Today’s bid follows the news on Friday that GKN has agreed a $6.1bn deal to sell its Driveline automotive business to US peer Dana Inc.

As a GKN shareholder, I now have the chance to decide whether to accept the Melrose offer. In this article I’ll explain what I’m planning to do, and why.

What’s this offer worth?

Melrose wants to buy GKN with a cash and stock offer which it says values the group at £8.1bn, or 467p per share.

However, this is not a cash deal. GKN shareholders would receive 1.69 new Melrose shares and 81p in cash for each of their shares. At the time of writing, this equates to an offer price of 449p per GKN share.

The value of the Melrose bid will rise and fall in line with the turnaround specialist’s share price. GKN management says it believe the business is worth more than 500p. It has published a defence document today which values the group’s business at 503p, on a sum-of-the-parts basis.

I think it’s probably fair to assume that Melrose management has a similar view, based on today’s offer.

An uncertain outcome

Melrose has made clear that today’s price is final and “will not be increased under any circumstances”. GKN shareholders have until 29 March to decide whether to accept.

The question for shareholders is which management team they trust to deliver the next 50p of value above the Melrose offer.

I’m impressed by Melrose’s track record of success, which has seen it generate a 3,000% return for shareholders since 2003. However, I’m also aware that GKN’s new chief executive, Anne Stevens, has a very strong track record.

From what I’ve heard, there isn’t a clear consensus view among big institutional shareholders about which outcome they prefer.

One downside is that if Driveline is sold to Dana, GKN shareholders will end up holding US-listed Dana shares. Some fund managers won’t be permitted to hold foreign shares, so there could be heavy selling pressure in the market.

I’d imagine that a facility might be available to allow small private investors like us to sell their Dana shares without having to take delivery of them. But as small shareholders, our votes are also likely to be irrelevant. Big fund managers will be making this decision for us.

What I’m going to do

My plan is to do nothing for now. If the Melrose offer is accepted, I can decide then whether I want to own Melrose shares, or sell my GKN stock into the market.

If the Melrose offer fails, then I’ll hold onto my GKN stock and wait for the group to publish its interim results in the summer. These should provide me with more information on the group’s turnaround before I have to decide whether I want to vote in favour of the Dana deal, which isn’t expected to be approved until Q4.

Right now, I think the best decision is to do nothing.

The post Why I believe GKN plc could be worth more than 467p appeared first on The Twelfth Magpie.

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Roland Head owns shares of GKN. The Motley Fool UK owns shares of GKN and Melrose. 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.

However, within the industrial sector there continue to be some strong growth opportunities which still trade on low valuations. Here are two prime examples which could be worth investing in today.

Improving performance

Reporting on Tuesday was Melrose Industries (LSE: MRO). The company’s 2017 financial year was relatively successful, with the performance of Nortek being strong. It was able to deliver revenue growth of 2%, with increased momentum in the second half of the year. Operating profit was up 52% on the prior year, and is up 67% on the last full year prior to its acquisition.

Of course, significant restructuring costs were incurred in the first full year of Nortek ownership by Melrose. However, the company’s long term future appears to be positive. So too does that of another of Melrose’s businesses, Brush. Consultations with employees have commenced, with the view to putting in place a restructuring plan.

Looking ahead, Melrose is forecast to post a rise in its bottom line of 4% this year, followed by further growth of 14% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.4, which suggests that it could offer a high rate of return. With the company having a proven business model, its performance could improve in future years as it continues to execute its growth strategy.

Turnaround potential

Also operating in the industrials sector is automotive specialist GKN (LSE: GKN). The company has been the target of an unsolicited approach by Melrose, which it has sought to fight off. GKN believes it is well-placed to deliver a successful turnaround, and that it is putting in place the right strategy to do so.

Looking ahead, the market consensus suggests that this is the case. It is due to report a rise in earnings of 13% this year, followed by further growth of 11% next year. This puts the company’s shares on a PEG ratio of 1.1, which indicates that they are undervalued at the present time. Certainly, there is a risk that the company will be unable to effect a successful turnaround, but this seems to have been factored into its valuation.

While there is the potential for a combination between Melrose and GKN, it seems unlikely to happen at the present time. Of course, this may change in future and it could mean that investors in both companies end up with one slice of the merged group. However, with the companies being fairly well-diversified, they are likely to offer favourable risk/reward ratios in the long run.

