Three great UK companies for buy-and-hold investors.
Family firms are hard to beat when it comes to longevity, reliability and long-run shareholder returns.
The typical family firm tends to have deep, embedded knowledge about its industry, a long-term strategic horizon and a strong balance sheet to help it weather the harsher phases of the economic cycle -- qualities that tend to foster steady, sustainable growth decade after decade.
Here are three great British family firms for buy-and-hold investors to consider.
Associated British Foods
Associated British Foods (LSE: ABF) was established by Willard Garfield Weston in 1935. Today, the company is 55%-owned by the Weston family; and George Weston, a grandson of the founder, is the chief executive.
ABF owns five businesses, the three largest of which -- grocery, retail and sugar -- currently contribute 80% of group revenue and 92% of operating profit.
The grocery business is chock-full of strong brands, including Ovaltine, Twinings, Kingsmill, Ryvita and Patak's; the retail business comes in the shape of discount clothing juggernaut Primark; and the sugar business has mills and factories in the UK, Spain, China and Southern Africa.
ABF's diversified and defensive nature is highly prized by investors, and the shares usually look on the expensive side. At the current price of 1,286p, the shares are trading at 14.8 times forecast earnings for the year to September 2012, which is at the high end of the company's historical range and well above the FTSE 100 (UKX) trailing P/E of 11.2.
I'm looking to invest in ABF myself at the right price. I'd be happy to pay a bit more than the Footsie average: say, 12 times ABF's 94p forecast earnings per share for next year, which equates to a share price of around 1,125p. Thus, for the time being, ABF remains on my watchlist.
Schroders
Schroders (LSE: SDR) is a global asset management company, managing money on behalf of institutional and retail investors, financial institutions and high net worth clients.
The company has a history stretching back over 200 years. Sitting on today's board of directors are Bruno Schroder, a great great grandson of one of the firm's co-founders, and Philip Mallinckrodt, Bruno's nephew.
Schroders has a dual-class share structure of voting and non-voting shares that enables the family to retain control of the company. The voting shares (LSE: SDR) are currently trading at 1,415p and the non-voting shares (LSE: SDRC) at 1,127p -- a 20% discount.
Schroders' strong balance sheet has served it well through the last five years of turmoil for companies in the financial sector. There was no dividend cut from Schroders in the darkest days, and the dividend resumed its annual growth in 2010 when assets under management (AUM) and earnings bounced back.
AUM reached £205 billion at 30 June 2011, but dipped in the second half of the year to £187 billion. However, growth has resumed in 2012 with AUM up to £195 billion at 30 June. My rule of thumb is that fair value in an asset growth phase is 3% of AUM. In Schroders' case, that suggests a price of around 2,075p. Therefore, I see the shares -- particularly the non-voting shares -- as very attractively priced.
Daily Mail & General Trust
Daily Mail & General Trust (LSE: DMGT) is a media conglomerate whose history dates back to the launch of the company's eponymous newspaper in 1896 by brothers Alfred and Harold Harmsworth. The brothers were subsequently elevated to the peerage as the first Viscount Northcliffe and the first Viscount Rothermere, respectively.
The current chairman and controlling shareholder -- this is another family firm with a dual-class share structure -- is Jonathan Harmsworth, the fourth Viscount Rothermere.
I was very keen on DMGT when the shares were trading at 385p in June. So much so, that I detailed my investment thesis for you in an article and subsequently invested in the company.
Not much has happened since then, other than that DMGT has released a third-quarter statement saying the outlook for the year is unchanged, and that the shares have soared 24% to 476p. Despite the rise, DMGT still trades on less than 10 times current-year forecast earnings.
Top sectors
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> G A Chester owns shares in Schroders and Daily Mail & General Trust, but no other companies mentioned in this article.
