Last Friday, FTSE 250 member and Peppa Pig owner Entertainment One announced it had agreed to a £3.3bn takeover from US toymaker Hasbro. The former’s investors will receive 560p per share, representing a 26% premium on Entertainment One’s closing price of 443.4p on Thursday afternoon. 

Earlier in the week, pub-operator Greene King also revealed that it had struck a £4.4bn deal with Hong Kong-based real-estate conglomerate CK Asset Holdings, valuing each of its shares at 820p a pop — 51% higher than where they previously trading at.   

Considering the lack of any real progress with regard to Brexit and the corresponding fall in the value of sterling, it’s likely that more UK stocks could be subject to bids from opportunistic overseas suitors before long. Here are what I believe to be two prime candidates. 

Gearing up to be sold?

Considering its battered valuation, broadcaster ITV (LSE: ITV) must surely be in the frame. The Love Island producer’s stock has recently retreated to prices not seen since 2013 as a result of concerns over dwindling advertising revenue and competition for viewer’s eyeballs from the likes of Netflix.

Although online advertising revenue is improving, the £4.6bn-cap is hoping its soon-to-be-launched streaming service Britbox — a joint venture with the BBC — will be the thing to turn its fortunes around. 

But will it succeed? Despite being a holder of the stock, I’m sitting on the fence for now. While both ITV and the BBC both have a great back catalogue and continue to produce quality content, streaming is becoming an increasingly crowded market with both Disney and Apple due to launch their own services in the near future.

If Britbox flops, or at least doesn’t do as well as expected, I’m not sure quite what CEO Carolyn McCall has up her sleeve to prevent likely bidders from making a move. A likely suitor would be US-based Liberty Global (owner of Virgin Media). It already has a near 10% stake in the FTSE 100 company. 

As difficult as ITV’s position might be, I still believe a lot of this is already priced in. The shares trade on less than 9 times forecast FY2019 earnings and come with a fairly-secure-looking 6.9% dividend yield. 

Prime target?

Another potential FTSE 100 takeover target is supermarket Morrisons (LSE: MRW). The most logical buyer would seem to be Amazon, since it already has an agreement with Morrisons to provide food deliveries to the online giant’s UK customers as part of its Prime and Pantry services. This would, after all, give Amazon a route into the UK grocery market that it’s apparently been looking for ever since it acquired Whole Foods back in 2017. 

With Morrison’s share price now down to levels not seen since 2016 and with the company valued at just 13 times forecast FY20 earnings, you begin to wonder whether the time might now be right for a low-ball bid. Should one be made, the implications for the remaining ‘Big 3’ (Tesco, Sainsbury and Asda) would be significant. 

In the meantime, Morrison’s stock yields 5.3% which may interest contrarian investors with a focus on generating income from their portfolios. Half-year numbers from the £4.4bn-cap are due on September 12.

The post UK plc is on sale. I think these 2 FTSE 100 stocks could be next to receive bids appeared first on The Twelfth Magpie.

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Paul Summers owns shares in ITV. The Motley Fool UK has recommended ITV. 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.

Yesterday morning, Kevin identified pub group Greene King (LSE: GNK) as a FTSE 250 share he’d consider buying in these uncertain times. Had you read his article, conducted further research on the company and purchased its shares before 3:45 in the afternoon, you’d be sitting on a gain of around 51% when markets closed a short time later.

The reason? A takeover approach from Hong Kong-based CK Asset Holdings. The latter already owns a number of freehold pubs in the UK, which have been leased to Greene King since 2016.

Let’s take a look at the proposed deal in more detail.

Cheers!

Based on yesterday’s announcement, investors are in line to receive 850p for each share they own, valuing the company at £2.7bn (or £4.6bn when the debt on Greene King’s balance sheet is taken into account).

The price being paid is 42.8% higher than Greene King’s adjusted three-month volume-weighted average price over the last three months and just under 40% higher than the average over the last six months. 

As one might expect, Greene King’s management deemed the terms of this offer to be “fair and reasonable” and will therefore unanimously recommend that investors vote in favour of the deal. Assuming shareholders on both sides agree, the takeover is expected to go through in the last quarter of 2019.

According to yesterday’s statement, CKA is attracted to Greene King’s “established position” in the sector, its sizeable property estate (almost 3,000 pubs, restaurants and hotels) and its “resilient financial profile“. They may have endured a difficult period of late, but the prospective purchaser thinks that pubs will remain “an important part of the British culture and the eating and drinking out market“.

