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Murgitroyd Group (MUR)
Nine AIM shares to buy and keep forever
By Lee Wild | Fri, 29th May 2015 - 14:53
A common theme linked to corporate success and longevity is a conservative approach to running a business. And it's possible to measure this low-risk approach in a number of ways.
With this in mind, we've screened the market for those companies with the attributes we think clearly define them as conservative - preferably cash rich, large family/director shareholdings, and consistent growth in revenue, profit and dividends.
Keeping the books in good shape is crucial, which means avoiding running up huge debts and hefty finance costs. That involves keeping a tight grip on cash and not overpaying for acquisitions.
Conservative companies have, typically, although not exclusively, been in business for decades or more. Often, with a few exceptions, they've been run by the same family, too, in "old" industries like pottery, palm oil, flooring, wood and beverages. That consistency of ownership ensures the traditional values of the company remain upheld, earning a reputation for stability. And, under an experienced management team, the likelihood of continuous growth in sales and profits over a number of years is greater.
It also means, of course, that families or directors who own a sizeable stake in the firm, have ample incentive to run the business sensibly - not risking it all on botched acquisitions, or being gung-ho with cash - and certainly not do anything to put the dividend, from which they directly benefit, at risk.
Conservatively-run companies may not pay the highest dividends, but they’re still pretty generous. Cash flow relative to earnings tends to be on the high side, and payouts are well-covered by profits. A strong cash position also means plenty of funds for regular and consistent dividends, even during lean times, so they very rarely cut payments.
Lastly, colleague Richard Beddard, Interactive Investor's own Share Sleuth, suggests looking at under-researched companies. "Look for low institutional interest either in terms of analysts following the company or institutions invested in it, as the pressures to meet expectations introduce instability," says Beddard. That generally means these companies are less inclined to take unnecessary risks.
If longevity is any indicator of a conservative company, Stoke-on-Trent potter Churchill China (CHH) is near the top of the list. It's been around since 1795, and the Roper family has run the business for the past 93 years, changing the name to Churchill in 1984. They still own over 25% of the tableware manufacturer.
After more than 40 years' service, and seven as CEO, Andrew Roper handed over the reins in August last year. He's still a non-executive director, but David O'Connor now pulls the strings. Even he has been with Churchill since 1991 and has sat on the board for the past 16 years. Finance director David Taylor has been there almost as long.
Shareholders will have received dividends in almost every year since the company listed in 1994 and the payout has not been cut for at least 15 years. It grew by 10% at the recent full-year results, which impressed the City. Profit beat expectations, too, and a mix of strong brand, overseas prospects, cash pile, and earnings momentum, underpin the investment case.
Dillistone (DSG) supplies recruitment software to over 2,000 clients, including a lot of household names, in more than 60 countries. It was set up in 1983 and floated in 2006, since when it has made a profit and paid a dividend every year.
“We are conservative. We do not take risks," chief executive Jason Star told me recently in reference to Dillistone's acquisition strategy. The firm has made three acquisitions in the past four years, getting targets for a good price, with a chunk of the consideration dependent on results. More acquisitions are likely given this is a highly fragmented industry, but bosses will never overpay. Management even stopped installing new systems for a time late last year to make sure the launch of its new FileFinder product went smoothly. That's conservative.
Dillistone, which had its best month of order intake for two years in December, and has seen orders improve again in the first quarter of 2015, is still largely owned by a small group of core shareholders. Star has an 18% stake and operations director Rory Howard 17%. Highly-respected businessman, physicist and investor Mike Love has also built a 4% interest over the past six years.
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James Halstead (JHD) is 100 years old this year. It started out dyeing, finishing and then waterproofing and rubberising textiles for rainwear and outdoor clothes. In 1934, the company moved into flooring, and three years after the war became a public company.
Four generations of the Halstead family have run the manufacturer and supplier of synthetic flooring - Mark took over in 2002 from Geoffrey who remains as executive chairman - and they still own about one-third of the company. They've grown sales and profits steadily for decades, and impressive cash generation means they've regularly paid special dividends and grown the regular dividend for at least the past 19 years.
According to the company website, the first James Latham (LTHM) began importing hardwoods into Liverpool in 1757. Now, 258 years later, the Latham's still have a firm grip on the supplier of wood for floors, panels and doors - chairman Peter has worked at the firm for 41 years, and Nick, Piers and Pippa are on the board. All told, the family still own 18% of the company.
In terms of growth, there have been few blips. Management clearly understands the business and sales have grown steadily. The dividend has grown by an average of 13% annually for the past five years, too. And even after all these years, Latham retains the ability to surprise. It said last month that revenue for the year ended 31 March 2015 will beat forecasts.
M.P. Evans (MPE) owns oil-palm plantations in Indonesia, beef-cattle interests in Australia and property development in Malaysia. It's been at it since the 1870s when Matthew Pennefather Evans set up as a tea, and later rubber, broker. The company exited Sri Lankan tea amid a shift into oil palm in Malaysia in the 1960s, which it then left for Indonesia a decade ago.
Executive chairman and former commodity broker Peter E Hadsley-Chaplin joined Evans in 1988 and has run things from the firm's Tunbridge Wells HQ since 2010. MD Philip Fletcher joined in 1982, and Richard Robinow has been non-executive director since 1999.