The post 2 bargain stocks in which I’d invest £1,000 appeared first on The Twelfth Magpie.

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Peter Stephens owns shares in GKN. The Motley Fool UK owns shares of GKN and Melrose. 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.

There’s been a knock-on effect across the outsourcing and construction business, and some have feared for the future of Balfour Beatty (LSE: BBY) after a few years of losses. But profit returned in 2016, and EPS is expected to have more than doubled for the year ended December 2017 — results are due 14 March.

The company’s prospects got a nice boost Friday, after a joint venture in which Balfour Beatty has a 30% stake was awarded a contract worth $1.9bn (approximately £1.4bn) at Los Angeles International Airport. The deal will see the building, operation and maintenance of an ‘Automated People Mover’ at the airport, which will include a 2.25 mile transport system with six stations, trains and moving walkways.

Dividends returning

That bodes well for the future of Balfour Beatty’s dividends, which resumed in 2016 with a modest yield of 1%. That’s forecast to rise a little to 1.5% for 2017, and up quickly to 3.3% by 2019. In terms of cover by earnings, it looks safe at around 2.7 times.

And looking at the company’s debt situation, I’m not too worried. Net debt stood at £232m at the interim stage at 30 June, and compared to a predicted full-year pre-tax profit of £136m, that looks easily manageable — though I’d like to see a full-year debt-to-EBITDA comparison at results time.

Growth forecasts put the 277p shares on P/E multiples of 13-15, though that would drop to under 11 by 2019 while a progressive dividend approach is being reasserted. That looks cheap to me.

Resisting takeover

Automotive engineering specialist GKN (LSE: GKN) has been in the news recently, for the wrong reasons as a series of problems put pressure on the share price. The sell-off was looking a bit overdone, and that was reinforced by an acuisition attempt from Melrose Industries.

Melrose specialises in taking over struggling engineering companies and turning them round, and if you can handle the resulting volatility of earnings then I reckon it’s a good long-term investment itself. But back to GKN, if Melrose thinks the shares are cheap enough to attempt a takeover, they’re surely cheap.

GKN’s board has dismissed the approach as “entirely opportunistic,” saying that the terms “fundamentally undervalue GKN and its prospects,” and I agree.

We’ve seen some writedowns, and there might still be more accounting hits. But there’s a new chief executive, and I’m convinced that the turnaround foreseen by the City’s analysts really is a realistic prospect.

Back to growth

Though there’s a 10% fall in EPS expected for 2017 (with results due 27 February), that’s slated to quickly reverse with growth of 14% and 10% in 2018 and 2019 respectively.

GKN has kept its dividend growing throughout. And though yields are only around 2.5%, predicted cover stands at more than three times and rising. And the dividend is progressive too, growing above inflation right now.

I’ll be taking a close look at full-year net debt, though at the interim stage at 30 June it stood at £697m, which is modest. The company rated it at just 0.6 times EBITDA, which easily satisfies covenant requirements of no greater than three times, and is well within my comfort zone too.

I do hope Melrose is unsuccessful.

The post 2 growth and dividend stocks set to succeed where Carillion plc failed? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of GKN and Melrose. 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.

Industrial turnaround specialist Melrose is currently fighting for control of GKN (LSE: GKN), which has been floundering for the past few years. Indeed, prior to the takeover approach, shares in GKN had lost 11% over the four years since 2014 excluding dividends.

However, GKN’s management believes that Melrose’s offer deeply undervalues the business and has accused the acquirer of trying to buy the group with its own money. The £7.4bn offer (equivalent to 405p per share) will be funded 20% in cash with the remainder in stock. 

Restructuring to unlock cash 

To try and convince shareholders that remaining independent is the better offer, today GKN announced a capital return plan that will see up to £2.5bn (around 36% of its current market value) returned to investors over the next three years. Most of this cash return will be funded by the sale of the group’s metallurgy division, the company’s highest margin unit, which management expects to dispose of within 12 to 18 months.

The industrial group is also planning to increase its dividend policy with a target of returning 50% of free cash flow to investors from 2018 to 2020. Restructuring and streamlining efforts are expected to deliver £340m in annual cash benefits from the end of 2020. Still, despite this promise to return a hefty slug of cash to investors, I believe that investors should sell GKN following recent gains.