Despite endorsing the strategy set out in its latest set of results, CKA also reckons it can “improve the sustainability, profitability and competitiveness” of the Bury St Edmunds-based business through the acquisition.

A great deal for holders?

So, another deep-pocketed suitor makes an opportunistic swoop for a UK company. Given that the shares were trading on a little less than nine times forecast earnings before yesterday’s announcement, it seems like CKA has got a great deal. 

While some in the market may not welcome news that another member of the FTSE 250 is about to snapped up (following the recent bid for defence company Cobham), I’m inclined to say this is also a decent outcome for its longer-term holders, considering the rather poor performance of Greene King’s shares in recent years. At lunchtime yesterday, they were still 40% below the value they changed hands for back in late 2015. 

Another positive for current owners is the fact that the company will also pay out its previously announced final dividend for the last financial year (24.4p per share) to all those who held stock at the end of play on 9 August.

Indeed, the only ‘problem’ I can really identify for Greene King’s holders — particularly those invested for the big dividends it throws off (it was forecast to yield almost 6% in FY2020 before yesterday’s news) — is where to invest their money now.

Personally, I think this bargain FTSE 100 stock is a great contender. 

The post Why FTSE 250 dividend stock Greene King rocketed 51% yesterday appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Year-to-date, the stock has underperformed the FTSE 100 by around 30% and every £10,000 invested in the company at its IPO is worth just £7,000 today.

Terrible update

It doesn’t look as if this performance is going to improve any time soon. Earlier this year, management warned that the company is facing challenging market conditions, and this challenging environment has persisted.

As a result, the company now expects wholesale vehicle delivery volumes to sit between 6,300 to 6,500 in 2019, that’s down from guidance of around 7,100 to 7,300 in February, a reduction management has labelled “disappointing“. 

The decline in wholesale volumes is also expected to weigh on profit margins. Management is now forecasting an adjusted earnings before interest, taxes, depreciation and amortisation margin of around 20% for 2019, down from 24% as reported in February. The one bright spot in the group’s business is retail sales, which expanded 26% in the first half of the year. But this hasn’t been enough to offset the decline in wholesale sales volumes.

Against this backdrop, management says it is “taking decisive action to manage inventory and the Aston Martin Lagonda brands for the long term,” which includes reducing capital spending and concentrating on the quality, not the number of vehicles produced. That’s all well and good, but falling sales volumes aren’t going to bolster investor confidence in the company, which is badly needed considering the stock’s performance since its IPO.

With this being the case, unless there is some good news from the company soon, I think shares in Aston Martin will only continue to decline as investors drift away from the floundering business.

A better buy

In my opinion, a better business to invest your hard-earned money in is Greene King (LSE: GNK).

Greene King and Aston Martin couldn’t be more different. One’s a UK-focused pub operator, and the other is a global luxury car brand. One conjures up images of lukewarm pub food and sticky tables, while the other produces cars driven by James Bond.

However, Greene King is profitable and has a history of returning cash to investors, while Aston Martin is losing money and has declared bankruptcy seven times. 

As an investor, I know which company I would rather own. This year, City analysts believe Greene King will report a net profit of nearly £200m and earnings per share of 64p, which puts the stock on a forward P/E of just 10. On top of this, analysts have pencilled in a dividend per share of 33.3p, of giving a dividend yield of 5.1% at current levels. These metrics are desirable when compared to Aston Martin. With wholesale car deliveries falling, there’s a good chance the firm could report a loss for 2019, and there’s no chance of a dividend for at least several years.

That being said, Greene King is facing its own problems. Rising costs and cooling consumer spending are potential risks to growth, but the company has so far managed to deal with these problems effectively. Analysts are predicting an 18% increase in earnings per share this year. That’s why I’d rather invest my money in Greene King than struggling Aston Martin.

The post Forget the Aston Martin share price, I’d buy this FTSE 250 income champion instead appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Whatever the Wether

Its stock is up another 2.7% today after posting a 6.9% rise in like-for-like sales for the 10 weeks to 7 July, with year-to-date total sales up 7.4%. The ‘Spoons’ share price has now climbed 13% over the past year, and an intoxicating 99% over three years.

The £1.53bn FTSE 250 group has opened five new pubs since the start of the financial year, and disposed of nine. The downside is that these were below the value in its balance sheet, and it now expects about £3m of exceptional, non-cash losses this financial year as a result.

