Great British Family Firms
LONDON -- Family firms are hard to beat when it comes to longevity, reliability, and long-run shareholder returns.
The typical family firm tends to have deep, embedded knowledge about its industry, a long-term strategic horizon, and a strong balance sheet to help it weather the harsher phases of the economic cycle -- qualities that foster steady, sustainable growth decade after decade.
Here are three great British family firms for buy-and-hold investors to consider.
Associated British Foods (ISE: ABF.L) Associated British Foods was established by Willard Garfield Weston in 1935. Today, the company is 55%-owned by the Weston family, and George Weston, a grandson of the founder, is the chief executive.
ABF owns five businesses, the three largest of which -- grocery, retail, and sugar -- currently contribute 80% of group revenue and 92% of operating profit.
The grocery business is chock-full of strong brands, including Ovaltine, Twinings, Kingsmill, Ryvita, and Patak's. The retail business takes the shape of discount-clothing juggernaut Primark, and the sugar business has mills and factories in the U.K., Spain, China, and Southern Africa.
ABF's diversified and defensive nature is highly prized by investors, and the shares usually look on the expensive side. At the current price of 1,286 pence, the shares are trading at 14.8 times forecast earnings for the year to September, which is at the high end of the company's historical range and well above the FTSE 100 trailing P/E of 11.2.
I'm looking to invest in ABF myself at the right price. I'd be happy to pay a bit more than the Footsie average -- say, 12 times ABF's forecast EPS of 94 pence for next year, which equates to a share price of around 1,125 pence. Thus, for the time being, ABF remains on my watchlist.
Schroders (ISE: SDR.L) Schroders is a global asset-management company, managing money on behalf of institutional and retail investors, financial institutions. and high-net-worth clients.
The company has a history stretching back more than 200 years. Sitting on today's board of directors are Bruno Schroder -- a great-great-grandson of one of the firm's co-founders -- and his nephew, Philip Mallinckrodt.
Schroders has a dual-class share structure of voting and nonvoting shares that enables the family to retain control of the company. The voting shares are currently trading at 1,415 pence, and the nonvoting shares (ISE: SDRC.L) are at 1,127 pence -- a 20% discount.
Schroders' strong balance sheet has served it well through the last five years, which have been marked by turmoil for companies in the financial sector. There was no dividend cut from Schroders in the darkest days, and the dividend resumed its annual growth in 2010 when earnings and assets under management, or AUM, bounced back.
AUM reached 205 billion pounds at June 30, 2011, but dipped in the second half of the year to 187 billion pounds. However, growth has resumed in 2012, with AUM up to 195 billion pounds as of June 30. My rule of thumb is that fair value in an asset growth phase is 3% of AUM. In Schroders' case, that suggests a price of around 2,075 pence. Therefore, I see the shares -- particularly the nonvoting shares -- as very attractively priced.
Daily Mail & General Trust (ISE: DMGT.L) Daily Mail & General Trust is a media conglomerate whose history dates back to the launch of the company's eponymous newspaper in 1896 by brothers Alfred and Harold Harmsworth. The brothers were subsequently elevated to the peerage as the first Viscount Northcliffe and the first Viscount Rothermere, respectively.
The current chairman and controlling shareholder -- this is another family firm with a dual-class share structure -- is Jonathan Harmsworth, the fourth Viscount Rothermere.
I was very keen on DMGT when the shares were trading at 385 pence in June -- so much so that I detailed my investment thesis for you in an article and subsequently invested in the company.
Not much has happened since then, except that DMGT has released a third-quarter statement saying the outlook for the year is unchanged and the shares have soared 24% to 476 pence. Despite the rise, DMGT still trades at less than 10 times current-year forecast earnings.
ABF, Schroders, and DMGT are involved in very different industries. One among this trio is in one of three sectors that top Motley Fool analysts have identified as profit winners for 2012. Discover the industries they selected in this free new report, "Top Sectors for 2012." Simply click here to download the report while it's still free!
Are you looking to profit as a long-term investor? "10 Steps To Making A Million In The Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the guide today - it's free, but for a limited time only.
Further investment opportunities:
The article Great British Family Firms originally appeared on Fool.com.G A Chester owns shares in Schroders and Daily Mail & General Trust, but no other companies mentioned in this article. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.