2 small-cap growth stocks that could still make you fabulously wealthy

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growth

Tatton Asset Management(LSE: TAM) has only been a public company since the beginning of July, so the firm falls under the radar of most investors. 

However, even though this business is relatively young, it is growing like a weed, and at its current speed, it won't be long before it graduates off AIM and moves into the big league. 

The results are in 

Today Tatton published its maiden interim results for the six-month period ended 30 September following its IPO in July. 

During the period, discretionary assets under management expanded 15% (since March 2017), and AUM grew by 33% year-on-year. Growth in AUM helped the company expand revenue by 31% to £7.3m and adjusted earnings before interest and tax lept by 56% year-on-year. 

Due to the costs associated with its IPO, Tatton reported a profit before tax of only £0.5m for the period, but going forward, IPO costs should not be repeated indicating strong profit growth in the years ahead. 

As well as robust underlying earnings growth, the firm reported a cash balance of £10.5m at the end of the period. 

Growth ahead

Tatton's solid results have enabled management to announce today an inaugural interim dividend of 2.2p per share. This looks as if it could be a sign of things to come. 

The group is a relatively unique business as it offers on-platform-only discretionary fund management, regulatory, compliance and business consulting services to investment advisors across the UK. These services allow investment advisors to lower costs and concentrate on clients' needs, rather than focusing on time-consuming, costly compliance issues. 

As more advisors flock to the firm's offering, City analysts expect Tatton's earnings per share to grow by 6% this year, and 19% for the fiscal year ending 31 March 2019. Considering the young age of the company, and the growth reported today, I believe that these could be conservative forecasts. Based on the current City estimates, however, the shares are trading at a forward (YE 31 March 2018) P/E of 20.4, which seems to me to undervalue this high-growth business. 

Reach for the stars

Over the past 12 months, shares in Gateley Holdings(LSE: GTLY) have charged higher by 55% as the law firm has improved its offering through acquisitions. Today the company announced that revenue for the six months ended 31 October grew 9.8% and adjusted EBITDA expanded 6.3%. Substantial investment in its client offering held back the group's overall performance. 

Still, for the full year City analysts are predicting earnings per share growth of 13%, followed by an increase of 7% for the fiscal year ending 30 April 2019. On the back of these forecasts, the shares are trading at a forward P/E of 15.8 falling to 14.9. Considering the company's steady earnings growth, a mid-teens multiple seems to me to be suitable for the shares. 

I believe the outlook for the group is bright because the market for professional services (it provides legal advice to the financial, corporate and property sectors) has only grown for the past few decades, and it does not look as if this trend will end anytime soon. And as financial sector regulation becomes more complex, it should be able to capitalise on this opportunity.

As well as steady growth, it also supports a dividend yield of 4.2%.

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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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