Today I’m looking at two companies that could fit this description.

New strategy is delivering results

EI Group (LSE: EIG) was formerly known as Enterprise Inns. It’s a mix of pub chain and commercial property company. The EI share price is up 4% at 131p at the time of writing, after the company issued a solid set of half-year results.

The group has three divisions — leased and tenanted pubs, managed pubs, and commercial property. Each delivered a positive performance during the first half.

The benefits of its shift from tenanted pubs towards managed ones were highlighted by decent sales figures. Whereas like-for-like (LFL) sales only rose by 0.6% at tenanted locations, managed pubs saw a 6.6% increase in LFL sales over the same period. The number of managed sites has doubled to 276 over the last year.

These shares could double

The group’s underlying pre-tax profit was unchanged at £57m during the first half, but net asset value rose from 313p to 326p per share, thanks to a reduction in net debt. This means that at a price of 130p, the shares trade at a discount of 60% to their net asset value.

For a profitable business this seems too low to me. The problem is that EI isn’t really generating much in the way of growth. There’s no dividend at the moment and shareholders face a real risk that the company will remain a slave to its net debt of £2.09bn.

Personally, I’m becoming more optimistic about pub stocks. Trading in 6.3 times forward earnings and at a 60% discount to book value, I think EI could double in value over the next five years or so.

A safer alternative?

EI’s high debt load and lack of growth means that it’s not without risk. My next company also operates in the hospitality sector, but has very little debt and a strong record of profit growth.

FTSE 100 firm Whitbread (LSE: WTB) owns the Premier Inn and Costa Coffee chains. The group’s sales have risen by an average of 10% per year since 2013, while operating profit has increased by an average of 8.4% per year over the same period.

This firm’s profitability is also much stronger. Whitbread’s return on capital employed (ROCE) was 14.5% last year, compared to just 6.1% at EI Group. ROCE is a useful measure of profitability as it compares operating profit with the money invested in a business.

Companies with a high ROCE are generally able to fund expansion without too much debt. They also tend to generate a reliable supply of free cash flow for shareholder dividends.

Still good value?

Whitbread’s share price jumped higher recently after the group announced plans to spin out the Costa Coffee business into a separate concern. It’s expected to attract a higher valuation alone than as part of a group.

However at £42, the share price is broadly unchanged from one year ago, despite continued growth. Trading on 15.8 times forecast earnings, I think there’s room for further gains.

I believe Whitbread shares should hit £50 at some point, giving potential upside of about 20%. I’d be happy to buy at current levels.

The post This FTSE 100 growth stock is one investment I’d buy and hold until retirement appeared first on The Motley Fool UK.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

For the fiscal year ended September 30, the heavily indebted pub group reported a pre-tax profit of £75m, up from a pre-tax loss of £71m the year before. Revenue rose to £623m from £625m last year. Exceptional charges decreased to £47m from £193m.

By division, like-for-like net income in the tenanted and leased business grew by 2.1%, while net income for the group’s commercial property portfolio grew 3.8%.

Strong cash generation helped the group further reduce its debt burden during the period. At the end of September group net debt was £2.2bn, down from £2.3bn in the year-ago period. Net cash flows from operating activities increased to £269m while net proceeds from property disposals were £98m.

Debt problems 

Enterprise Inns has had some problems with its debt pile in the past, but it now looks to be getting these issues under control. At the end of the financial year, the company reported a net asset value of £1.4bn with £3.6bn of property assets offset by net debt of £2.2bn. The company’s net asset value at the end of the period was 296p per share. Based on the group’s adjusted earnings per share figure of 19.6p for the fiscal year ending 30 September 2016, the shares are trading at a historic P/E of 5.2 and P/B of 0.34.

However, despite Enterprise’s attractive valuation, the company looks like a poor investment compared to peer Marston’s (LSE: MARS).

While Enterprise has been struggling to survive over the past few years, Marston’s has gone from strength to strength. From a pre-tax loss of £136m in 2012, City analysts expect the group to report pre-tax profit of £99m for the year ended 30 September. At the beginning of September management issued a trading update stating that it’s on track to hit these targets with like-for-like sales of 2.3% across the group year-on-year. Own brand beer volumes grew 13% over the same period.

What’s more, shares in Marston’s trade at a relatively attractive valuation, support an above average dividend yield and the company isn’t drowning in debt. 

Shares in Marston’s currently trade at a forward P/E of 9.8 and support a dividend yield of 5.2%. At the end of the first half of the company’s financial year, net debt stood at £1.3bn, offset by property of £2.2bn.

Foolish summary 

So overall, looking at these figures Marston’s appears to be by far the better investment. That being said, Enterprise is heading in the right direction. Debt is falling, and management is taking steps to monetise its freehold portfolio. As management continues to restructure the company, the group’s discount to net asset value should close, which presents an attractive opportunity for value investors. 