Melrose has a history of successfully buying, improving and selling industrial businesses, producing annual returns for shareholders of 26% since its founding in 2003. GKN, on the other hand, has struggled to create value even though it has invested £3.2bn in acquisitions over the past few years. 

History suggests that an acquisition by Melrose would be the better option for GKN investors but opposition to the deal is building on all fronts. A merger has been called a “national security risk” by an American congressman as well as the country’s largest union. Meanwhile, here in the UK Labour and the Liberal Democrats have called for the takeover to be blocked. 

Dividend champion 

Considering the above, I would sell GKN in favour of dividend champion Photo-Me International (LSE: PHTM). 

Like Melrose, Photo-Me has shown that it can create value for investors over the long term. Over the past decade, the stock has produced a total return of 21.5% per annum for investors through a combination of dividends and steady earnings growth. 

At the time of writing, shares in the photo booth and washing machines business trade at a forward P/E of 16.6 and support a dividend yield of 5.2%. The payout is only covered 1.2 times by earnings per share but it is also backed up by £49m of cash on the balance sheet, enough to sustain the distribution for a year-and-a-half if earnings collapse. This cash balance is worth around 13p per share, giving a cash-adjusted forward P/E for the business of 16.4. That’s hardly cheap but this valuation is acceptable considering the stability of Photo-Me’s earnings and the firm’s historic shareholder returns. 

The post Why I’d sell GKN plc and buy this 5.2% dividend yielder instead appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of GKN and Melrose. 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.

Last time I wrote about the FTSE 100 engineer was in the wake of a shock profit warning in October, the business reeling from two legal claims as well as difficult conditions over at GKN Aerospace in North America that it said would see full-year profit before tax come in “slightly” ahead of 2016’s levels.

A share price pasting followed the release, as one would expect, but further pain was in store just a month later after it advised the £15m non-cash charge incurred at its Alabama site in the US would, after the launch of a review of working capital across its aerospace operations across the Pond, be followed by an additional write-off of between £80m and £130m.

The distress for shareholders was compounded by bloodshed in the boardroom, part of which saw chief executive designate Kevin Cummings — who only replaced company veteran Nigel Stein in the hot seat in September — leave the company with immediate effect.

Turning the corner?

The shocking updates of late last year have seen brokers strike down their profits forecasts with gusto, and GKN is now expected to record a 12% earnings dip for last year.

But the City expects the engineering ace to get back to winning ways with a 17% profits improvement this year, and for the company to follow this with a 10% rise in 2019. And these forecasts result in a forward P/E ratio of 13.6 times, some way below the widely-regarded value benchmark of 15 times.

Clearly the business is not without its troubles, and the review of its North America operations could throw up yet more horrors. But under the stewardship of new chief executive and former Ford exec Anne Stevens, who plans to separate its Automotive and Aerospace operations, I am hopeful that GKN may be about to turn the corner.

Electric dreams

Investors should not forget that the Redditch-based business remains one of the jewels in the crown of British engineering with a pivotal role in the global car- and plane-building markets.

Indeed, over the weekend it announced that a number of significant contract wins from the world’s major auto-builders pushed its order book for its electric driveline (or eDrive) technologies to £2bn by the close of the last year.

The huge investment GKN has ploughed into these next-gen technologies is clearly delivering the goods, the Footsie firm now expecting to create eDrive sales of £275m by 2020, up from its previous target of £200m and surging from revenues of £33m in 2017. And turnover here is expected to sprint to £500m by 2022, the company added.

The troubles at GKN have of course attracted the admiring glances of Melrose Industries. The business — which specialises in the acquisition and transformation of distressed engineering firms — tabled a £7.4bn hostile takeover just last week after pitching up earlier in January.

Stevens has rebuffed the offer, stating that the terms “fundamentally undervalue the company,” but another bid is likely to be just around the corner given GKN’s dominant position in key industries. But whether or not this transpires, I reckon the future remains very bright for the industrial star.

The post Why this FTSE 100 takeover target has a very bright future appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of GKN and Melrose. 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.

