I think there are a number of S&P/ASX 200 Index (ASX: XJO) growth shares that have a place in a portfolio.
In my opinion, not every ASX 200 share is worth investing in. I think some ASX shares have quite limited medium-term profit growth prospects like BHP Group Ltd (ASX: BHP) and Westpac Banking Corp (ASX: WBC).
But I think there are other ASX 200 growth shares that could generate strong returns:
A2 Milk Company Ltd (ASX: A2M)
I think that A2 Milk could be the best value ASX 200 growth share. The infant formula business still has plenty of international growth potential in my opinion.
The FY20 result from A2 Milk was very strong. Total revenue increased by 32.8% to NZ$1.73 billion. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 32.9% to NZ$549.7 million. Net profit after tax (NPAT) rose by 34.1% to NZ$385.8 million.
What gives me hope for continued strong growth is that its distribution network continues to grow. In China its Chinese label infant formula nutrition has expanded to approximately 19,100 stores, compared to 18,300 at 31 December 2019. The US distribution network has grown to 20,300 stores, up from 17,500 at 31 December 2019 and 13,100 stores at 30 June 2019.
It can take a while for a consumer to try a new brand, so just the stores added this year alone could add to incremental growth for the ASX 200 share for the next few years.
I really like the growth potential into the Canadian market. An exclusive licensing agreement has been entered into with Agrifoods International Cooperative for the production, distribution, sales and marketing of A2 Milk branded liquid milk. The product has recently been launched to a number of customers in Western Canada.
A2 Milk is currently trading at 28x FY22's estimated earnings.
Tassal Group Limited (ASX: TGR)
Tassal may not strike you as a growth share, but I think it continues to impress.
In FY20 the salmon and prawn business reported a number of good numbers. Operating EBITDA rose by 23.4% to $138.6 million with salmon operating EBITDA per kilo up by 4.3% to $3.29 (pre AASB 16).
The ASX 200 share reported that operating EBIT increased by 12.7% to $99.8 million and operating NPAT rose by 13.3%. Statutory net profit went up 18.3% to $69.1 million.
I've been impressed by the fish company's ability to continue to grow its biomass and production efficiencies whilst boasting of "industry world best ESG initiatives".
Fish is an important food source. With many other protein sources potentially being disrupted by COVID-19, demand for salmon could continue to rise.
In FY21 the company is looking to reduce costs with salmon after the improvements at its farming operations. In prawns it's looking to increase its harvest volumes to around 4,000 tonnes to lift prawn earnings and generate "substantial growth".
As a bonus, Tassal offers a partially franked dividend yield of 4.7%.
At the current Tassal share price it's trading at 10x FY22's estimated earnings.
Brickworks Limited (ASX: BKW)
Brickworks may not instantly strike you instantly as an ASX 200 growth share, but I think it should be considered as one.
The company has a number of growth initiatives which could grow its valuation into the future. The ASX 200 share has a strong existing Australian building products business with categories like bricks, roofing, paving, masonry, precast and so on. Brickworks' Australian earnings can rise as Australia's cities grow and renew.
I'm excited by the other avenues of growth. Brickworks recently invested into three brickmaking businesses in the US. I thought these acquisitions were a good idea – it made Brickworks the biggest player in the north east of the country. The United States is a much larger market than Australia, so it adds a lot of addressable market for Brickworks. The company can also improve efficiencies there significantly.
Brickworks currently owns around 40% of investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which owns a portfolio of defensive assets with good growth potential. Soul Patts is an ASX 200 share itself and provides Brickworks with rising dividends and a growing asset base.
The company owns a 50% stake of an industrial property trust along with Goodman Group (ASX: GMG). That industrial trust is investing in building large distribution centres for Coles Group Limited (ASX: COL) and Amazon, which should deliver a sizeable increase in the rental income and value of the trust.
At the current Brickworks share price it offers a grossed-up dividend yield of 4.8%.
