I have a great deal of fondness for the small number of long-established British family firms listed on the FTSE. Not for sentimental reasons, but because they have qualities that make them highly attractive for private investors with a long-term buy-and-hold philosophy.
These businesses often have much stronger balance sheets than the average company, and are conservatively stewarded for subsequent generations. Long-term business performance and shareholder returns suggest that pitching in your lot with these families can be highly profitable.
There was mixed news today from three such firms: Daily Mail & General Trust (LSE: DMGT), Fuller, Smith & Turner (LSE: FSTA) and Nichols (LSE: NICL). Could now be a good time to buy a slice of these businesses?
Daily Mail
Daily Mail & General Trust (DMGT) evolved from the eponymous newspaper, launched in 1896. DMGT’s strategy is to grow its business-to-business assets, and offset the slow structural decline of print news circulation with digital advertising revenue from its fast-growing MailOnline website, and other online assets, including Wowcher and Elite Daily.
DMGT has been managing this successfully, but news in today’s Q3 trading update came as something of a shock. Underlying revenue across the group’s media businesses declined by 5% in the quarter; notably MailOnline‘s £1m (8%) growth lagged well behind a £7m (15%) decline in print advertising for the Daily Mail and Mail On Sunday.
DMGT’s explanation of a general “marked deterioration in the UK print advertising market in the quarter” is credible, because local newspaper group Johnston Press said the same thing last week, noting in particular that advertisers chose to reduce or delay their spend around the time of the General Election.
So, the quarter looks to be something of an anomaly, albeit of sufficient impact for DMGT to warn that “the outlook for the Group’s Full Year results is now towards the lower end of market expectations” — and for the shares to fall over 10% in early trading. On the assumption that Q3 was something in the nature of a blip, DMGT looks reasonable value on a forward price-to-earnings (P/E) ratio of 15.5 based on earnings at the lower end of previous market expectations.
Fullers
Brewer and pubs group Fuller, Smith & Turner — founded in 1845 and famous for its London Pride ale — issued a trading update ahead of its AGM today, saying that “the business has made a strong start to the new financial year”.
The update was short and selective on numbers, but those it gave put some flesh on the “strong start”: like-for-like sales in managed pubs and hotels were up 5.7%, like-for-like profits in the tenanted division grew 4% and brewery volumes were level.
The shares are up 3%, as I’m writing. And, after a strong performance since the start of the year (+24%), Fullers trades on an elevated P/E of 22. I would be looking for a bit of a pull-back in the shares, although the P/E is always on the high side. That’s the price you pay for a premium business, with strong freehold property backing and a remarkable record of having increased its dividend every year without fail since 1974.
Nichols
Nichols was established on the back of soft drink Vimto, created in 1908 and now sold in more than 65 countries. The company’s brand portfolio also includes Levi Roots, Sunkist and Panda which are sold in the UK. In today’s half-year results, Nichols also announced the acquisition of premium juice drinks brand Feel Good.
The results showed sales at the same level as last year. However pre-tax profit was up 9% and earnings per share up 11%, as the company’s current value-over-volume strategy lifted the operating profit margin from 18% to 20%.
Nichols’ shares are up 2%, as I’m writing, and up 44% since the start of the year. If the half-year earnings growth carries through to the full year — the company said today that it is “well positioned to continue its growth trend” — we’d be looking at the same premium P/E of 22 as for Fullers. Again, I’d be hoping for a dip in Nichols’ shares, but again they still wouldn’t be “cheap”, partly because the company has a tremendously strong balance sheet, which includes £32m of cash and no debt.