If you’re willing to take the risk, the company could be a profitable long-term investment, but with so much debt overhanging the group, this is a precarious prospect indeed.

The post After results, is Enterprise Inns plc a better buy than Marston’s plc? appeared first on The Motley Fool UK.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

That’s easy to say, but often not so easy to do. But can these two cheap pub shares really be good enough?

Back in the black

Shares in Punch Taverns (LSE: PUB) have had a hard time — they’re down 15% over the past 12 months, and down 65% since a peak in January 2014. But the latter part of 2016 is looking kinder for Punch investors, as the firm’s big restructuring and asset disposal looks to be paying off — and after a false start over April and May which quickly collapsed, the shares have put in a 30% recovery since late July.

The release of full-year figures today gave the price a 3.8% boost to 116.5p, as the company revealed that it is finally back in the black — against a pre-tax loss of £105m last year, Punch recorded a profit of £60m in the year ended in August. And that comes despite the new Pubs Code regulations apparently proving a bit of a pain and forcing the firm to revisit its pub lets.

The thing that will probably please investors most is the reduction in debt, which has been the driving force behind Punch’s recovery plan. Over the year, nominal net debt was cut by £233m — a drop of 16%. And the company’s property estate has been externally valued at £2,030m, which exceeds nominal net debt by £848m.

Forecasts now put Punch Taverns shares on a prospective P/E multiple of just five for the year to August 2017, with a return to EPS growth on the cards — City analysts have a 23% hike penciled in. A lot of that apparent undervaluation will be covered by the firm’s debt, but its property asset value suggests that’s not such a big problem now. And I think the shares look good value.

There’s no dividend on the cards yet, and I wouldn’t want there to be one — I want to see cash used to chip away at debt. But overall, I can see 2016 being a turnaround year.

Fellow struggler

Enterprise Inns (LSE: ETI) shares a lot of similarities with Punch Taverns.

For one thing, its shares are also on a very low P/E, of just five based on expectations for the year ended in September — results are due on 15 November. And Enterprise Inns is also working to reduce a sizeable debt pile. At its interim stage on 31 March, the company had net debt of £2.3bn on its books, although that was balanced by property of £3.7bn (based on a September 2015 valuation, not expected to be materially changed, and will be revalued by full-year results time).

August’s trading update revealed a 1.9% rise in like-for-like net income from its leased and tenanted business for the 44 weeks to 30 July, and the firm is increasing its number of managed houses — there should be more than 100 in operation at September’s year-end.

Earnings had been falling, but 2015 saw a halt to the slide and expectations for this year and next suggest a flattening off. And, again, there’s no dividend. But at this stage in the firm’s progress, with debt needing to be reduce further, and in the current economic climate, I’d be satisfied with that — and again I think we could be looking at a good long-term bet.

The post These two pub stocks look temptingly cheap appeared first on The Motley Fool UK.

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• Up 11% today, could the Magnum Ice Cream share price be an overlooked bargain?
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Toast brilliant returns

Shares in Enterprise Inns (LSE: ETI) have exploded 8% in Tuesday trade following the release of bubbly trading numbers.

The pub operator advised that like-for-like sales advanced 1.5% in the leased and tenanted estate division during the six months to March 19th. As a consequence, Enterprise Inns said that it remains on track to meet its expectations for the full year.

And following today’s solid results, Enterprise Inns announced plans to embark on a £25m share buyback programme.

The City expects Enterprise Inns to flip from a 1% earnings dip in the year to September 2016 with a 2% advance in the following period. These figures create mega-low P/E ratios of 4.3 times and 4.2 times correspondingly, very decent value in my opinion given the solid momentum of the firm’s growth strategy.

A capital selection

Investor appetite for SVG Capital (LSE: SVI) also bumped higher in today’s session, the business last dealing 3% higher from Monday’s close.

SVG Capital advised that net asset values surged by double-digit percentages for the sixth year on the spin in the year to January 2016. Net asset values improved 11% from the previous year, the company advised, compared with a 5% slide in the FTSE 350.

Looking ahead, however, chief executive Lynn Fordham advised that “the year ahead is likely to present a number of macroeconomic, geopolitical and financial market challenges and we expect volatility to continue.”

The number crunchers expect these problems to push earnings 41% lower in the current period, resulting in a P/E rating of 16.1 times. But a predicted 74% earnings advance in 2018 drives the multiple to just 9.3 times.

Given that SVG Capital has already proved it has what it takes to succeed despite heavy macroeconomic turbulence, I reckon the business could once again surprise to the upside this year and beyond. The investment specialists could prove a canny purchase for stock pickers with the right appetite for risk, in my opinion.

