Dull but consistently profitable companies can often be great investments. Today, I’ll touch on one example each from the small-cap world, the mid-cap space and the FTSE 100.

Locking in profits

I first covered self-storage firm Lok n’ Store (LSE: LOK) in April 2018. Since then, its share price has climbed almost 90%. That’s hardly a bad result considering the simplicity of the company’s business model.

As today’s update showed, there’s no shortage of demand for space to store possessions. Trading over the year to the end of July has been “excellent” with occupancy rates bouncing to 85.8%. Back in mid-2020, this was a little under 70%. Revenue also rose 20.9% on the previous year and is “continuing to accelerate“. 

At £225m, LOK is far smaller than its peers Big Yellow and Safestore. However, it’s quietly building a sizeable estate. A pipeline of 13 sites will give the company 38% more space and should provide another boost to earnings. Whether this and recent trading are enough to justify the current valuation is another thing.

LOK trades at 39 times forecast earnings. That’s steep given the lack of barriers to entry in this industry. So, while I’d still buy today (no one knows where share prices will go next), I’d probably wait for the next, inevitable, market wobble before fully investing my capital here.

Rubbish trading

Another example of a company operating in a dry as dust sector that’s nevertheless done well for investors is waste manager Biffa (LSE: BIFF). Its shares are up almost 80% over the past year. 

As at LOK, this momentum looks likely to continue. Trading in the first three months of its new financial year was “well ahead” of even BIFF’s own expectations. Although the outlook is tied to the UK economy, management now thinks adjusted earnings for the full 12 months will come in roughly 10% higher than analysts were predicting.

There are a few near-term headwinds to consider though. The much-publicised shortage of HGV drivers is one. Ongoing issues with Biffa’s supply chain due to Covid-19 could also knock sentiment. 

Then again, the shares still trade on a reasonable valuation of 19 times forecast earnings. As such, I would feel comfortable taking a position today.

Profiting from pests

A final pick of boring but brilliant UK stocks for me to buy is FTSE 100 pest control giant Rentokil Initial (LSE: RTO). The £10bn cap company is a world leader at what it does.

Like the other stocks mentioned, RTO has done well for those owners able to sit on their hands. Those buying back in 2016, for example, will be sitting on a gain of around 150%. Now that its core business is showing signs of rebounding from the pandemic (revenue growth of 18.3% was seen in the first six months of 2021), I suspect the shares could go on setting new highs.

There are still risks, of course. A valuation of 33 times earnings suggests a lot of good news is already priced in. Should the global economic recovery slow, it’s arguably the pricier growth stocks that will be hit the hardest.

Then again, this is far more defensive than the typically glitzy tech play. Again, while I wouldn’t throw everything at the stock today, I regard this solid company as one to drip-feed my money into gradually. 

The post 3 boring but brilliant UK stocks to buy 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.

During the period, the online grocer and designer of highly automated warehouses has announced a string of deals with international retailers and a domestic joint venture with Marks & Spencer. It’s also been rewarded with promotion to the elite FTSE 100 index of the biggest London-listed companies.

Remarkably, for a UK blue-chip, Ocado can’t be valued on a multiple of its earnings. It’s not currently making a profit, and isn’t forecast to do so any time soon. Here, I’ll give my view on its prospects and share price. I’ll also discuss a profitable but more prosaic warehouse specialist: self-storage firm Lok’n Store (LSE: LOK).

Growth in store

Lok’s shares have moved modestly higher on the back of interim results today. At 500p, this AIM-listed firm is valued at a bit under £150m. I like the dynamics of the self-storage industry in the space-strapped UK, and I’ve previously written bullishly about both Lok and its sector peer Big Yellow — a larger (FTSE 250-listed) company, valued at £1.7bn.

Today’s results confirmed my good impression of Lok as a strongly growing business in a structurally under-supplied market. Revenue from continuing operations increased 11.5%, and earnings per share rose 22.2%. Further growth is in the offing with the company having a current pipeline of eight contracted stores, which will add 27% more trading space to its portfolio.

While Ocado can’t be valued on earnings, Lok’s earnings valuation is looking a little stretched at the moment, after a strong performance from its shares over the last 12 months. The outlook for the business is good, but at the current share price, you’ll have pay 39 times forecast earnings to buy in, and get a prospective 2.4% dividend yield. I rate the stock a ‘hold’ at this stage.

Microsoft of retail?

How can we even begin to value Ocado? Well, let’s start with the UK grocery retail business that it’s putting into the 50/50 joint venture with M&S. The deal values the JV, which will trade as Ocado.com, at £1.5bn.

