There are some S&P/ASX 200 Index (ASX: XJO) that could be worth owning for growth.
Businesses within the ASX 200 are quite large, some people call these blue chips because they may be more reliable in certain situations.
However, some ASX 200 shares are now so big that they don’t have much growth potential, they already have a large market share. But there are others that have growth potential:
Wesfarmers Ltd (ASX: WES)
Wesfarmers is one of the oldest businesses on the ASX. It traces its story back to 1914.
It owns a number of different businesses such as Officeworks, Catch, Kmart, Target, Bunnings and industrial businesses.
The half-year result for FY21 included a lot of growth for the business. Excluding significant items, continuing revenue grew by 16.6% to $17.8 billion, continuing earnings before interest and tax (EBIT) went up 25.2% to $2.2 billion, continuing net profit after tax (NPAT) rose 25.5% to $1.4 billion and continuing earnings per share (EPS) also went up 25.5% to $1.25.
Wesfarmers management were pleased to see strong sales and earnings growth across the retail businesses, as well as an improvement in the performance of its industrial and safety businesses during a period of continued disruption and uncertainty due to COVID-19.
Looking at the ASX 200 share’s divisional earnings before tax (EBT), excluding significant items, Bunnings EBT jumped 35.8% to $1.275 billion, Kmart Group EBT went up 42% to $487 million, Officeworks EBT grew 22% to $100 million, Wesfarmers chemical, energy and fertilisers (WesCEF) EBT fell 7.5% to $160 million and industrial and safety EBT rose by $30 million to $37 million.
The business also recently announced that it’s committing initial funding for the Mt Holland lithium project. Construction of the mine, concentrator and refinery are expected to commence in the first half of FY22. The first production of lithium hydroxide is expected in the second half of 2024. Wesfarmers’ share for the development is approximately $950 million.
According to Commsec, the Wesfarmers share price is valued at 24x FY21’s estimated earnings.
Premier Investments Limited (ASX: PMV)
Premier Investments is another ASX 200 share that’s growing quickly right now.
The company is expected to deliver its FY21 half-year result in the next few weeks, but it recently gave a trading update showing much higher profitability.
Premier Investments said that in the first 24 weeks of FY21, its online sales growth accelerated. Online sales were $146.2 million, which was up 60% on the prior corresponding period, representing 20.4% of total retail sales.
A major benefit of online sales is that it comes with a much higher EBIT margin compared to the retail store network.
Total retail global sales only grew by 5% to $716.9 million. But the company is now expecting Premier retail underlying EBIT for the first half of FY21 to be in the range of $221 million to $233 million, up between 75% to 85%.
The ASX 200 share said that there had been exceptional total gross profit growth (both in percentage and dollars), well ahead of corresponding period.
Peter Alexander, Just Jeans and Jay Jays saw a large increase in sales and the gross profit margin in both Australia and New Zealand.
According to Commsec, the Premier Investments share price is valued at 15x FY21’s estimated earnings.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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