well in the Weald basin had been successfully drilled. UK Oil & Gas had also secured all necessary permission to conduct the work, it added, meaning that a comprehensive multiple zone extended flow test could now be run.

The business is clearly making terrific headway right now, and could continue to do so, meaning that its stock value may keep on shooting skywards. But the unpredictable nature of oil and gas exploration means that the firm's stock value could of course easily retreat as sharply as it has ballooned, meaning that it is a poor choice for those intolerant of high degrees of risk.

And in my view, when you also factor in the possibility that crude oil prices could remain weak for a very long time, I'm afraid I for one won't be tempted to plough my money in right now.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.