It has also spent £71m buying the freeholds of pubs of which it was previously the tenant and bought back £5.4m of the company’s shares. It described its financial position as “sound”, with year-end net debt expected to be about £745m.

Brexit boss

Chairman Tim Martin is a vocal Brexiteer and the vast majority of today’s statement is an argument in favour of what most people call a no-deal EU departure, but he names a “multi-deal” Brexit. I’m leaving the politics of this well alone but the key point for investors is that JD Wetherspoon is prepared, deal or no deal, having made arrangements to replace French Champagne and brandy and German beer with alternatives from the UK, Australia and America. 

Inevitably, given share price growth, Wetherspoon’s stock is a little pricey trading at 19.1 times forecast earnings, while it yields less than 1%. However, there’s a strong case for buying a company whose hands-on founder is still at the helm.

Greene is good

It’s fascinating to compare it with the UK’s largest brewer, Greene King (LSE: GNK), which has had a far more mixed time of it, its stock falling 16% over three years.

The GNK share price is up 9% in the last year but has gone flat lately, as recent wet weather conditions hit sales. Hopefully, the current warm spell will reverse that. Full-year revenues grew just 2% to £2.2bn for the year to 28 April, with profit before tax up a similar percentage to £246.9m, excluding exceptional and non-underlying items. Greene King IPA, Old Speckled Hen and Abbot Ale are all personal favourites of mine so I was glad to see their sales rise 6% to £227.6m.

What in the world…

There’s no men’s football World Cup this year to give the group a lift, which worries me given that last year overall profit before tax still slid 13% to £172.8m (despite Gareth Southgate’s England team making it to the semis), due to rising operating and finance costs. The £1.9bn FTSE 250 group is now cutting costs, focusing on labour productivity alongside other efficiencies.

Greene King is way cheaper than Wetherspoon, trading at just 9.6 times forecast earnings, while yielding a meaty 5.4%, nicely covered 1.9 times.

Just the job for thirsty income seekers and the main attraction here, given lowly earnings projections and management warnings that political and consumer uncertainty will weigh on confidence. Royston Wild says you can buy it with a clean conscience, though.

The post Here are 2 FTSE 250 stocks I’d consider buying in July appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

I used to hold shares in Imperial Brands (LSE: IMB). I loved the brilliant earnings growth that the addictive nature of its products always delivered, and thus the company’s ability to keep paying increasingly large (and impressively huge) dividends.

It appears as if these profits powerhouses are well past their sell-by date though, the restrictive legislative measures that have hampered earnings growth in recent years — like public smoking bans and restrictions on the marketing of tobacco products — now being rolled out to cover non-combustible products like e-cigarettes too.

I sold out of Imperial Brands given that the earnings-generating power of its sinful products is locked in a tailspin. If you’re seeking the security that this FTSE 100 giant used to provide, you’d be much better buying these FTSE 250 heroes, in my opinion.

Greene giant

Britons are becoming more and more cautious with their cash, a trend evident in data last week from GfK. Not only did its UK consumer confidence index fall again in June, but its savings index rose for the third consecutive month, illustrating the growing storm Britons are preparing for.

These rising pressures on shoppers’ confidence and spending power certainly aren’t derailing trading over at Greene King (LSE: GNK). Indeed, the business managed to outperform the broader market in the most recent fiscal year (to April 2019), thanks in part to improving sales momentum across its pub estate.

I’m not going to pretend that revenue growth of 1.8% for the last year is spectacular, but it did allow profits to grow again and as a consequence, dividends grew too. And I think investors can be confident of more progress on these two fronts as well, given Greene King’s improving top-line progress and the impact of rampant cost reduction on earnings.

City analysts agree and as a consequence investors can tap into a jumbo 5.3% forward dividend yield.                                                                                                                    

A sweet selection

AG Barr (LSE: BAG) is another ‘sin’ stock thriving in the current environment.

I’ve long lauded the immense strength of its labels in keeping sales on an upward slant, even in spite of the rising pressure on spending power in the UK. But news has emerged which could give earnings an added shot in the arm in the years ahead.

Amid much controversy Boris Johnson, the frontrunner to become the next prime minister, has touted the possibility of rolling back the so-called sugar tax. This particularly levy has, of course, caused drinks manufacturers like AG Barr to spend a fortune on reformulating their drinks recipes to reduce their considerable liabilities to the taxman.

