Five UK growth mid-caps to outperform tough markets

With the UK's economic outlook uncertain, companies that can outstrip their peers in terms of revenues and profit growth are more important than ever.

Here, Ignis UK Focus  fund manager Ralph Brook-Fox selects five mid-cap stocks that he thinks will continue to demonstrate strong secular growth over the coming months and years.

He says: 'Growth is set to become increasingly scarce in Western economies. Consequently any UK company that can demonstrate strong secular growth above the cyclical recovery will be well rewarded in its rating by the market.

'Below I suggest five high growth UK stocks that I believe can perform particularly well despite the challenging economic backdrop.'

Ultra Electronics

'Ultra Electronics  has a large number of strong niche positions, predominantly in defence electronics but also in civil applications. Fully cognisant of UK budget constraints, its management has over many years positioned the company to take advantage of the much greater US opportunity. Excellent cash generation has fuelled the acquisition strategy, enhancing the already-healthy rates of organic growth. The credit crunch triggered a temporary hiatus in deals, but with acquisitions back on the agenda, consensus earnings expectations look too low. Coupled with a highly regarded management team and a low valuation against recent history, this makes Ultra an attractive stock.'

Micro Focus

'Micro Focus' core business centres on software development applications based on COBOL (Common Business-Oriented Language). Whilst this programming language is widely perceived as legacy, an estimated 80% of the world’s enterprise transactions run on it and the skills to support it are becoming increasingly rare. Given the high costs and risks involved in rip-and-replace solutions, modernisation and migration is a preferable route for many customers, providing an attractive revenue stream for the company. Pressure for corporates to leverage their IT investment - by web-enabling older applications, for example - acts as an additional stimulus. In our view this growth trajectory is underappreciated by the market.'

GKN

'GKN Driveline is the global leader in constant velocity joints, and its strong market share positions it well to withstand the ongoing pricing pressure from the auto manufacturers. Although there is some risk post the withdrawal of car buying incentive schemes, these tended to be concentrated on smaller cars where the company has less representation. The aerospace business is well positioned on growth platforms such as the F35 and Airbus civil aircraft, with particular expertise in composites – critical to saving weight and hence fuel burn. The size of the pension deficit does create some valuation complications, but even with this, the shares look cheap.'

Virgin Media

'After an extremely shaky start, the UK cable industry has consolidated and now has a high-quality, well-invested network with much improved customer service. The way that people watch TV is changing dramatically, with on-demand becoming much more the norm as the success of the BBC’s iplayer demonstrates. With faster speeds and better quality than BT’s network, Virgin Media is well placed to grow revenues, particularly as HD and 3D significantly increase bandwidth demands. High operational and financial leverage means that small improvements in revenue have a big impact on the bottom line, whilst the extension of debt maturities should reduce fears on the finances.'