Everybody has to eat 

Despite increasing earnings by more than 60% over just the past five years, shares of Greencore are trading at a relatively sedate 13.5 times forward earnings. This low valuation comes despite continued record-breaking profitability from its UK operations and a large acquisition in the US that has given it profitable size and scale on both sides of the Atlantic. 

This acquisition is the reason shares are trading so cheaply as its largest customer, US food giant Tyson, recently bought a competitor, stoking fears that it will drop its contract with Greencore in favour of the new in-house option. However, I believe fears about this are overblown as the two have co-invested in a factory and breaking this long-term contract would be both costly and incredibly disruptive; it’s highly unlikely Tyson could take over manufacturing without a very quick and very costly expansion of its production facilities.

Leaving aside the Tyson contract fears, Greencore is also performing incredibly well. In Q3, group revenue clocked in at £636.5m, 11.8% ahead of the year prior on a pro forma basis. This came from growth in both divisions with the UK business trading 15.3% ahead year-on-year (y/y) while US sales were up 6.6% y/y due to expanded contracts with existing customers and finding new customers.

Looking ahead, there’s good reason to expect this growth to keep up as the food-to-go market in the UK is still expanding and Greencore’s new acquisition Stateside will, for the first time, allow it to sell directly into grocery stores. All told, with a good balance sheet and a strong record of sales and margin improvement, I think Greencore’s shares are very attractively priced today.

Patience pays off 

I’ve also got my eye on Mountview, a family-run company that buys up buildings with rent-controlled flats, waits until their tenants leave (a process that can take many years), and then sells them on at market rates. This is by necessity a long-term business and earnings can be choppy as buildings go up for sale on a irregular basis. But the company has a great record of success and I reckon its shares are attractively priced at just 12 times trailing earnings.

In fiscal year 2017, the company’s revenue shrunk 2% y/y and pre-tax profits fell 7% y/y. But these challenges mainly reflect downward property valuations due to Brexit and a strong comparative period the year prior due to a rush to buy property before stamp duty increases went into effect. Wisely, management kept dividends level at 300p per share although these payouts were still very safely covered by earnings per share of 929.1p.

The fact that management was able to keep earnings and dividends remarkably high even in a challenging year shows just how well run the business is. With a constantly replenishing group of assets, a very healthy balance sheet with just 8.5% gearing, and a management team with plenty of skin in the game, I reckon Mountview is a great stock to own for the long term.

However, if I had to pick two property stocks to buy and hold forever, they wouldn’t be familiar FTSE 100 names. Indeed, you may never have heard of my two picks. This is not because they’re tiny little companies — one has a market cap of over £1bn and the other is £480m — but more because they issue only absolutely essential RNSs and eschew paying brokers to publish ‘research notes’ and other PR puffery.

Instead, these two companies, which are family-controlled, go quietly about their task of increasing the value of shareholders’ equity, paying dividends and managing the businesses through economic cycles. They’ve been doing it successfully for decades. In fact, I’d say their pedigrees are such that they can be more rightly described as ‘blue-chip’ than some FTSE 100 firms.

Big discount

Daejan (LSE: DJAN) shares are up over 3% at around £64 after the company released its annual results today. These showed its total portfolio of commercial, industrial and residential properties valued at £2.26bn, up from £2.01bn last year. Its UK portfolio accounted for £1.66bn of the valuation and its US eastern seaboard portfolio accounted for £0.6bn.

Meanwhile, equity shareholders’ funds at the year-end stood at £101.61 a share, so the shares are currently trading at a 37% discount. This gives a wide margin of safety for investors looking to buy a slice of this business for the long term.

The company announced a 5.4% increase in the full-year dividend to 98p a share, supported by net cash from operating activities (rental income, less costs, interest and tax) of 116.5p. The current yield isn’t high at 1.5% but with the company conservatively-run to avoid boom-and-bust (the dividend was maintained through the financial crisis), investors could be enjoying a very nice income in 10, 20, 30 years’ time.

Hidden value

Long-term thinking is also the name of the game with Mountview Estates (LSE: MTVW), which reported its annual results last month.

The company buys residential properties with regulated and life tenancies at a discount to notional vacant-possession value and sells them years, or decades, later when they become vacant. Thus, it profits from both the long-term rise in the value of the property and the vacant-possession premium.

Mountview reported equity shareholders’ funds at its latest year-end of £86.25 a share. With the shares currently trading at £118 they appear expensive at first sight. However, there is hidden value in the property. This is because its residential properties are held on the books “at the lower of cost and estimated net realisable value.”

One analysis of the true value of the properties would imply equity shareholders’ funds of over £200 a share, putting the shares at a 41% discount.

On the dividend front, Mountview announced an unchanged payout of 300p a share for its latest year, supported by net cash from operating activities of 575p. The lack of an increase in the dividend is somewhat disappointing, but it does follow increases of 9% last year and 37.5% the year before. Also, the running yield of 2.5% is a decent starting point for a long-term investor.