Even if the JV’s worth a bit more than that, it’s clear that by far the larger part of Ocado’s £10bn market capitalisation is the valuation being attributed to the company’s other business of constructing and operating automated warehouses — or Customer Fulfilment Centres (CFCs) — for third parties.

I read one research note, following Ocado’s latest deal, which attempted to answer the key question: what’s priced in already by the market? The analysts (at SocGen), using “favourable assumptions,” said: “We calculate that the ‘market’ is factoring in c.30 additional CFCs over and above the 25 already contracted for.” As you might guess from that, SocGen concluded the stock is “significantly overvalued.”

More bullish brokers have championed Ocado as a technology stock — the “Microsoft of Retail,” as Peel Hunt has put it. However, I think my Foolish colleague Roland Head is on the mark in pointing out that Ocado can’t scale up like a true tech firm.

On balance, I think the risk of overvaluation is high after the terrific rise in the share price. If I held the stock, I’d probably be happy to sell and bank my profits at this stage.

The post Is the Ocado share price a FTSE 100 flyer I’d still buy today? 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.

Persimmon’s shares are down over 20%, and those of fellow blue-chip builders Barratt and Taylor Wimpey (LSE: TW) have lost nearer 25%. Meanwhile, Lok’n Store hasn’t exactly shot the lights out, but its shares had advanced from 370p to 374p prior to the release of its latest results this morning — and they’ve jumped almost 10% higher to 410p, as I’m writing.

After the builders’ big falls, are they now good value? And what of Lok’n Store, after its rise today?

Value strategy

With stocks in cyclical industries — house-builders are some of the most cyclical of all — I believe a value strategy of buying them when they’re cheap and selling them when the value has been outed is the most profitable approach. This rests on my conviction that house-builders will always be prone to boom and bust and that it’s never “different this time.”

I’ve found the asset valuation ratio price-to-tangible book value (PTBV) to be the most reliable indicator of when to buy and sell house-builders. I’d buy when the PTBV is at, or below one, which tends to be around the bottom of the cycle, and sell when the PTBV rises to a level that history suggests is around the top.

For example, when I moved to rating Taylor Wimpey a ‘sell’ last November, the share price was 194p and the PTBV was 2.1. Today, at 154p, the PTBV is 1.5. But to get down to my ‘buy-around’ PTBV level of one, the shares would need to fall to about 100p. As such — and despite Taylor Wimpey’s cheap trailing 12-month earnings multiple of 7.7 — I’m content to avoid the stock at this stage and await developments.

Growth outlook

After today’s results for its financial year ended 31 July (and rise in share price), Lok’n Store’s trailing 12-month earnings multiple is a little cheaper than at this time last year. Nevertheless, at 31.4 it’s still way higher than house-builders like Taylor Wimpey.

However, it’s a very different matter when it comes to asset valuation. Lok’n Store today reported a 15.3% increase in adjusted net asset value per share to 480p. The adjustments are for the valuation of leasehold stores and deferred tax and are fair enough, in my view. But I exclude intangible assets, which brings the value down to 468p. Lok’n Store’s PTBV is a highly attractive 0.9.

Looking to the future, management said today: “We have achieved a notable acceleration in our store pipeline to 13 sites which will increase operating space by 32.4% over the coming three years. This will add considerable momentum to sales and earnings growth.”

With the low PTBV, an outlook for robust earnings growth, the company also delivering good cash generation, and having a strong balance sheet, Lok’n Store remains a business I’d be happy to buy a slice of today.

The post Here’s why I’d still shun the Taylor Wimpey share price at below 150p 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.

The thinking behind this is simple. While nothing can be guaranteed in terms of performance, these people will arguably be more incentivised to achieve good returns when their own capital is at risk.

With this in mind, here are two examples from the small-cap universe where those in charge also feature prominently in the list of significant shareholders. 

In the wars…for now

I’ve had my eye on cosmetics firm Warpaint London (LSE: W7L) for a while now.

One of the first things to attract me — aside from the seriously high operating margins and fairly resilient industry of which it is a part — was the knowledge that joint CEOs Samuel Bazini and Eoin Macleod owned just over 45% of the company between them.

It would seem some have gone cold on the stock, however. Despite being initially embraced by investors following its IPO, Warpaint’s share price is now down almost 40% from the highs achieved in May last year. This feels a little harsh considering last week’s far-from-awful full-year results.

Revenue rose 15.6% to £31.2m in 2017, with sales of the company’s W7 brand climbing 17.1% in the UK and 16.8% in overseas markets.