Profit grew by 62% last year, and despite a drop in palm-oil prices in late 2014, the company is still making healthy profit margins. Revenue is tipped to double and cash profits almost triple over the next five years. The valuation of the business "appears anomalous", says broker finnCap, slapping a 615p price target on the shares.
Murgitroyd (MUR) is one of the largest patent and trade mark attorneys in Europe. Ian Murgitroyd started his own practice back in 1975 and still heads up the business as executive chairman, supported by deputy chairman, son Edward. Ian owns 27% of the business and Edward 4.3%.
Most of its business is done in the UK, but revenue in the US grew by over a fifth in the six months ended 30 November to £7.5 million. Strong cash flow turned a small net debt position in May to net cash, too. That will allow the board to adopt "a more aggressive dividend policy" - the half-year payout grew again, up 13% this time.
Nichols (NICL) is most famous for making the Vimto soft drink. It's been doing it since 1908 and now produces other fizzy drinks like Panda, Sunkist and a new range from entrepreneur Levi Roots. Vimto is massive in the Middle East, a favourite of Muslims during Ramadan.
Run by the grandson of founder John Noel Nichols, the company has thrived. Last year, it increased pre-tax profit by 14% to £25.7 million on revenue up 3.5% at £109 million. The share price is up six-fold since 2009 and has risen by nearly a third in 2015 to a record high.
Management has paid a dividend for at least the past two decades, and increased the payout for the last 10 years. That's good news for shareholders, including the Nichols family who currently own 9% of the business.
Portmeirion (PMP) was set up in the 1960s, but the Stoke-on-Trent ceramics giant expanded during the last recession when it bought historic brands Spode and Royal Worcester, both founded in the 1700s. It has survived by sourcing from the Far East and modernising the business, a process overseen since 2001 by chief executive Lawrence Bryan and finance chief Brett Phillips, a 27-year company veteran.
Portmeirion has reported record revenue for the past six years, and in 2014 made more money than ever before. Dividends have been paid for decades and grew again last year, too, up 10%. They've never cut or withheld the payout since listing on the London Stock Exchange in 1988, and the dividend has risen by an average of 10.3% per annum over the past six years.
Euan Cooper-Willis, husband of Portmeirion founder Susan Williams-Ellis, still owns over 6% of the company. Kami Farhadi, who joined as a director in 1980 and ran the business between 1998 and 2001, owns 5.2% and his ex-wife Shahrzad 5.9%. They'll hope that the popularity of traditional English brands in India and China continues to grow.
If experience is any indicator of future success, FW Thorpe (TFW) has it in spades. In fact, it's one of the most experienced boards in the City, certainly in terms of longevity. Joint chief executive Andrew Thorpe, grandson of founder Frederick William Thorpe, served his apprenticeship at the lighting manufacturer. Mike Allcock, the other joint CEO, did, too. Non-exec Colin Brangwin joined in 1963 and Ian Thorpe was running parts of the business in the late-70s.
Share Sleuth Richard Beddard has been a fan for years. Despite its conservatism, the "old-fashioned" company has managed the transition to LED technology well, he says. "FW Thorpe is a stalwart, a company that owes its prosperity to consistent management operating a financially prudent firm with a good reputation for producing reliable lighting systems.".
Half-year pre-tax profit grew by 7% on revenue up by a tenth. There's a 5% increase in the dividend, too, which will clearly benefit shareholders, including the Thorpe family - Andrew currently owns nearly 24% of the company, Ian 21.6%, and EG Thorpe 5.7%.
Other conservative businesses worth watching…
Among those that nearly made the list is Scapa (SCPA). Turnaround specialist Heejae Chae took over in 2009 and the tape and adhesives supplier hasn't looked back. A classic "under-promise, over-deliver" approach has seen multiple profit upgrades and a surge in the share price from about 16p to 188p.
Andrew Sykes (ASY) looks a suitable candidate, too. The specialist hire company provides pumping, heating and cooling solutions - Sykes Pumps has been around for more than 150 years. However, a company called EOI SYKES Sarl owns 86% of the business, which means it could delist the group at the drop of a hat. Shareholders would be left with whatever they were offered, which is probably why the shares trade at a discount to what they're actually worth.
Sprue Aegis (SPRP) regularly breaks records for sales, profits and dividends, but the alarms and safety products firm has only been quoted for a year. We need more of a track record to include Sprue in this exclusive group.
Finally, Solid State (SOLI) is a company that's impressed me for years. It's an electronics distributor and supplier of so-called rugged computers and high-tech antennae. Sensible acquisitions and a careful approach have consistently delivered improved results, and demand for the shares is high. Yet, despite regularly selling to institutional investors, founder Gorden Comben still owns 19.8% of the business, and William Marsh, who joined a few years later, has 13.8%. Son Gary has 5.3%.
*Data supplied by SharePad
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
|M P EVANS GROUP||740.24p||-2.60%|
|THORPE (F W)||312.16p||0.37%|
|ANDREWS SYKES GROUP||516.00p||-2.18%|
|COCA COLA HBC AG||2,618.00p||-0.34%|
|All data 15min delayed as of: 13:54:54 23/05/18|