Actually, it’s better than that, as the fund manager’s progressive dividend has reached 15p, for a yield of 3.2% on the current price. Liontrust is a great example of the power of a progressive dividend. Had you bought the shares in 2012 you’d have had no dividend at all that year, but you’d have effectively locked in a 2017 yield of 17% on the 86p price you’d have paid at the time — and forecasts suggest further inflation-busting rises to come.

Great track record

The company revealed a 15% rise in revenue to £51m, with adjusted pre-tax profit up 18% to £17.2m. Assets under management are soaring — up 36% over the year to £6.5bn, and the acquisition of Alliance Trust Investments Limited on 1 April added a further £2.5bn to that. Actual net inflows over the year amounted to £482m, up from £255m the year before, making it seven years of net inflows in a row.

Looking forward, analysts are predicting a further 21% rise in EPS for the coming year, putting the shares on a forward P/E of around 12.5 and a PEG as low as 0.6. With further progress forecast for the year after, including a dividend rising to a yield of 4.4%, Liontrust still looks good value to me even after its past five years of storming share price performance.

Property reselling

Mountview Estates (LSE: MTVW) is an interesting take on the property market because of its business model. It buys tenanted residential property when it can get it for a big discount and sells it on when it becomes vacant — and that’s something I’d expect to be less sensitive to the short-term direction of property prices.

The shares have trebled in value over the past five years, even though they’ve pretty much flatlined since early 2015. And they’re up today, by 2% to £114.99 apiece, after full-year results came in better than I at least had expected.

Interim figures had shown pre-tax profit dropping by 16% and earnings per share by 15.8%, though to some extent that was due to changes in stamp duty legislation which seriously affected the timing of the firm’s transactions.  

And the full year has seen pre-tax profit fall by a relatively mild 7% (and by just 1.9% once investment property revaluation is excluded). Earnings per share fell by 6.4%, with net assets per share up by 7.9%, and the dividend was maintained at 300p per share for a 2.6% yield.

Long-term safety

A couple of factors seriously attract me to this company. I actually like the fact that it can take a very long time for a rental property to become vacant, even though that might seem frustrating, because it reinforces the long-term focus of the business and means there’s little scope for short-term chopping and changing.

That’s supported by the company’s ownership and management too. It’s currently run by a son of a co-founder (with the company stretching back to 1937), and the family retain around half the shares. So there’s really no conflict of interest between owners and managers, seeing as they’re mostly the same folks.

On a P/E of around 12, this looks like a great retirement investment to me.

Arbitrage at its best 

The first one on my list is Mountview Estates (LSE: MTVW). Its founder no longer runs this £400m market cap company but this is entirely forgivable as it was established all the way back in 1937. Furthermore, the company is now run by the co-founder’s son and he and the wider family own around half of all outstanding shares, giving them plenty of skin in the game.

Befitting a family-run company with a long history, its business model is buying at a steep discount buildings with flats that have regulated rents below market value and then waiting, sometimes decades, for these flats to become unoccupied and selling them on at market value.

While no new regulated tenancy properties have been created since 1988, the company still has a very large and constantly evolving portfolio of just under 4,000 properties as of the end of fiscal year 2016. Since around half of all its properties are in London and another 33% in the Home Counties, it has benefited from rising property values there.

In each of the past four years rising sale prices have led to double-digit increases in earnings and allowed dividends per share to nearly double to 300p in 2016. This is still a very conservative one-third of earnings, but shareholders still enjoyed a respectable 2.7% annual yield.

Management’s conservative approach to shareholder returns also carries over to its policy towards debt as the gearing ratio was a very low 11.8% at year-end. This healthy balance sheet means the business is in a good position to benefit from any downturn in the property market as it will have the financial firepower to make deals at an even deeper than normal discount.

Shares of Mountview are pricey for a property firm at 12 times trailing earnings but with a very long history of rewarding shareholders since going public in 1960 I reckon this business is one to hold for the long term.

A truly long term outlook

Another family-run business with a long history of keeping shareholders happy is iron foundry Goodwin (LSE: GDWN). Despite being set up in 1883, it is still run by a Goodwin and the family retains a large stake.

It has been in a holding pattern in the past few years as the downturn in oil, gas and commodities prices has significantly dampened demand for the company’s valves, pumps and other industrial products. However, management has been through many, many downturns before and was prepared for this one.

It has invested in recent years in expanding its capabilities into creating products for the aerospace, jewellery and automotive industries that are paying off and keeping it highly profitable even during the downturn in energy markets. In the nine months to January the diversification helped increase sales from £87m to £105m year-on-year, although pre-tax profits fell from £9m to £8.2m.

With a long history of adapting to ever-changing market demands and a proven ability to withstand very deep market downturns Goodwin is one share I’ll be looking at more closely once energy markets rebound.

Mountview invests in bricks and mortar and has been around since the 1930s. Concha is a fledgling investment company — little more than a cash shell as yet — intent on identifying and acquiring interests in technology, media and communication businesses.