Irrespective of the future of this particular sin tax though, I’m confident that the evergreen popularity of Irn Bru and others should keep powering profits growth at AG Barr for many years to come, and should power the firm’s long-running progressive dividend policy too. A forward yield of 1.9% might not be the biggest, but I’d happily buy this FTSE 250 share today and hold it forever.

The post Dividend alert! 2 ‘sin’ stocks I’d buy instead of Big Tobacco 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 has recommended Imperial Brands. 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.

Mine’s a pint

The last decade has been difficult for the pub business, but market conditions seem to be improving at last. For investors looking for a reliable income from this sector, I think the best choices could be Greene King (LSE: GNK).

This £1.8bn businesss is the biggest listed pub operator in the UK, so it enjoys significant economies of scale. That’s important in an environment where costs, especially wages, are rising.

Greene King’s latest results suggest its performance has stabilised and may start to improve. Sales rose by 1.8% to £2,216.9m during the year to 28 April, while adjusted pre-tax profit was 1.6% higher at £246.9m. The dividend was left unchanged at 33.2p per share.

One potential risk is the group’s net debt of £1,943.3m. This figure fell by £89m last year but still remains high. However, the company is working to reduce this. Shareholders also have some protection thanks to a £3bn portfolio of freehold properties.

GNK shares trade on about 9.5 times forecast earnings and offer a dividend yield of 5.7%. Although I expect future growth to be slow, I see this as a good starting point for a long-term income investment.

Get the bus home

The transportation sector is seeing big changes in technology, but I’m confident that we’ll continue to need public transport which can carry large numbers of people safely and efficiently.

My top choice in this sector is Go-Ahead Group (LSE: GOG), in which I own shares. This company has a strong history of generating attractive returns and paying generous dividends. Go-Ahead’s dividend has not been cut since its stock market listing in 1994. During that time, the payout has risen from 4.8p per share to 102p.

Alongside its UK bus and rail services, the business is now expanding abroad, with services in Germany, Ireland and Singapore. I hope to see further continued, conservative expansion that will support further dividend growth.

GOG shares aren’t quite as cheap as they were a few months ago, but the stock’s forecast price/earnings ratio of 11 and 5.2% dividend yield still look fair to me.

This could be safer than houses

Demand for new housing still seems strong in the UK. But, in my view, housebuilders carry a lot of cyclical and political risk at the moment. So I’m more interested in investing in brick makers, who benefit from strong housing demand but also sell into commercial construction markets.

The largest brick producer in the UK is Ibstock (LSE: IBST), which has 19 factories, 23 quarries and also makes certain concrete products. The company has been running flat out in recent years and continues to report demand for bricks in the UK exceeds supply, meaning imports are required.

Although Ibstock would be exposed to a serious slump in demand, I’d expect sales of imports to fall before demand for UK bricks weakened too much. In the meantime, the business is performing well.

Strong cash generation has enabled the group repay debt and maintain generous dividends. IBST stock currently offers a forecast yield of 5.6%. In my view, this could be a decent long-term buy.

The post Have £3k to invest? 3 FTSE 250 dividend stocks yielding 5%+ I’d buy appeared first on The Twelfth Magpie.

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Roland Head owns shares of Go-Ahead Group. The Motley Fool UK has recommended Ibstock. 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.

Down the mine

Gold miner Centamin owns a global Tier 1 mine in Egypt, and has a strong balance sheet, with cash of $332m and no debt. Its profits can be fairly volatile year to year, because they’re very much geared to the price of gold. The dividend also dances to a disjunct melody, as you can see in the summary of payouts for the last five years below.

City analysts are forecasting no advance in earnings or dividends for the current year, putting Centamin on a price-to-earnings (P/E) ratio of 25, with a dividend yield of 3.7%.

However, the price of gold (and Centamin’s shares) have rallied in recent weeks. With there being good reasons for the strengthening of gold to persist, I think we could see some upgrades to Centamin’s earnings and dividend forecasts.

Either way, though, I see the company as a good choice for investors seeking both some exposure to gold and an overall decent, if annually variable, income.

Down the runway

While Centamin’s profits are directly impacted by the price of gold, easyJet’s are indirectly impacted by the price of oil. This, together with other things outside the budget airline’s control (such as the weather), makes for variable annual profits — and dividends, as you can see below.

City analysts are forecasting a hefty drop in earnings and dividends for the current year, with the latter pencilled in at 44p. At a share price of 865p, the forward P/E is 10.2, and the prospective dividend yield is 5.1%.

