Investors have been betting that the end is in sight for the cycle of interest rate hikes, with higher risk growth stocks gradually coming back into favour. But you don’t need to be cavalier with your investing approach, there is still excellent value to be found among growth stocks.

Most readers are unlikely to know WAG Payment Solutions (WPS) yet this is a FTSE 250 company expected to grow revenue and earnings at a yearly average of 30% and 40% over the next two years. On Peel Hunt earnings forecasts, the shares trade on a 2023 price to earnings multiple of 11.8, falling to 8.6 in 2024.

Founded in 1995 by chief executive Martin Vohánka, WAG operates a pan-European payments and mobility platform focused on the commercial road transport, or CRT industry. Think streamlined card payments for fuel and road tolls, through a network of around 15,500 points across 30 European countries.

The CRT industry is large, fragmented, and inefficient. According to the European Automobile Manufacturers’ Association, there are about 6.2 million trucks in circulation across the European Union, and recent years have seen WAG launch an ambitious acquisition strategy designed to add volume and value to its largely small and medium-sized fleet customers.

New services like payments for alternative fuels (LNG, for example), fleet management, and automated VAT tax refunding and cross-border customs charges have been built into the platform, helped in part by acquisitions, including Webeye and JITpay in 2022, and in March 2023, Polish peer Inelo for an initial €294 million.

This means that for the rest of 2023 WAG will largely focus on integrating those new businesses and extracting cross-sell value from the enlarged company.

It’s money well spent. Return on capital employed typically floats around the mid-teens to low 20%. Strong cash generation should also see rapid deleveraging of the balance sheet in the coming years. Peel Hunt estimates free cash flow of nearly €28 million and €75.7 million in 2023 and 2024 respectively, slashing net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) from a forecast 2.6-times (end 2023) to 0.8 a year later.

Despite WAG’s many moving parts, execution has been handled well by a management team that Shares perceives as sensible with its ambitions. Continuing in a similar vein gives us confidence that the share price could meet or beat analysts target levels of 145p (Peel Hunt) over the next 12 months or so.

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