Investors often underestimate how important it is for a company to be led by an experienced, trustworthy management team.
The best managements work with shareholders best interests in mind. They don’t take excessive risks or dilute existing shareholders. And above all, the best management teams look to create value for investors.
Unfortunately, there are only a few companies around that are run by management teams that exhibit all these qualities. Four of the best are Booker (LSE: BOK), Imperial Tobacco (LSE: IMT), WPP (LSE: WPP) and Talktalk Telecom (LSE: TALK).
Rags to riches
Booker is one of AIM’s greatest success stories.
The company started trading on the junior market during 2000. After a few years of being part of the Iceland group, Booker was acquired by Blueheath Holdings during 2007. Since then, the retailer has pushed its way into the FTSE 250, and some analysts believe that the company could make it as far as the FTSE 100.
Until earlier this year, Booker had been chaired by Richard Rose, who served for nine years. During the last five years of his reign, Booker’s pre-tax profit doubled, and revenue increased by a third. But while Rose is leaving another veteran manager, Charles Wilson, chief executive, remains to carry on creating value for investors.
When Booker returned to the market during 2007, the company’s share price was around 24p — it is now 170p. In addition, shareholders have received 22.70p of dividends.
Booker’s management team certainly knows how to look after investors.
When Alison Cooper became chief executive of Imperial Tobacco during 2010, she had a long road ahead of her. Five years later and the company’s transformation is taking shape. The recently approved deal between Imperial and US based, Reynolds American will be the icing on the cake of the turnaround.
At the end of next year, when the acquisition is completed, based on current forecasts Cooper will have increased Imperial’s earnings per share by 33% during her period at the company — not bad for a zero-growth industry.
Over the same period, Imperial’s dividend payout will have doubled, from 80p to around 160p per share. The company currently supports a dividend yield of 4% and since 2010 Imperial’s shares have returned 14.8% per annum including dividends.
Outpacing the market
Talktalk and WPP are two companies that have taken the market by storm during the past five years.
Talktalk’s management is one of the few management teams that provides long-term growth forecasts. Management is targeting a revenue compound annual growth rate of 5% from 2017 onwards while looking for an EBITDA margin of 25%.
According to historic figures and current estimates, between year-end 2010 and year-end 2017, Talktalk’s pre-tax profit will have increased by 390%. The company’s shares have returned 28.8% per annum for the past five years.
Similarly, WPP’s infamous founder and CEO, Sir Martin Sorrell has helped the company double earnings per share during the past five years. City analysts expect earnings to continue growing at a rate of 9% per annum for the next few years.
Over the past five years, WPP’s shares have returned 20.5% per annum including dividends. Over the same period, the FTSE 100 has only returned 10.5%. WPP currently trades at a forward P/E of 15.6.
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Rupert Hargreaves owns shares of Imperial Tobacco Group. The Motley Fool UK has recommended Booker. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.