So, with markets continuing to push ahead, where should investors look for growth stories in 2020? Here are 3 ASX 200 growth shares that I think you should have on your watchlist.
1. EML Payments Ltd (ASX: EML)
EML was one of the best performers in the Aussie market in 2019. The EML share price soared by more than 200%, due to its outstanding financial performance, constant growth drivers and game-changing acquisition of Irish financial services firm, Prepaid Financial Services Ltd (PFS). I believe EML is by no means ‘too expensive’ and its acquisition of PFS may re-rate the company’s valuation moving forward.
PFS provides prepaid payments and digital banking capabilities, e-wallets, payout/distribution programs and flexible software to enable financial institutions and non-financial institutions to deliver feature-rich transactional banking and other payment services to their end-user base. The company is expected to have an attractive 3 year pro forma net revenue compound annual growth rate (CAGR) of 25% from FY18–FY20 and is expected to deliver mid-teen pro forma EPS in FY20, prior to any synergies.
EML cited in its AGM that the group (excluding PFS) expects earning before interest, tax, depreciation and amortisation (EBITDA) to be in the range of $38.5–42.5 million, which would represent a growth of 28–43% over the prior corresponding period (pcp) of $29.7 million. PFS is forecasted to deliver a CY19 EBITDA of approximately £12 million. This could place the combined group growth, excluding any potential synergies and cost savings, in the region of at least 100% on pcp.
2. IPH Ltd (ASX: IPH)
IPH is a leading intellectual property (IP) services group in the Asia-Pacific region offering a wide range of IP services and products. The company services a diverse client base of Fortune Global 500 companies and other multinationals, public sector research organisations and local clients.
IPH is in a strong position moving into 2020 following its strong 2019 performance and the successful completion of its largest ever acquisition – Xenith IP. In FY19, the company delivered a 15% increase in revenue, a 23% increase in EBITDA and a 31% increase in net profit after tax (NPAT). These growth metrics place the company at a fair valuation given its price-to-earnings ratio of 25.
On 25 November, Goldman Sachs upgraded IPH to a ‘Buy’ rating with a $9.50 price target. It cited that it expects the consolidation of its recently completed acquisitions and extraction of synergies to be a key driver of EBITDA margin improvement. Furthermore, it cited organic growth opportunities, especially in China, where IPH has less than 1% market share.
3. Altium Limited (ASX: ALU)
Altium is a timeless classic for those seeking a quality, large-cap growth stock. In the company’s 2019 Chairman’s Address to Shareholders, it cited that “we can confirm that for the 2020 financial year we expect to exceed our target set four years ago of US$200 million in revenue”.
The company is now honing its focus and commitment to achieve market leadership. It aims to be the most dominant provider of printed circuit boards (PCB) design software by 2025, which it has defined as 100,00 subscribers and US$500 million in revenue.
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Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Emerchants Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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