The business cycle is turning up, so this is a time for consumer services companies to really shine. Money isn't as tight as it once was and consumers want to release their pent-up purchasing power. Here are three companies I think can leverage that demand.
The law firm Slater & Gordon (ASX: SGH) specialises in insurance claims and commercial and family law. It operates under five brands – Slater & Gordon, Trilby Misso Lawyers, Conveyancing Works, Russell Jones & Walker and Claims Direct. It has practices in the UK where about 23% of its revenue comes from.
Over the past three years, revenue has risen from $123.1 million to $296.1 million, and the past three-year NPAT compound annual growth rate was 28.3%, with $41.9 million in earnings after tax in 2013. It has 69 offices in Australia and 10 in the UK, so there is still space to expand at home and abroad.
Domino's Pizza Enterprises (ASX: DMP) is keeping itself innovative with a new gourmet-style pizza menu. In 2013 it bought a 75% stake in Domino's Pizza Japan, which has about 250 existing stores. Japan has potential for up to 600 stores, so you could say earnings growth is baked in.
It has a net profit margin of 12.45%, which is good for a mature market, but average for a growing company. However, return on equity was a big 29.7% in 2013. It has about 570 stores in Australia and New Zealand and 364 in Europe, so with the new stake in Japan, it has good earnings diversification.
Navitas (ASX: NVT) is a provider of educational and training services. It also provides university degree programs and is expecting to see more students both domestically and at its international locations as the Australian and world economy improves.
In December it announced that its Australian Campus Network (set up with La Trobe University in Sydney) will be renewed for another 10 years. This continues its ties with established universities and the business which comes through that.
It does have a high PE ratio of 32, but its past five-year earnings after tax compound annual growth rate was 14.7%. This means good earnings growth is possible from here.
Foolish takeaway
These companies can establish strong business growth when interest rates are low and people feel comfortable about spending. Having overseas operations will also benefit these three companies as the world economy improves.
