Why I'd buy Inspired Energy plc over BT Group plc
Energy procurement consultancy Inspired Energy(LSE: INSE) delivered another cracking set of interim results this morning with revenue 20% higher than a year ago, cash from operations shooting up 36% and earnings per share rising 26%.
Growing order book
These double-digit growth numbers are in line with the directors' expectations, and the share price has put on around 54% since the beginning of the year to stand at today's 20p, which reflects the firm's progress. Looking forward, the order book is around 60% higher than a year ago, which suggests more good performance ahead. The directors expressed their confidence in the outlook by raising the interim dividend 23%.
Chief executive Janet Thornton reckons the growth in the order book is organic as well as via the firm's vibrant acquisition programme. During the period, it completed two bolt-on acquisitions and announced a third, a company called Horizon, after the first-half period ended. Horizon is based in Ireland, and the directors aim to build on operations there with the aim of making Inspired Energy a market leader in Ireland. Such potential international expansion suggests growth could have much further to run.
Strong forecasts for earnings growth
City analysts following the firm estimate that earnings will increase 16% during 2017 and 16% in 2018, which looks attractive if they are correct. Meanwhile, today's 20p share price throws out a forward price-to-earnings (P/E) rating just under 12 for 2018 and a forward dividend yield running at almost 2.9%. Those forward earnings should cover the payout a healthy-looking three times, which is generous cover consistent with the directors' apparent view that plenty of ongoing opportunities exist to invest in the business for further growth.
Inspired Energy is delivering well on growth and it's hard to make a case that the shares are expensive. I find the stock attractive and would rather take my chances on the firm's ongoing growth story than with a business that looks like it has gone ex-growth such as telecoms provider BT Group (LSE: BT.A).
No quick fix
Back in January, BT's shares crashed by 25% when news of an accounting scandal in the firm's Italian division broke. Back then, I was optimistic that the problems would be quickly fixed and that the shares would soon bounce back. However, seven months later the stock now looks as if it is in a gradual downtrend and I've turned bearish on the firm.
In July, first-quarter results revealed adjusted earnings per share down 5%, and BT talked about its restructuring programme and plans to streamline its Italian business. Meanwhile, City analysts watching BT don't give us much to get excited about. They expect earnings to decline 6% during the year to March 2018 and to rise just 3% the year after that.
I wouldn't describe BT's shares as 'expensive'. At today's share price around 292p, the forward P/E ratio for the year to March 2019 is just over 10, and the forward dividend yield runs at a little over 5.7% with the payout covered almost 1.7 times by forward earnings. However, I'm not keen on waiting for a recovery in growth to materialise and think that the dividend yield could be vulnerable because of the cyclical element in the firm's business.
Another tempting growth opportunity
I think Inspired Energy look set to deliver more over the long term along with a company identified as A Top Growth Share From The Motley Fool. If things go well for the firm covered in this report, international expansion could drive the share price higher - perhaps a lot higher - over the next few years.
Kevin Godbold 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.