The aforementioned adjusted operating margin fell slightly to 24.4% from 25.2% but this is still more than satisfactory. Under the bonnet, Warpaint’s finances also look solid with a net cash position of £2m at the end of the year. 

According to Chairman Clive Garston, the £150m cap has made a “promising start” to 2018 with trading being in line with (heavily-invested) management’s expectations. The acquisition of Retra Holdings back in November for £18.2m should also provide a significant boost to earnings going forward.

Indeed, estimates of 13.1p per share being achieved in 2018 leave the stock on a price-to-earnings ratio (P/E) of just 14. For a growth company, that looks very reasonable. The forecast dividend yield of 2.9% is a modest (but welcome) extra. 

Lock in for profits

Small-cap self-storage firm Lok’n Store (LSE: LOK) is another stock that’s made its way onto my watchlist, partly because CEO Andrew Jacobs owns almost 19% of the company.

I’m a big fan of companies like this since the business model is easy to understand and, although the market is competitive, our love of ‘stuff’ means demand looks like it’s only going one way.

Highlights from last week’s interim results (covering the six months to the end of January) included a 5.7% rise in revenue (to £8.82m) and 16.3% jump in group adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to £3.85m. Adjusted pre-tax profit soared 21.3% to £2.55m. 

This could be just the start. According to Jacobs, the company is using its “robust balance sheet” to build more stores in what remains a “structurally under-supplied market“. Two were opened over the reporting period, another two added to the pipeline and four more sites are “currently with lawyers“.

At the time of writing, Lok n Store’s stock trades on a valuation of 33 times earnings, suggesting a lot of this growth is firmly priced in. Nevertheless, I’ll be keeping the firm on my radar in the hope that a better entry point appears following a wobble in the general market.

The post One big reason I’d consider buying these two small-cap growth stocks 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.

The table below shows some data at annual results dates for FTSE 100 housebuilder Persimmon (LSE: PSN) going back to the years before the last crash.

As you can see, before the last housing crash, Persimmon was posting record profits, operating margins were in the cyclically high 20s and P/Es were temptingly ‘undemanding’. But the share price had almost halved, even as it was reporting a record net profit of £414m in February 2008. And halved again by the time it reported a £625m loss a year later.

As you can also see, the ideal time in the cycle to buy is when operating margins and profits are depressed, P/Es are high (or off the scale, as at the time of the £625m loss) and P/Bs are below one, indicating a discount to net assets.

However, we’re now back to top-of-the-cycle operating margins in the 20s, record profits, undemanding P/Es but high P/Bs. In fact, at today’s share price of 2,800p and incorporating H1 numbers, the operating margin is 28% and the P/B is 3.2 — unprecedented highs.

I don’t believe “it’s different this time.” And with UK personal borrowing at its highest level in history, interest rates set to rise, and house prices already falling in London, I see substantial downside risk. As such, I think the time has come to switch to rating Persimmon a ‘sell’.

Lok a stock I’d buy

I’m more optimistic about the valuation and prospects of UK self-storage specialist Lok’n Store (LSE: LOK), which released results today for its financial year ended 31 July. The shares are up 2% at 370p, giving this AIM-listed company a market cap of £108.5m. With the company having posted a net profit of £3.1m, the P/E is 35 and an 11% increase in the dividend gives a yield of 2.7%. Meanwhile, its book value at year-end was £89.1m, so the P/B is 1.2 — or 1.1, adjusting for the fair value of the leasehold portion of its property estate.

Lok’n Store’s self-storage facilities are used by household and business customers. It also has a revenue stream from serviced archive and records management and an income from managing self-storage units for third parties. It reckons the attractive dynamics in its market include being “resilient through economic downturns.” It said today that its expanded new store pipeline will add 45% more space over the coming years. It added that this creates “a strong platform for an exciting period of rapid growth.”

Based on its modest P/B and prospects of “rapid growth” (including growth in book value), I rate Lok’n Store a ‘buy’.

The post Why I’d dump Persimmon plc and buy this ‘expensive’ stock instead 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.

The company announced that revenues at its core self-storage business rose 5.2% during the 12 months to July, with self-store unit occupancy advancing 2% in the period.

The space provider’s document storage unit also enjoyed a massive bump in fiscal 2016. Revenues galloped 11.1% higher from the prior year, with the number of stored boxes and tapes rising 8.7% and 14.2% respectively.

And Lok’NStore is confident that its busy acquisition programme should keep revenues rolling. The company described trading at its new outlets like Maidenhead, Reading, Aldershot and Chichester as “excellent,” and the firm is due to open owned stores in Wellingborough and Gillingham, as well as managed stores in Hemel Hempstead and Broadstairs by the end of 2017.

