Everybody has to eat 

Despite increasing earnings by more than 60% over just the past five years, shares of Greencore are trading at a relatively sedate 13.5 times forward earnings. This low valuation comes despite continued record-breaking profitability from its UK operations and a large acquisition in the US that has given it profitable size and scale on both sides of the Atlantic. 

This acquisition is the reason shares are trading so cheaply as its largest customer, US food giant Tyson, recently bought a competitor, stoking fears that it will drop its contract with Greencore in favour of the new in-house option. However, I believe fears about this are overblown as the two have co-invested in a factory and breaking this long-term contract would be both costly and incredibly disruptive; it’s highly unlikely Tyson could take over manufacturing without a very quick and very costly expansion of its production facilities.

Leaving aside the Tyson contract fears, Greencore is also performing incredibly well. In Q3, group revenue clocked in at £636.5m, 11.8% ahead of the year prior on a pro forma basis. This came from growth in both divisions with the UK business trading 15.3% ahead year-on-year (y/y) while US sales were up 6.6% y/y due to expanded contracts with existing customers and finding new customers.

Looking ahead, there’s good reason to expect this growth to keep up as the food-to-go market in the UK is still expanding and Greencore’s new acquisition Stateside will, for the first time, allow it to sell directly into grocery stores. All told, with a good balance sheet and a strong record of sales and margin improvement, I think Greencore’s shares are very attractively priced today.

Patience pays off 

I’ve also got my eye on Mountview, a family-run company that buys up buildings with rent-controlled flats, waits until their tenants leave (a process that can take many years), and then sells them on at market rates. This is by necessity a long-term business and earnings can be choppy as buildings go up for sale on a irregular basis. But the company has a great record of success and I reckon its shares are attractively priced at just 12 times trailing earnings.

In fiscal year 2017, the company’s revenue shrunk 2% y/y and pre-tax profits fell 7% y/y. But these challenges mainly reflect downward property valuations due to Brexit and a strong comparative period the year prior due to a rush to buy property before stamp duty increases went into effect. Wisely, management kept dividends level at 300p per share although these payouts were still very safely covered by earnings per share of 929.1p.

The fact that management was able to keep earnings and dividends remarkably high even in a challenging year shows just how well run the business is. With a constantly replenishing group of assets, a very healthy balance sheet with just 8.5% gearing, and a management team with plenty of skin in the game, I reckon Mountview is a great stock to own for the long term.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Greencore. The Motley Fool UK owns shares of Mountview Estates. 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, if I had to pick two property stocks to buy and hold forever, they wouldn’t be familiar FTSE 100 names. Indeed, you may never have heard of my two picks. This is not because they’re tiny little companies — one has a market cap of over £1bn and the other is £480m — but more because they issue only absolutely essential RNSs and eschew paying brokers to publish ‘research notes’ and other PR puffery.

Instead, these two companies, which are family-controlled, go quietly about their task of increasing the value of shareholders’ equity, paying dividends and managing the businesses through economic cycles. They’ve been doing it successfully for decades. In fact, I’d say their pedigrees are such that they can be more rightly described as ‘blue-chip’ than some FTSE 100 firms.

Big discount

Daejan (LSE: DJAN) shares are up over 3% at around £64 after the company released its annual results today. These showed its total portfolio of commercial, industrial and residential properties valued at £2.26bn, up from £2.01bn last year. Its UK portfolio accounted for £1.66bn of the valuation and its US eastern seaboard portfolio accounted for £0.6bn.

Meanwhile, equity shareholders’ funds at the year-end stood at £101.61 a share, so the shares are currently trading at a 37% discount. This gives a wide margin of safety for investors looking to buy a slice of this business for the long term.

The company announced a 5.4% increase in the full-year dividend to 98p a share, supported by net cash from operating activities (rental income, less costs, interest and tax) of 116.5p. The current yield isn’t high at 1.5% but with the company conservatively-run to avoid boom-and-bust (the dividend was maintained through the financial crisis), investors could be enjoying a very nice income in 10, 20, 30 years’ time.

Hidden value

Long-term thinking is also the name of the game with Mountview Estates (LSE: MTVW), which reported its annual results last month.

The company buys residential properties with regulated and life tenancies at a discount to notional vacant-possession value and sells them years, or decades, later when they become vacant. Thus, it profits from both the long-term rise in the value of the property and the vacant-possession premium.

Mountview reported equity shareholders’ funds at its latest year-end of £86.25 a share. With the shares currently trading at £118 they appear expensive at first sight. However, there is hidden value in the property. This is because its residential properties are held on the books “at the lower of cost and estimated net realisable value.”

One analysis of the true value of the properties would imply equity shareholders’ funds of over £200 a share, putting the shares at a 41% discount.

On the dividend front, Mountview announced an unchanged payout of 300p a share for its latest year, supported by net cash from operating activities of 575p. The lack of an increase in the dividend is somewhat disappointing, but it does follow increases of 9% last year and 37.5% the year before. Also, the running yield of 2.5% is a decent starting point for a long-term investor.

The post 2 stocks I’d buy and hold forever appeared first on The Twelfth Magpie.