Mammoth risks at current prices

Precious metals play Fresnillo (LSE: FRES) has also leapt in Tuesday business on the back of rising gold and silver values, the business last dealing 3% higher on the day.

Fresnillo has seen earnings dip for four years on the bounce as metal prices have eroded. But earnings are expected to surge 237% and 120% in 2016 and 2017 respectively, according to the City, the result of recent commodity price improvements and vast cost-cutting at the firm.

However, these estimates still leave Fresnillo dealing on massive P/E multiples of 58.9 times and 29.3 times respectively.

I believe that these figures fail to reflect the huge risks facing the business in the near-term and beyond. Silver demand continues to steadily decline, while the prospect of a resurgent US dollar also casts doubt on the strength of precious metal price advances. I believe the risks at Fresnillo continue to outweigh the potential rewards.

The post Is NOW The Time To Buy Fresnillo Plc, Enterprise Inns plc & SVG Capital plc? appeared first on The Motley Fool UK.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

A safety superstar

Health and safety specialists Halma (LSE: HLMA) could not avoid the wider malaise whacking stock markets despite releasing a robust trading update in Thursday — the share was recently 3% lower from Wednesday’s close.

Halma advised that full-year adjusted pre-tax profit is on course to match market expectations of between £161.6m and £171.5m. The Amersham-based business noted that “the group continues to benefit from the diversity of its markets and resilient growth drivers,” adding that “order intake has remained ahead of revenue.”

And Halma remains busy on the M&A front, in an attempt to mitigate current troubles in the global economy and keep earnings rising — recent acquisitions include fire suppression specialists Firetrace USA and healthcare facilities play CenTrak.

The City expects Halma to enjoy earnings advances of 8% in the years ending March 2016 and 2017. Although subsequent P/E ratings of 25.2 times and 23.5 times may appear a tad heady, I believe the firm’s expanding presence in defensive sectors justifies a slight premium.

A bargain booze pick

Pub operator Enterprise Inns (LSE: ETI) was able to defy broader risk aversion and punch a 3% rise in Thursday business, following its own positive market update.

Enterprise Inns advised that it had made a “strong” start to the current financial year, with like-for-like revenues from its leased and tenanted divisions rising 1.6% during the 19 weeks to 6 February.

On top of this, Enterprise Inns noted that its expansion strategy continues to progress as planned — the business aims to have 100 managed houses and 300 commercial properties up and running by the end of September.

All is not rosy in the garden, however, and Enterprise Inns still has to battle a number of issues to post strong long-term growth, from the imminent introduction of the National Living Wage to servicing its relatively-high debt levels.

The City expects Enterprise Inns to enjoy a marginal earnings advance in the period to September 2016, although this results in a mega-cheap P/E rating of 5.6 times. So while earnings are not expected to explode in the near future, the pub giant could be considered a canny long-term purchase for value hunters.

Insurer heading higher

Insurance leviathan Aviva (LSE: AV) has seen its share price fall off a cliff since the start of February, and a further 3% decline in Thursday’s session has brought losses to 16% in the month to date alone. Still, I believe this represents a fresh buying opportunity for savvy bargain hunters.

Of course investors should be wary of the impact of economic cooling on near-term revenues, but I reckon Aviva’s broad geographical presence should still deliver solid long-term returns — indeed, new business values across its life insurance arm surged 25% between July and October, to £823m.

This represented the eleventh successive quarter of growth, proving that Aviva has its finger on the pulse when it comes to meeting its customer’s needs. And stock selectors should also be encouraged as the firm’s Aviva Investors turnaround strategy steps up the pace, not to mention the firm’s rolling drive to bolster its digital operations.

Aviva is expected to punch an 11% earnings advance in 2016, resulting in a dirt-cheap P/E ratio of just 10.1 times. I reckon this is a steal given the insurer’s terrific long-term profits outlook.

The post Are Earnings Set To Soar At Aviva plc, Halma plc & Enterprise Inns plc? appeared first on The Motley Fool UK.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Enterprise Inns

Pub chain Enterprise Inns (LSE: ETI) came close to going bust during the financial crisis, thanks to net debt which peaked at well over £3bn. Enterprise’s net debt is now down to £2.3bn and the firm’s shares trade on a forecast P/E of just 5.4. Is there hidden value here?

Possibly.

The group’s property assets are valued at £3.7bn. Yet the total value of Enterprise’s equity and its net debt it just £2.8bn. In theory, this means that a trade buyer could buy the entire Enterprise business for 24% less than the value of its property assets.

However, while net debt is falling, so is the value of Enterprise’s property portfolio. For Enterprise shares to deliver on their hidden value potential, net debt needs to fall faster than the value of the group’s property portfolio.