It’s been a few years since the LSE has seen a good ol’ fashioned hostile takeover the size of Melrose Industries’ (LSE: MRO) proposed acquisition of GKN (LSE: GKN). And although it’s far from clear as to whether GKN’s thus-far-recalcitrant management team will eventually accept any improved offer, I think shareholders of both groups could benefit significantly from the deal.

For GKN, there are a few upsides. On one side, if it goes through its shareholders would own 57% of the enlarged Melrose, which has proposed paying a large chunk of the purchase price in its own equity. Considering private equity-like Melrose’s repeated success in buying, improving and selling on a series of industrial firms, becoming shareholders would be a great thing if past performances can be repeated.

On the flip side, even if the takeover offer falls through, GKN’s board and new CEO will be extra motivated to repair the group’s recently dented reputation, move forward with much-needed plans to improve margins and recover from the series of recent profit warnings from mis-accounted inventories.

And GKN is in a good position to achieve these goals as the company is a market leader in critical-but-niche areas of automotive and aerospace design where barriers to entry for competitors are high. This gives the new management team a solid base from which to begin cranking up margins in the coming years if it remains a standalone firm.

A history of success

For Melrose’s current shareholders, the main reward from the deal going through would be the possibility of supercharged returns due to the sheer size of it, which at £7.4bn is by far the largest attempted by the company.

In its presentation supporting the takeover, Melrose’s management team has laid out a plan for improving operating margins above GKN’s internal 8%-10% target that it has repeatedly failed to achieve, with consensus analyst forecasts for 2017 margins coming in well below that at 7.7%.

This would be achieved through head office simplification, exiting lower margin and non-core business lines and investments in higher return areas. Judging by the firm’s success with its current and past purchases, where margins have improved between 500 and 900 basis points at each company, this plan comes across as very realistic, even if Melrose has never attempted to turn around such a large company before.

Just as important as making internal improvements at the companies it purchases, Melrose has been largely successful with the timing and price for disposals it’s made. Between improving margins, reaping the benefits of increased cash flow and striking attractive sale prices for its firms, it has delivered over a 3,000% return to its shareholders since first listing in 2003.

If I were a GKN shareholder, I’d be looking at this index-walloping return with a fair bit of envy and hoping both companies’ boards can find a suitably attractive price at which to make a deal.

The post Why GKN plc and Melrose Industries plc shareholders should be over the moon appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of GKN and Melrose. 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.

That news would have been enough to perk up the share price, but GKN has gone one better. After “an intensive analysis” it has decided to separate its Aerospace and Automotive businesses into two separate companies.

Many investors have been calling for the firm to split itself up in this way for some time.

Their view — which I share — is that it should release considerable value from both businesses. Although a takeover bid would be welcome, I’m inclined to agree with the GKN board’s view that Melrose’s offer was “entirely opportunistic” and undervalued the company.

Why the bid is good news

Under UK takeover rules, Melrose has until 9 February to make a firm offer for GKN or to withdraw from the process. If I was a shareholder, I wouldn’t be too concerned either way.

In my view, what’s most valuable about this bid proposal is that it provides the market with a credible independent valuation of GKN’s business. Melrose is an industrial turnaround specialist with an excellent track record. If it’s willing to pay 405p per share (about £7bn) for GKN, then I feel confident that over perhaps a five-year period, GKN could be worth significantly more than this.

Interestingly, Melrose shares have risen by about 6% today. That suggests to me that the firm’s investors also think GKN could be a profitable buy at this level.

How the split will work

GKN hasn’t yet confirmed the process for separating its aerospace and automotive divisions. But it has confirmed that they will become separate companies.

I suspect that one will retain the GKN branding and stock market listing, while the second will be spun out to become a new listed company. Existing shareholders may receive shares in the new firm, while future shareholders will be able to choose which they wish to invest in.

History suggests that separating these businesses will improve the focus and accountability of management at each firm. This should result in stronger growth and a higher valuation than the combined business would have achieved.

What’s next? Project Boost

GKN’s management admits that “while sales have been growing, both profit margins and cash generation have been below expectations” in recent years. They aren’t wrong.

According to the data service I use, sales have increased by an average of 9% per year since 2011, but after-tax profit has fallen by an average of 2.8% per year over the same period.

