Conditions are tough on the high street. But consumer spending is stable and predictions of gloom seem overbaked to me. Today I want to look at three companies involved in the retail and leisure markets.
Each firm offers a yield of at least 5%, so patient shareholders should be rewarded with a generous income.
The boss is back
Shares in fashion brand Superdry (LSE: SDRY) have fallen by about 75% since January 2018.
Are there problems at Superdry? Yes. Is the business going to fail? I don’t think so.
Founder Julian Dunkerton is back in the driving seat and determined to return this brand to growth.
In a trading update last week, Mr Dunkerton warned that profits would be lower than expected for the year ended 28 April. But since taking charge on 2 April, he’s already made a number of changes that are expected to boost sales and improve profits margins.
Flagship stores are being restocked with a greater choice of items. Discounts and sales are being scaled back. And the range of choices available on the website has been expanded. These changes are expected to generate more full-price sales, boosting profits and helping to rejuvenate the brand.
There’s still a lot to do. But with the shares trading on 9 times forecast profits and offering a 5.5% dividend yield, I think the shares rate as a value buy at current levels.
Keeping it in the family
Leeds-based property firm Town Centre Securities (LSE: TOWN) owns a mix of retail, leisure and office property. It’s also the owner of the CitiPark car park business, which owns multi-storey car parks in a number of major towns and cities.
Town Centre’s shares have fallen by about 25% over the last year, and now trade at 40% discount to their net asset value of 361p per share. To some extent, I think this caution is justified.
But although some retail tenants have gone into administration, others are looking for new shops. Management has already found new tenants for six of the eight units that became vacant last year, with higher average rents than before.
The founding Ziff family still controls about 60% of Town’s shares. They’ve supported and grown the business since its foundation in 1959. Town Centre Securities survived the financial crisis without needing refinancing and I don’t see any reason why this impressive track record can’t continue. With the shares trading at a 40% discount to book value and offering a yield of 5.5%, I think now could be a good time to buy.
A growth business
A key growth area for retail landlords is leisure businesses such as 10-pin bowling operator Ten Entertainment Group (LSE: TEG). This business has impressed me since its flotation in 2017.
Adjusted pre-tax profit rose by 4% to £13.5m last year, while the dividend climbed 10% to 11p per share. Analysts expect earnings to rise by 25% to 20.9p per share this year, thanks to a mix of new openings and refurbishments.
The business carries very little debt and reported an impressive 15% operating profit margin for 2018. However, the shares pulled back during the second half of last year, perhaps due to concerns that Brexit could hit consumer spending.
I suspect this risk may be overstated. Trading on 11 times 2019 forecast earnings and offering a dividend yield of 5.4%, I think Ten Entertainment could be a good long-term growth buy for UK-focused investors.
Our free guide “A Top Small-Cap Share” features investing analysis that we wouldn’t want you to miss out on! Backed by the Motley Fool Hidden Winners analyst team, we believe that this proven business has plenty of growth potential left under its bonnet – to find out its name and why we rate it so highly, click here to receive your complimentary report.
Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Superdry. 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.