The valuation looks highly attractive to my eye. Brexit uncertainty and competition concerns are weighing on investor sentiment, but I’m expecting easyJet — helped by what it describes as its “sector leading balance sheet strength” — to prove resilient through this period, and deliver strong returns in due course for shares buyers at the current level.

Down the pub

In contrast to Centamin and easyJet, brewer and pubs group Greene King had long been cherished by investors for a steadily rising annual dividend. However, as you can see below, the sequence of increases stopped last year, with the board maintaining the payout at the same level as the prior year.

City analysts are expecting no advance in earnings or dividends when Greene King releases its latest annual results on Thursday, giving a P/E of 9.2, and yield of 5.7% at a share price of 580p.

There’s been some speculation management could actually reduce the dividend this year, because the company carries quite a hefty debt burden. I’ve expressed concern about the debt before, but with the shares now trading significantly lower, the valuation is looking increasingly tempting in what I consider to be an attractive sector for investors.

The post Why I’d still buy these 3 FTSE 250 stocks that could cut their dividends appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

One particular risk for shareholders is that the mobile and broadband firm’s 6.7% dividend yield could be cut.

My first pick today is a FTSE 100 firm that offers a forecast dividend yield of 8.5%. Despite this super-high yield, I think a dividend cut much less likely than at BT.

A cash machine

The company concerned is tobacco group Imperial Brands (LSE: IMB). The shares are out of favour at the moment, due to concerns about regulatory risk and the ongoing decline in tobacco smoking.

However, Imperial’s recent financial performance suggests to me that these concerns may have been overdone. The firm’s latest trading update confirmed previous forecasts for earnings growth of between 4% and 8% this year.

This stable performance should be backed by strong cash generation. This is the secret to the appeal of Imperial’s dividend. For various reasons, the group’s free cash flow is generally higher than its accounting profits.

What this means for investors is that dividend cover by free cash flow is generally stronger than the firm’s earnings per share might suggest. Last year, my sums show that the dividend was covered 1.4 times by surplus cash, allowing the group to repay some debt as well.

Simplifying the business

In the past, Imperial’s borrowings have concerned me. But net debt is falling gradually and the group is planning to speed up the process with up to £2bn of non-core asset sales over the next couple of years.

One business that’s up for sale is the group’s premium cigar business. As a luxury business, I feel that this could attract a strong valuation, even in a weak market for tobacco generally.

I’ve bought Imperial Brands for my portfolio. With the shares trading on nine times forecast earnings with a well-supported 8.5% yield, I reckon they’re a good income buy.

Another bargain sin stock?

In January, I suggested that FTSE 250 pub operator Greene King (LSE: GNK) was a potential bargain. But since the start of September last year, the pubco’s share price has risen by about 35%.

The shares don’t look as cheap as they did. So is Greene King still worth buying?

The Suffolk firm issued a trading update on Tuesday confirming strong trading for Easter. Like-for-like sales rose by 2.9% during the year to 28 April and were 4.6% higher over Easter.

My reading of this announcement suggests that full-year results should be broadly in line with City forecasts, but the shares still fell by about 7% following the news.

A flat pint?

Why did Greene King’s share price fall so sharply? One reason may be that the price has got ahead of itself.

Although I think this is a solid business with good long-term potential, the UK pub market is mature and competitive. Costs are fairly high and regular investment is needed to keep pubs up to date.

This is not a growth business. Although I thought the shares looked cheap in October and January, I’m not sure they are now.

Tuesday’s fall has left Greene King trading on 10 times forecast earnings, with a 5.2% yield. With profits expected to be flat during the year ahead, I think that’s high enough. I’d hold.

The post A dirt-cheap FTSE 100 dividend stock with a bigger yield than BT appeared first on The Twelfth Magpie.

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Roland Head owns shares of BT GROUP PLC ORD 5P and Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.

Greene King (LSE: GNK)

FTSE 250 — founded 1799 — share price 664p — market-cap £2,058m

Has a chief executive of 14 years standing. The biggest of the three groups, with two breweries and an estate of 2,798 outlets across England, Wales and Scotland. Also, a nice perk of discounts on food and drink for shareholders owning a minimum of 100 shares.

Fuller, Smith & Turner (LSE: FSTA)

FTSE SmallCap — founded 1845 — share price 1,150p — market-cap £637m

Another venerable pubs group and brewer, it also offers shareholder perks (on a minimum holding of 500 shares). Descendents of the founders remain major shareholders and stewards of the business. Geographical focus of 385-pubs estate is London and southern England.