In other words, Enterprise’s loan-to-value ratio needs to improve. So far, it’s fallen from 66% in 2010 to 62.7% in 2015. It’s a promising start, but progress may be slow.

Tesco

Another firm with a big property portfolio and a large pile of debt is Tesco (LSE: TSCO).

The recent sale of Tesco’s Korean business means that Tesco’s net debt and the value of its property portfolio have fallen since the firm’s half-year results.

My calculations suggest that Tesco’s net fixed assets, which include property along with other long-term assets such as investments, may now be worth about £21bn. I estimate that the firm’s net debt may now be around £7bn.

As with Enterprise, we can look for hidden value by comparing the value of Tesco’s fixed assets with its enterprise value (market cap plus net debt). I estimate that Tesco’s enterprise value is currently about £21bn, equivalent to the value of its net fixed assets.

This means that unlike with Enterprise, there is no obvious hidden value in Tesco’s portfolio of property and investments.

With a 2016/17 forecast P/E of 19, Tesco stock doesn’t look cheap against forecast earnings, either. However, I don’t see any obvious reasons for the shares to fall further, so now could be a good time to start thinking about a recovery buy.

Nanoco Group

Nanotechnology small-cap Nanoco Group (LSE: NANO) is not an obvious value buy. The firm makes quantum dots and nanoparticles for use in technology such as LED displays and solar panels, but has yet to make a profit.

However, Nanoco has net cash of £24m and moved from AIM to the LSE Main Market earlier this year. The group also has some high-powered institutional investors, including Henderson Global Investors (17%) and Baillie Gifford (14%).

After years of waiting, there is now a big potential catalyst for share price growth. Commercial production of Nanoco technology by the group’s licensing partner, Dow Chemicals, is expected to start during the first half of 2016

Analysts’ forecasts suggest Nanoco could report earnings per share of 3.08p in 2016/17. That puts the shares on a forecast P/E of 16 — not expensive for a high-tech growth business.

Nanoco shares are down by 65% so far this year. Although this remains very speculative, now could be a smart time to buy.

The post Is There Hidden Value In Tesco PLC, Nanoco Group PLC & Enterprise Inns plc? appeared first on The Motley Fool UK.

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Roland Head owns shares of Tesco. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Furthermore, trading in the first 44 weeks of the year has been positive, with like-for-like net income growth being 0.6%. Despite Enterprise Inns receiving a boost from improving consumer confidence and decent weather, such a figure is nevertheless impressive as last year’s figure included the positive impact of the football World Cup.

However, for the full year Enterprise is still expected to deliver a 1% fall in earnings, with growth of just 2% being pencilled in for next year. This is clearly disappointing and, with the UK economy going from strength to strength, is somewhat surprising.

More worrying for investors, though, is the high amount of debt on the company’s balance sheet, with Enterprise Inns having a debt to equity ratio of 180%. With interest rate rises expected next year, investor sentiment could begin to weaken as increases in interest costs may not be able to be fully passed through to customers, resulting in margin reduction for Enterprise Inns.

Furthermore, Enterprise Inns remains relatively unprofitable, with the company’s return on equity standing at just 2.1% last year. This compares extremely unfavourably with former pub operator Whitbread (LSE: WTB), which now focuses on hotels (via Premier Inn) and coffee shops (via Costa). Its return on equity stood at 18.5% in its latest financial year and, with a debt to equity ratio of just 30%, it is less leveraged as well as being more profitable than Enterprise Inns.

Looking ahead, Whitbread is expected to grow its earnings by 14% in each of the next two years and, with it trading on a price to earnings growth (PEG) ratio of 1.4, appears to offer excellent value for money. Furthermore, its Premier Inn hotel chain, in particular, has significant scope for price rises, since it continues to offer enviable locations as well as a superior standard of service to its budget rivals. As a consequence, Whitbread’s sales and profits look set to keep moving upwards.

Like Enterprise Inns, Standard Chartered (LSE: STAN) is also experiencing a period of change as it seeks to restructure its business. While this will inevitably mean some short term pain, for example dividends were slashed by 50% this week, it remains a hugely appealing investment opportunity.

Not only does Standard Chartered have exposure to a region that is undergoing a banking revolution at the present time, it also has a slimmed down management team and the scope to benefit from improved investor sentiment as its turnaround plan begins to be put in place. Of course, its forecasts remain very encouraging, with 15% growth in earnings expected after what is set to be a tough 2015. And, with Standard Chartered having a PEG ratio of just 0.6, it offers tremendous value for money and, alongside Whitbread, appears to be a better buy than Enterprise Inns.

The post Why I’d Sell Enterprise Inns plc And Buy Whitbread plc And Standard Chartered PLC appeared first on The Motley Fool UK.

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Peter Stephens owns shares of Standard Chartered. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.