2 small-cap growth stocks I'd buy for 2018

Good quality small companies can often continue growing for much longer than you expect. I believe that aviation services firm Air Partner (LSE: AIR) could be one such company.

It issued an unscheduled update today advising the market that underlying pre-tax profit for the current year should be ahead of expectations at "not less than £6.4m". City analysts had been forecasting a figure of £5.9m for 2017/18 and today's guidance implies an increase of 25% from the £5.1m figure reported last year.

The group's businesses include training, air traffic control and brokerage services, but its main business is air chartering. This includes private jet chartering, freight and a specialist business which can provide air transport for emergency situations, such as natural disasters.

Three things I like

I'm attracted to Air Partner for a number of reasons. The first is that despite regular acquisitions, the group's operating margin has risen steadily, reaching 10.4% last year. Return on capital employed has also strengthened, which suggests to me that acquisitions are chosen well and priced fairly.

Cash generation is also strong. The Gatwick-based group has maintained a net cash balance consistently since at least 2012, and has delivered dividend growth averaging 10% per year over this period.

Despite these advantages, the stock remains relatively affordable. The shares now trade on a forecast P/E of 17.4, with a prospective yield of 3.8%. With earnings growth of 10% pencilled in for the year ahead, I believe Air Partner is still worth buying.

A strong recovery

Equipment hire group Speedy Hire (LSE: SDY) ran into trouble a couple of years ago. But in my view the firm's management have delivered a decisive turnaround, backed by a healthy balance sheet.

The shares dipped earlier this week due to investor concerns over money owed to the group by collapsed construction firm Carillion. However, this doesn't seem to be a major concern. Speedy Hire's total revenue last year was in the region of £380m. Of this, revenue from Carillion totalled about £12m, of which £2m was outstanding at the time of its collapse.

Speedy Hire's management does not expect the collapse of Carillion to have a material impact on the group, and has left guidance for the year unchanged. Based on the latest broker forecasts, this means that adjusted earnings should rise by 46% to 3.57p per share this year.

This momentum is expected to continue into 2018/19, with analysts projecting a further increase of 27% in the group's earnings per share next year.

This strong momentum puts Speedy Hire on a forecast P/E of 16 for the current year, falling to a P/E of 12.6 next year. A useful 2.4% yield is also forecast and should be covered by surplus cash, providing an additional attraction for shareholders.

With no signs of a slowdown in the UK construction market, I believe the outlook for the firm is strong. In my view, Speedy Hire's strong momentum and healthy finances suggest the stock remains a potential buy.

Our top small-cap pick for 2018

I'm bullish about Air Partner and Speedy Hire's prospects. But the Motley Fool's top analysts have identified another UK small-cap stock which they believe could be worth up to 64% more.

The company concerned certainly looks cheap to me and I believe it deserves a closer look. If you'd like full details of this potential bargain stock, download 1 Top Small-Cap Stock From The Motley Fool today.

This exclusive report is free and without obligation. To download your copy, simply click here now.

Roland Head has no position in any of the 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.

///>