Is it time to sell this FTSE 100 growth stock?
Wealth manager Schroders(LSE: SDR) has clocked up one of the best growth records of any FTSE 100 firm over the past five years. Earnings per share (EPS) have jumped by more than 100% since 2012, with net profit up 122% over the same period.
However, despite this growth, I’m wary that the group’s future may not be as bright as its past. With this in mind, today I’m looking another growth stock that might be a better buy for your portfolio.
Uncertain outlook
After growing EPS at an average annual rate of 16.5% per annum for the past six years, City analysts are expecting Schroders’ growth to slow substantially for the last years of this decade. Analysts are predicting growth of just 3.4% for 2018, and 5% for 2019, a far cry from the increase of 24% printed for 2017.
It seems analysts are concerned that the company’s offering is no longer attracting customers. The group’s asset management division reported a slight fall in assets under management (AUM) for the first half, although overall assets under administration increased by £2bn to £449bn.
AUM figures for the first half of 2018 were disappointing, but it seems that the market was even more upset by the lack of dividend growth from the company.
Since 2012, the payout has grown at a staggering 21% per annum, more than doubling from 43p to 114p. However, as earnings stagnate, it now looks as if this growth has come to an end. Even though the stock still supports a dividend yield of 3.8%, it’s disappointing to see that analysts are predicting almost no payout growth for the next two years.
In comparison, analysts seem to be extremely excited about the dividend prospects for Curtis Banks(LSE: CBP).
Growth superstar
One of the UK’s leading SIPP providers, Curtis Banks is working flat out to transform itself into the next Schroders. And it seems the strategy management has deployed is working.
According to the company’s interim results published earlier today, assets under administration increased by 9% in the first half to £25.1bn. Operating revenue generated from SIPP management rose 7.5% to £23m and, thanks to economies of scale gained from managing a larger asset base, adjusted diluted earnings per share increase to 16% to 8.3p.
This first-half performance puts the company well on the way to meeting full-year City expectations. Analysts have pencilled in EPS growth of 22% for the full-year, alongside a dividend increase of 18%. Based on these numbers, shares in the asset manager are changing hands for 16.3 times forward earnings which, in my opinion, isn’t that expensive considering the growth on offer.
After factoring 2018’s projected dividend growth, the stock yields 2.6%. A net cash surplus of £9m provides support for the dividend and gives the company plenty of financial firepower to chase acquisitions in the rapidly consolidating wealth management sector.
So, if you are looking for a replacement for Schroders in your portfolio, I reckon Curtis Banks won’t let you down.
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Rupert Hargreaves owns no share 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.
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