A predicted 34% earnings rise leaves Lok’NStore on an elevated forward P/E rating of 23.3 times. But I believe the company’s brilliant bottom-line momentum merits such a premium.

Pollster set to surge

Research specialist YouGov (LSE: YOU) also bounced higher following decent financials of its own on Momday. Indeed, the stock was last changing hands at record peaks above 190p.

YouGov advised that trading for the 12 months to July 2016 is expected to top previous expectations, the firm enjoying “another year of double-digit revenue growth well ahead of the global market research sector with the proportion of revenue derived from data products and data services continuing.”

The business added that sales in the US and the Middle East had expanded strongly, while it had also benefitted from sterling weakness during the past year.

I believe YouGov’s rising success in international markets should keep its terrific growth story rolling, and I also believe a forward P/E rating of 23.8 times — created by a predicted 14% earnings rise — is fair value.

Secure a fortune

Support services group Interserve (LSE: IRV) completed the set on Monday, the shares recently 3% higher on the day and dealing at levels not seen since early June.

Interserve announced it had secured an extension to its existing two-year contract with the BBC for the provision of security services. The company’s First Security division has provided the Beeb’s muscle across the country since April 2014, and the extension will come into play from 2017.

Naturally, as with many other firms, Britain’s decision to exit the EU in June has cast something of a pall over Interserve’s long-term outlook.

Still, I believe the stock’s diversification across a wide range of industries, allied with its ability to keep grinding out high-level contracts, makes it an attractive investment destination. And it’s particularly so at current share prices — at the moment Interserve deals on a meagre forward P/E rating of 4.8 times, and carries a market-beating 8.1% dividend yield.

The post These FTSE plays are making headlines today! Should you buy? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Lock in smashing returns

Shares in Lok’N Store Group (LSE: LOK) shot 4% higher in start-of-week business, after the self-storage specialist released blockbuster trading numbers.

Lok’N Store saw revenues leap 4.7% in the six months to January to £7.99m, with like-for-like revenues surging 8% during the period. This sterling result helped propel pre-tax profits 156% higher from the corresponding six months last year, to £3.79m.

The space provider continues to benefit from Britain’s growing ‘hoarding’ culture, with occupancy rates rising 2.4% during July-January on a like-for-like basis. And I expect Lok’N Store to remain in vogue as strong economic conditions boost Britons’ demand for extra space.

This view is shared by the City, and Lok’N Store is expected to see earnings shoot 34% higher in the year to July 2016. A subsequent P/E rating of 29 times may be expensive on paper, but I expect this figure to topple as earnings explode — indeed, a predicted 33% bottom-line rise in 2017 pushes the rating to a much-improved 21.7 times.

On the march

Insurance play Randall & Quilter (LSE: RQIH) also headed for the stars on Monday after releasing solid financials of its own, the firm recently trading 15% higher from last week’s close.

Randall & Quilter announced that it had swung back into the black in 2015, reporting a £2.8m profit versus the previous year’s loss of £1.6m. The company put this improved performance down to the impact of recent acquisition activity.

And the insurer is upbeat about its prospects for the year ahead — indeed, chairman and CEO Ken Randall advised that “the board has a positive outlook for the current year” before adding that “the pipeline of potential legacy acquisitions is very promising with a diverse range of opportunities.”

The number crunchers expect Randall & Quilter to keep its strong momentum going with profits of £8.3m in the current period. Like Lok’N Store, I reckon the financial business could be in line for broker upgrades in light of today’s positive release.

Digger dives

Mining and energy leviathan Glencore (LSE: GLEN) was faring less well in Monday trade, however, with its shares currently 3% lower from Friday’s close.

The business has moved lower in lockstep with falling commodity prices. Investors are taking the opportunity to cash in on heady-looking resources values, with bellwether copper, for instance, slumping back below the $5,000 per tonne marker.

Like its industry peers, I believe Glencore is in serious danger of a colossal share price correction should data from China turn lower again. All major commodity sectors remain in a state of chronic oversupply, a situation that is steadily worsening as mining capacity across the globe increases.

The City expects Glencore to move back into the black in 2016 with earnings of 3.4p per share. This figure results in a mega-high P/E rating of 54.6 times, and I consider such a reading unfathomable given the operator’s murky profits outlook. And Glencore’s massive reading certainly leaves plenty of scope for a serious retracement.

The post Should you buy Glencore plc, Lok’N Store Group plc & Randall & Quilter Investment Holdings ltd ord 2p (DI) today? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.