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One growth share and one income share I think will boost any SIPP

Andy Ross
Retirement saving and pension planning

Here at The Motley Fool UK, we’re keen to help investors make the most of investing in the stock market. One key aspect of doing this, in my opinion, is to invest in a self-invested personal pension (SIPP) – which comes with government contributions and many other advantages for an investor looking to have a rich retirement. These two shares, I think, ideally suit being held for a long time within a SIPP.

Trading well

IT reseller Softcat (LSE: SCT) has seen its share price leap by 58% so far this year. This has pushed the share price up to a P/E of 32. This is because, throughout the year, the company has been providing guidance that forecasts are being revised up and exceeding expectations.

Just this week, Softcat posted a healthy rise in full-year profit and revenue and declared a special dividend. In the 12 months to the end of July, pre-tax profit rose to £84.1m from £68.1m the year before, as revenue grew 24.4% to £991.8m. The group declared a final dividend of 10.4p a share, up 18.2% on the year, and a special dividend of 16p compared to 15.1p in 2018.

These results were powered by customer numbers rising by 3.4% and profits from customers rising. The gross profit per customer jumped by 17%. 

Previously, the first-half results in the six months to 31 January 2019, saw pre-tax profit increasing 40.7% to £33.9m on revenue of £434m, up 21% on the year. Therefore, the share has momentum that explains why the shares are not cheap, and yet on any dip, I think they’d be worth buying.

Skidding around

For investors in motor insurer Admiral (LSE: ADM), the sailing has been less smooth. The shares have peaked and troughed so far this year and now sit at less than 1% different from where they were on January 2.

But shares in the company do offer strong value and income, which is good news if you want to hold it for a long timeframe within a SIPP. Including special dividends, the yield is 6.33% and the P/E is around 15.

Despite its comparative share price underperformance versus Softcat, there are good reasons why it would make a good share for a SIPP. Most recently, the news has been positive for the group with car insurance premiums expected to rise and management taking steps to improve performance.

Despite the headwind of £33m from the so-called Ogden rate, which is used to calculate the likely investment return on compensation payouts, the group has boosted profits.

In the first half, profits rose 4% to £218.2m. The UK Insurance division recorded “modest” growth in turnover to £1.34bn, up from £1.32bn, with customer numbers reaching 5.32m compared to 5.07m a year ago.

The beauty of holding both these companies in a SIPP is that they are very different. From Softcat, you get a share that isn’t far off its all-time high. But it has momentum and is seeing solid growth that could fuel further share price growth. From Admiral, you get much more income, at a cheaper price and with the opportunity for the share price to rise if performance keeps improving.

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Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has recommended Admiral Group and Softcat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019