Britain's Best Brands
LONDON -- These days, consumers seem to be fixated on brands more than ever before. Brands inspire loyalty, a willingness to pay a higher price, and are freely promoted across social media by cohorts of fans and ambassadors.
Investors have increasingly come to recognize brand power and its ability to drive a company's growth, margins, and profits.
The Interbrand group, which has been studying the value of brands for some years, recently released its 13th annual Best Global Brands report. I'm going to tell you about the leading brands in the U.K. retail section, then about the only two UK-listed companies that make it into the global top 100.
Tesco (ISE: TSCO.L)
Interbrand rates Tesco as the U.K.'s No. 1 retail brand. It's no surprise to me, and I don't suppose it is to you, to find the FTSE 100 supermarket giant at the top of Interbrand's list.
Love it or hate it, Tesco is a brand superpower. The company has a 31% share of the U.K. grocery market, streets ahead of second-place Asda, whose share is 17.5%. Moreover, one pound in every eight spent across the full gamut of U.K. retailers goes into Tesco's tills.
After a shock profit warning in January, Tesco's shares are currently trading at 308 pence -- just 9.4 times forecast earnings for the year ending February 2013, and with a dividend yield of 4.8%. Those are fairly compelling numbers for a best-in-class brand, although as I wrote in a recent article, the recovery from the profit warning could be longer and rougher than many investors are bargaining for.
Marks & Spencer (ISE: MKS.L)
I was quite surprised to see Marks & Spencer ranked at No. 2 by Interbrand. Then again, perhaps I shouldn't have been. This high-street icon is widely perceived to be something of a national treasure -- as British as Buckingham Palace, James Bond, or fish and chips.
Nevertheless, M&S' business performance has waxed and waned over the decades with periods when the company has failed to leverage the strength of its brand. The "Your M&S" campaigns of recent years seem to have reinvigorated the brand and the business is doing pretty well in the prevailing tough retail environment.
M&S' shares have lately been trading at a 52-week high of 391 pence -- which is 11.6 times forecast earnings for the year ending March 2013. The prospective dividend yield is 4.4%. So, the U.K.'s No. 2 retail brand is on a markedly higher earnings rating and slightly lower yield than the nation's No. 1 brand.
Next (ISE: NXT.L)
The third and fourth companies on Interbrand's list -- Boots and Asda -- are not public companies listed on the London stock exchange, which brings us to fifth-placed Next. The clothing retailer's ranking is quite an achievement, as the company is a relative newcomer to the high street, having opened its first women's clothing store in 1982.
Next performed robustly through the 2008-2009 recession, seeing only a modest dip in earnings before resuming an upward profit trajectory. Another healthy earnings increase is expected for the year ending January 2013.
The market currently rates Next more highly than both Tesco and M&S. The shares are trading at 3,617 pence, or 13.2 times this year's forecast earnings, while the yield is a modest 2.8%.
Shell (ISE: RDSB.L)
Moving from Interbrand's top U.K. retailers to its elite list of the 100 best global brands, Royal Dutch Shell is one of only two companies on the London stock exchange to make the grade.
U.S. giants Coca-Cola, Apple, and IBM lead the list, while Anglo-Dutch Shell ranks at number 75. Shell's share price is barely changed from a year ago as weaker oil and gas prices have offset the company's increased upstream volumes and improved refining margins.
At 2,218 pence, the shares are trading on a lowly 8.4 times forecast earnings for the year ending this December, falling to 7.9 for 2013. The prospective yield of 5% is well above the market average.
Burberry (ISE: BRBY.L)
Luxury fashion house Burberry ranks at number 82 within Interbrand's top 100. The icon of British style has been proving a big hit in Asia and with Asian visitors to Britain in recent times, helping drive double-digit earnings growth for the past three years.
Burberry's credentials as a high-growth company saw the market push its shares close to 1,600 pence earlier this year. However, in a trading update in September, Burberry said it expected profits for the year ending March 2013 to be at the lower end of market expectations, sending the shares down as low as 1,000 pence.
Following a more recent update, Burberry's shares have recovered to 1,164 pence, which equates to 17.5 times forecast earnings. The prospective dividend yield is well below the market average at just 2.4%. Investors who were greedy when others were fearful and bought into Burberry at around 1,000 pence will be patting themselves on the back today.
Pick of the brands
The advice to "be greedy when others are fearful" comes from U.S. investing legend Warren Buffett. The multi-billionaire has followed his own maxim by making a substantial investment in one of the five U.K. brands featured in this article.
You can read the full story of Buffet's big U.K. bet in a free and exclusive Motley Fool report: "The One U.K. Share Warren Buffett Loves."
Download the report and decide for yourself whether the Sage of Omaha has bought a blue chip aristocrat at a bargain price. The report is available for a limited time only, but you can have it dispatched to your inbox immediately simply by clicking here.
Are you looking to profit as a long-term investor? "10 Steps To Making A Million In The Market" is the Motley Fool's latest guide to help Britain invest. Better. We urge you to read the report today, while it's still free and available.
Further investment opportunities:
The article Britain's Best Brands originally appeared on Fool.com.G. A. Chester does not own any shares mentioned in this article. The Motley Fool owns shares of International Business Machines, Tesco, Apple, and Coca-Cola. The Fool has stock on Apple.Motley Fool newsletter serviceshave recommended buying shares of Coca-Cola and Apple.Motley Fool newsletter serviceshave recommended creating a synthetic long position in International Business Machines.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple. 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.