City Pub Group (LSE: CPC)

FTSE AIM — founded 2011 — share price 237.5p — market-cap £146m

Relatively new company, but key members of team are industry veterans. Previously founded Capital Pub Company in 2000, sold to Greene King in 2011 after it trumped an offer from Fullers. City owns fewer pubs (44) than Fullers, but geographic footprint is similar.

Valuation

The table below shows some key metrics for the three companies.

The asset valuation P/TNAV (market-cap divided by tangible net asset value) is broadly similar for the three companies. The variances in the other metrics — the earnings valuation EV/EBITDA (enterprise value divided by earnings before interest, tax, depreciation and amortisation), net debt/EBITDA (a measure of balance sheet strength) and dividend yield — largely reflect their relative stages of growth/maturity.

If I already owned these stocks, I’d be inclined to continue to hold. However, for a different reason in each case, I’m not moved to buy right now.

Waiting game

Most of my Motley Fool colleagues are keen on Greene King, because of its cheap earnings rating and high dividend yield. However, while property-backed pub groups can tolerate a higher level of debt than many businesses, and Greene King’s net debt/EBITDA is within management’s target range, I do find the level a little concerning. Particularly as one analyst has suggested there’s something of an element of smoke and mirrors in the company’s current programme of refinancing high-interest bonds. I’d like to have a close look at the next annual report before committing here.

I’m holding off on Fullers for the moment because it’s recently agreed to sell its brewery (and associated businesses). This is a big deal. The EV of £250m being paid for the assets compares with a current total group EV of £860m. I’m minded to wait and see how Fullers’ numbers stack up after this significant disposal.

Finally, City deserves a higher earnings rating as a fast-growing business. But I think the EV/EBITDA of 19.5, as well as P/TNAV of 1.9, are just a bit too high. Predecessor Capital was sold to Greene King at ratings of 13.7 and 1.7. I reckon the market has inflated City’s valuation due to management’s past success with Capital, and I’m looking for a lower entry level.

The post 1 FTSE 250 high-yielder and 2 small-caps I’m considering buying appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Fuller Smith & Turner. 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.

For a start, at the time of writing, shares in both of these companies look undervalued. Indeed, shares in Greene King are currently dealing at a forward P/E of just 10.5 and shares in Marstons are changing hands for only 7.2 times forward earnings. On top of these attractive valuations, both stocks support market-beating dividend yields. Greene King yields 5%, and Marstons 7.4% at the time of writing. 

These low valuations suggest the market isn’t as optimistic about the future for these two companies as I am. So I’m going to outline why I believe these two pubcos could be attractive acquisitions for your ISA portfolio. 

Growing concerns 

The most commonly cited reason as to why these are bad investments is the number of pubs closing across the UK. According to official figures, more than 25% of UK pubs have closed since 2001 and, currently, they’re closing at a rate of 18 a week as people avoid going out to eat and drink. 

Falling sales, coupled with rising costs are creating the perfect storm for pub owners. However, despite the trends affecting the broader pub industry, both Greene King and Marstons seem to be navigating the hostile environment quite successfully. 

For example, at the beginning of January, Greene King reported its most prosperous Christmas Day sales ever of £7.7m across the group. Overall, like-for-like sales for the 36 weeks to 6 January 2019 increased 3.2% and sales over the two-week Christmas and New Year period jumped 10.9% year-on-year. 

As well as growing sales, the company is also being proactive in reorganising its pub estate, selling off underperforming buildings and opening new ones, only in the areas where it sees the most opportunity for growth. For the 2019 financial year, the business plans to close 100-110 pubs, but only open nine. Management is also targeting up to £20m of cost savings for the year. 

Marstons reported a similarly positive trading performance over the Christmas period. At the end of January, the company told its investors that for the 16 weeks to 19 March, group like-for-like sales ticked higher by 1.4%, with a 5.7% jump over the Christmas fortnight. 

Beating the market 

These positive trading updates seem to indicate Marstons and Greene King are doing just fine, despite what the headlines might suggest. 

Of course, there’s always the risk that in the event of a bad Brexit, consumer spending could collapse, which would have a significant impact on these two brands. However, the current level of valuation for both businesses suggest to me that there’s already plenty of bad news baked into the share prices. 

To put it another way, I think these two firms offer attractive dividend yields with limited downside risk making them the perfect income investments for a Stocks and Shares ISA.

The post Two cheap income stocks yielding 5% I’d buy for an ISA appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.