To address these issues, the company is now entering into a comprehensive two-year turnaround programme dubbed Project Boost under its new chief executive Anne Stevens. This will run in parallel to the work needed to finalise the split.

Should I buy?

I don’t know what GKN’s share price will do next week. But based on today’s news from the company and the view taken by Melrose, I’m fairly confident this stock should be worth substantially more than 405p over the next few years.

On that basis, I’d continue to give GKN a ‘buy’ rating.

The post Should I pile into GKN plc, up 25% today? appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of GKN and Melrose. 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.

A profit warning at car-and-plane-parts builder GKN (LSE: GKN) has played havoc with the company’s share price in Friday trade.

The FTSE 100 company was last dealing 8% lower after advising that it “has been made aware of two probable claims which are expected to result in a charge of around £40m in the fourth quarter of 2017.”

It said that one claim relates to its GKN Aerospace division and the other to its GKN Driveline arm, and that “both claims are commercially sensitive with no additional information disclosable at this time.”

These mysterious lawsuits, allied with recent trouble in North America for its GKN Aerospace division, mean that pre-tax profit for 2017 is only likely to be “slightly above” that of last year, GKN added.

It’s not all bad… Honestly!

Over at GKN Aerospace, trading has been described as “disappointing” in the third quarter due to “a significant reduction in margin caused by on-going pricing pressure, continuing operational challenges and the impact of programme transitions.” It warned that these pressures are likely to persist into the final quarter.

In addition, it said GKN Aerospace North America will incur a £15m non-cash charge at its Alabama facility due to revised assumptions on programme inventory and receivables balances. It added that it anticipates booking a “significant non-cash impairment charge” at the year end owing to its troubles across the Pond.

These horrors are certainly fitting for Friday the 13th. But I also see reasons for investors to remain optimistic. Over at GKN Driveline, sales continued to sail above global production rates of 2% in quarter three and as a result the unit “expects to significantly outperform the market for the full year.”

In addition, organic sales at GKN Powder Metallurgy also continued to tick higher thanks to the impact of acquisitions and currency benefits.

Look, I acknowledge things at the Redditch firm are far from perfect right now, and that the predicted 8% earnings surge for 2017 is headed for the guillotine. But I believe GKN’s market-leading positions in both the automotive and aerospace markets should still help it to deliver brilliant profits growth in the long term.

And I reckon a forward P/E ratio of 9.7 times, even in light of any immediate forecast downgrades, makes the company a bargain right now.

Ready to crash?

I am far less convinced by the investment case of car dealership Inchcape (LSE: INCH), however, given that rising pressure on household budgets is already translating into horrendous sales trouble on the forecourt.

The latest trade release from the Society of Motor Manufacturers and Traders last week showed car sales down 9.3% year-on-year in September, the sixth monthly drop. SMMT chief executive Mike Hawes said: “September is always a barometer of the health of the UK new car market so this decline will cause considerable concern.”

He added that “business and political uncertainty is reducing buyer confidence, with consumers and businesses more likely to delay big-ticket purchases,” and with such uncertainty unlikely to be remedied any time soon, I reckon investment in the likes of Inchcape is a massive risk.

So although a predicted 13% earnings rise for 2017 leaves the FTSE 250 firm dealing on a forward P/E ratio of just 12.4 times, the prospect of tanking demand for big-ticket items such as cars is discouraging me for one from splashing the cash on Inchcape right now.

The post One bargain-basement growth stock I’d buy and one I’d avoid appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of GKN. 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.

Buying shares which offer a mix of good value and strong growth credentials has generally been a sound strategy for long-term investors to pursue. However, now that the FTSE 100 is close to its record high, finding such stocks is proving more difficult. While growth potential may still be high, in many cases valuations have become over-inflated.

Despite this, there are still stocks which could be worth buying now for the long run. Here are two prime examples.

Record performance

Rising 8% on Tuesday was recruitment specialist Robert Walters (LSE: RWA). The company reported a record third quarter, with group net fee income growing 21% versus the same period of the prior year.

All of the company’s regions delivered strong net fee income growth, with the UK’s performance being highly impressive. Net fee income rose 15%, which was above the 12% rise recorded by Asia Pacific. However, both were behind the performance of Europe, where net fee income growth was 31% as the region benefitted from a continued loose monetary policy being pursued by the ECB.

