Premium content from Motley Fool Hidden Winners UK
Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.
“Best Buys Now” Pick #1:
Fuller, Smith & Turner (LSE:FSTA)
Why we like it: Fuller, Smith & Turner (LSE: FSTA) is a quality pub operator with an exceptional long-term track record. The core of its business is its predominantly freehold pub estate. The company says that while many of its competitors suspended capex programmes during the coronavirus pandemic, Fuller’s actually brought forward investments to take advantage of the enforced closure of its pubs. These improvements should help the company achieve its goal of being known for excellent pubs, where people are happy to spend time, and make its venues stand out in a competitive market.
It owns and operates around 200 of its own pubs. These contribute about 87% of sales, the revenue mainly consisting of the purchases made by customers. The rest of the company’s sales are from its tenanted pubs division, which are run by entrepreneurs who rent the building and fixtures. While the company’s fabulous track record was halted for obvious reasons during the pandemic, we’re optimistic that the recent return to profitability bodes well for the company’s recovery and reckon a return to consistent profit and dividend growth should arrive eventually.
Why we like it now: Fullers is enjoying a strong recovery as its business bounces back from Covid-related restrictions. As workers returned to the office and consumer confidence improved, like-for-like sales hopped by 12.7% in the first half, while adjusted profits rocketed by 48% to £14.5m. The substantial market outperformance in the first half could be due to the investments in its estate made by the business during the pandemic. The directors value the company’s property assets at just under £1bn, and while that valuation might prove optimistic, with the market cap at around £400m, there seems to be a decent margin of safety.
