2 mid-cap stocks I'd buy in September

Ireland's largest hotel operator, Dalata Hotel Group(LSE: DAL), delivered impressive half-year results this morning and the market likes it, with the stock up more than 4% as I write.

Profitable expansion

Compared to a year ago, revenue lifted 24% and adjusted earnings per share shot up almost 41%. It seems clear that the firm is doing something right because it is expanding fast and maintaining profitability along the way.

The company listed on the stock market in March 2014 raising EUR265m to finance an ambitious expansion strategy. Since then, Dalata has acquired 24 hotels located in Ireland and the UK. But Dublin is the biggest operating area and delivered around 57% of revenue during the period with the rest splitting almost evenly between regional Ireland and the UK.

The fast pace of expansion continues with the firm today announcing an agreement to lease a new 300-room hotel to be built in Manchester under the Clayton brand. It is planned for opening during 2020. The company also bunged more than EUR100m at acquiring freehold interests and new hotel purchases. Meanwhile, during the period more than EUR17m went into new builds and extensions, and around EUR11m into the ongoing refurbishment programme.

Borrowings under control

It's a capital-intensive pursuit and raises the question of debt. The most-recent reckoning shows borrowings on the balance sheet running just over EUR267m, which compares to half-year operating profit a little under EUR38m. I think that looks reasonable considering much of the debt will be backed by property assets.

City analysts following Dalata expect earnings to balloon 69% this year and to grow by 11% during 2018. The outlook is positive and the pace of expansion is brisk. I reckon Dalata deserves your attention and analysis right now.

Online gaming company 888 Holdings(LSE: 888) also delivered interim results today and the figures look good. At constant currency rates, revenue lifted 3% compared to a year ago, adjusted basic earnings per share are 32% higher and net cash from operations shot the lights out with a 183% rise.

Strong balance sheet

I like the firm's strong balance sheet, which carries no debt and a cash pile of around US$153m. There's money to be made offering online casino, poker, bingo and sport betting services. Despite not being a buyer of such services myself, I can see that many people do love gaming and gambling, which leads to a strong business for 888. The firm generates 71% of revenue from the regulated market with around 39% coming from the UK, 49% from the rest of Europe, 8% from the Americas and 4% from the rest of the world.

The company says it achieved today's good results despite adverse currency movements and exiting several markets such as Australia and Poland. The outlook is good and progress is being driven by strong operational momentum across several key products. City analysts following the firm expect reported earnings to advance 6% this year and 11% during 2018.

Operational momentum looks compelling with 888, but a recent £7.8m fine from The UK Gambling Commission over "significant flaws" in the firm's social responsibility processes underlines how strict the regulatory environment has become. I'm hopeful that 888 has learnt its lesson and will go on to serve its investors well from here.

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Kevin Godbold 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.

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