With Robert Walters forecast to post a rise in its bottom line of 17% in the current year and a further gain of 12% next year, it has strong growth credentials. The company appears to be benefitting from its diverse geographical spread, and may even be able to enjoy a foreign currency translation boost should the pound remain weak.

Since the company trades on a price-to-earnings growth (PEG) ratio of just 1.3, it appears to offer growth at a very reasonable price. While the business is cyclical and its outlook may be relatively uncertain, it offers diversity and a wide margin of safety. Therefore, now could be an opportune moment to buy it.

Low valuation

Also offering growth at a reasonable price is global engineering company GKN (LSE: GKN). The company has a diverse geographical spread which means it may be a sound place for investors who are concerned about the outlook for the UK economy to put their money.

GKN is forecast to post a rise in its earnings of 8% in the current year, followed by further growth of 5% next year. The company has a price-to-earnings (P/E) ratio of just 10.6, which suggests it has a wide margin of safety. Certainly, its growth prospects may not be all that different to those of the wider index, but with the FTSE 100 at a record high, GKN may be one of the cheaper stocks in the index.

Furthermore, the company has dividend growth potential. Although it yields just 2.7% at the present time, shareholder payouts are covered 3.5 times by profit. This suggests that the company could double its dividend without hurting its capacity to reinvest for future growth. It could also mean that the stock has growth, value and income potential over the long term.

The post 2 growth stocks I’d buy and hold for 10 years appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of GKN. 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.

FTSE 100 global engineering group GKN (LSE: GKN) may not be the best known, nor the most glamorous business listed on London’s blue-chip index, but you’ll be surprised to learn how many of the company’s products we make use of in our everyday lives. In fact, every time we travel by road or air almost anywhere in the world, it’s highly likely that GKN is helping us on our way.

Donald Trump’s promise

The Redditch-based group designs, manufactures and services systems and components for original equipment manufacturers around the world. The initials GKN may not mean much, but then neither does the company’s former name Guest, Keen & Nettlefolds (GKN). But with 160 manufacturing facilities, service centres, and offices spread across six continents, the £6bn engineering giant is certainly a force to be reckoned with.

GKN serves both the aerospace and automotive markets, but it’s the former that’s hoping to get a boost from an increased US defence budget, thanks to Donald Trump’s promise to hike military spending in the coming years. But I’ve always viewed GKN as a solid long-term investment regardless of who occupies The White House. A diverse range of businesses and wide geographical spread have helped the group to deliver stable and steady growth over a number of years.

You’d expect such quality to come at a premium, but you’d be wrong. GKN trades on a lowly price-to-earnings ratio of 10 for the full year to December, proving that quality doesn’t always have to come at a price.

Let me entertain you

Merlin Entertainments (LSE: MERL) is another FTSE 100 company that perhaps most people are unfamiliar with, but may have unwittingly come across at some stage in their lives. The Dorset-based leisure group is Europe’s leading visitor attraction operator and the second largest in the world.

Merlin boasts internationally famous attractions such as LEGOLAND, Madame Tussauds and Sea Life, as well as nationally recognised destinations such as Alton Towers, Thorpe Park and Warwick Castle. In total, the group operates no less than 100 different attractions, along with 15 hotels and six holiday villages in 24 countries, and spread across four continents.

Brexit-proof?

In an era of uncertainty it’s perhaps wise to be wary of the cyclical nature of the leisure sector as we grow closer to our breakaway from the EU, and the upheavals that Brexit might bring. But 70% of Merlin’s profits now come from outside the UK, and the group’s strategy of portfolio and geographic diversification will only help to increase this figure in the coming years.

With Madame Tussauds in locations as far apart as Nashville and Delhi, and LEGOLAND Discovery Centres in Melbourne and Philadelphia, Brexit is less of an issue for it than it is for some UK firms. And as Merlin widens its footprint and visitor numbers to its vast array of attractions increase, profits should continue to swell. Right now I believe a price-to-earnings multiple of 21 may look expensive at first sight but actually undervalues the company, given the strength of its brands and promise of further diversification and expansion.

The post Why I’d buy GKN plc and this other great FTSE 100 stock appeared first on The Twelfth Magpie.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK owns shares of GKN. 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.