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

Actually, it’s better than that, as the fund manager’s progressive dividend has reached 15p, for a yield of 3.2% on the current price. Liontrust is a great example of the power of a progressive dividend. Had you bought the shares in 2012 you’d have had no dividend at all that year, but you’d have effectively locked in a 2017 yield of 17% on the 86p price you’d have paid at the time — and forecasts suggest further inflation-busting rises to come.

Great track record

The company revealed a 15% rise in revenue to £51m, with adjusted pre-tax profit up 18% to £17.2m. Assets under management are soaring — up 36% over the year to £6.5bn, and the acquisition of Alliance Trust Investments Limited on 1 April added a further £2.5bn to that. Actual net inflows over the year amounted to £482m, up from £255m the year before, making it seven years of net inflows in a row.

Looking forward, analysts are predicting a further 21% rise in EPS for the coming year, putting the shares on a forward P/E of around 12.5 and a PEG as low as 0.6. With further progress forecast for the year after, including a dividend rising to a yield of 4.4%, Liontrust still looks good value to me even after its past five years of storming share price performance.

Property reselling

Mountview Estates (LSE: MTVW) is an interesting take on the property market because of its business model. It buys tenanted residential property when it can get it for a big discount and sells it on when it becomes vacant — and that’s something I’d expect to be less sensitive to the short-term direction of property prices.

The shares have trebled in value over the past five years, even though they’ve pretty much flatlined since early 2015. And they’re up today, by 2% to £114.99 apiece, after full-year results came in better than I at least had expected.

Interim figures had shown pre-tax profit dropping by 16% and earnings per share by 15.8%, though to some extent that was due to changes in stamp duty legislation which seriously affected the timing of the firm’s transactions.  

And the full year has seen pre-tax profit fall by a relatively mild 7% (and by just 1.9% once investment property revaluation is excluded). Earnings per share fell by 6.4%, with net assets per share up by 7.9%, and the dividend was maintained at 300p per share for a 2.6% yield.

Long-term safety

A couple of factors seriously attract me to this company. I actually like the fact that it can take a very long time for a rental property to become vacant, even though that might seem frustrating, because it reinforces the long-term focus of the business and means there’s little scope for short-term chopping and changing.

That’s supported by the company’s ownership and management too. It’s currently run by a son of a co-founder (with the company stretching back to 1937), and the family retain around half the shares. So there’s really no conflict of interest between owners and managers, seeing as they’re mostly the same folks.

On a P/E of around 12, this looks like a great retirement investment to me.

The post 2 bargain-buy growth stocks after today’s results? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of Mountview Estates. The Motley Fool UK has recommended Liontrust Asset Management. 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.

Arbitrage at its best 

The first one on my list is Mountview Estates (LSE: MTVW). Its founder no longer runs this £400m market cap company but this is entirely forgivable as it was established all the way back in 1937. Furthermore, the company is now run by the co-founder’s son and he and the wider family own around half of all outstanding shares, giving them plenty of skin in the game.

Befitting a family-run company with a long history, its business model is buying at a steep discount buildings with flats that have regulated rents below market value and then waiting, sometimes decades, for these flats to become unoccupied and selling them on at market value.

While no new regulated tenancy properties have been created since 1988, the company still has a very large and constantly evolving portfolio of just under 4,000 properties as of the end of fiscal year 2016. Since around half of all its properties are in London and another 33% in the Home Counties, it has benefited from rising property values there.

In each of the past four years rising sale prices have led to double-digit increases in earnings and allowed dividends per share to nearly double to 300p in 2016. This is still a very conservative one-third of earnings, but shareholders still enjoyed a respectable 2.7% annual yield.

Management’s conservative approach to shareholder returns also carries over to its policy towards debt as the gearing ratio was a very low 11.8% at year-end. This healthy balance sheet means the business is in a good position to benefit from any downturn in the property market as it will have the financial firepower to make deals at an even deeper than normal discount.

Shares of Mountview are pricey for a property firm at 12 times trailing earnings but with a very long history of rewarding shareholders since going public in 1960 I reckon this business is one to hold for the long term.

A truly long term outlook

Another family-run business with a long history of keeping shareholders happy is iron foundry Goodwin (LSE: GDWN). Despite being set up in 1883, it is still run by a Goodwin and the family retains a large stake.

It has been in a holding pattern in the past few years as the downturn in oil, gas and commodities prices has significantly dampened demand for the company’s valves, pumps and other industrial products. However, management has been through many, many downturns before and was prepared for this one.

It has invested in recent years in expanding its capabilities into creating products for the aerospace, jewellery and automotive industries that are paying off and keeping it highly profitable even during the downturn in energy markets. In the nine months to January the diversification helped increase sales from £87m to £105m year-on-year, although pre-tax profits fell from £9m to £8.2m.

With a long history of adapting to ever-changing market demands and a proven ability to withstand very deep market downturns Goodwin is one share I’ll be looking at more closely once energy markets rebound.

The post 2 family-owned businesses to retire on 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?

Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of Mountview Estates. The Motley Fool UK has recommended Goodwin. 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.