Mountview’s shares trade at a discount of over 40% to the company’s net asset value (NAV). Concha’s shares trade at a premium of something like 1,500% to the cash that represents just about the whole of the firm’s NAV.

Mountview

Businesses don’t come any easier to understand than Mountview’s. The company buys residential properties with regulated and life tenancies at a discount to their notional vacant-possession value, then sells them when they eventually become vacant. Mountview profits from a combination of the initial differential and any rise in the value of the property in the period between buying and selling. How simple is that!

Mountview today announced its half-year results, which showed turnover up 28%, earnings per share up 55%, and a doubling of the interim dividend. Impressive though the trading performance was, the big news was on property valuation.

Mountview holds most of the properties on its balance sheet at cost or net realisable value, whichever is the lower. Given the lengthy holding period of many properties, investors have long speculated about what the portfolio might be worth if it was valued at today’s market valuation. Today we found out.

Mountview told us that properties on the books at £318m actually have a market value of £666m. This increases the company’s accounting NAV from £71 a share to a true NAV of over £160 a share.

Even though Mountview’s shares have seen a strong rise in anticipation of news of the market valuation — and are up a further 8% today at the time of writing — the company still looks undervalued at £9.40 a share, compared with that NAV of over £160 a share.

Concha

Concha’s shares are trading at 6p at the time of writing, giving the company a market capitalisation of close to £90m. At Concha’s last balance sheet date (30 June), NAV was £2.4m, of which cash accounted for £1.8m. There have been subsequent fundraisings, and I calculate cash is now around £6m.

Concha’s top man is executive chairman Chris Akers. His main claim to fame — aside from a spell as chief executive of Leeds United football club (1996-98) — is founding a little company called Sports Internet Group at the height of dotcom mania and selling it to British Sky Broadcasting for £300m a year later in 2000. His subsequent ventures haven’t been nearly as successful, and there have been some downright disasters.

What is the deal investors in Concha today are taking on? Well, with the company’s market capitalisation of around £90m and cash assets of about £6m, for every £1 you pay for shares you are asking Mr Akers to deliver you a return on that sum by investing less than 7p of cash he has at his disposal.

Now, the technology, media and communication space may be sexy, but that doesn’t look like the deal of the century to me — not when I can get my hands on £1.70 of Mountview’s concrete assets for every £1 I pay for shares.

And why not? After all, the underlying business seems to be doing well.

Cyclical recovery?

Before emerging as a separately listed company during 2012, Direct Line made underwriting losses in the wake of the global financial crisis. The firm returned to underwriting profit during 2012, and built on that improvement in 2013. The current year seems to be going well too, but we’ll learn more with the third-quarter interim management statement due on Friday 31 October.

Fluctuating profits reveal the firm’s inherent cyclicality. The financial companies, such as insurers, can see wild share-price fluctuation as profits ebb and flow. That’s why the firm’s valuation bothers me a bit. The forward dividend yield is running at about 7.7% for 2015, and City analysts expect forward earnings to cover the payout just over 1.2 times.

That’s seems a too-good-to-be-true kind of yield, and the thin cover from earnings makes it look vulnerable if earnings start to slip. Is the market trying to tell us that it expects forward earnings to decline soon?

Property-linked investing

Where do you think UK property values are heading? It’s another highly cyclical investing game to play, but if you want to get involved, without all the inconvenience of rolling your sleeves up and actually buying bricks and mortar, you could invest in a property firm such as Mountview Estates (LSE: MTVW).

I love the simplicity of the way the firm describes its activities on its own website: “Mountview Estates P.L.C. is a Property Trading Company.  The Company owns and acquires tenanted residential property throughout the UK and sells such property when it becomes vacant.”            

This is a what-you-see-is-what-you-get investment proposition, with potential hidden value on the balance sheet, and high insider ownership by the controlling family. The firm records properties at cost, implying the market value of assets is in excess the company’s 7740p share price. But I think we should be careful, because the share-price chart is peaking where it did in 2007 — just before the last financial crash.

Make no mistake, if property values fall, so does Mountview’s share price — potentially a long way. The firm is cyclical to the very core.

Pharmaceuticals

FTSE 100 drugs firm Shire (LSE: SHP) (NASDAQ: SHPG.US) stands out among its London-listed peers for its fast-growing credentials. The firm is best known for the attention deficit disorder treatments Adderall and Vyvanse, and is a young, high-energy upstart founded in 1986 and listed on the stock market as late as 1996.

City analysts following the firm expect earnings to grow by 28% this year and by a further 10% during 2015. Yet the shares took a steep dive during October when US operator AbbVie Inc (NYSE: ABBV.US) walked away from a takeover deal.

The shares’ valuation looks more attractive now than for a long time, with the forward P/E rating  running at about 18 for 2015.

What’s good enough for octogenarian Buffett should be good enough for an investor just starting out on the road to long-term wealth accumulation.

Today, I’m going to tell you why I think Unilever (LSE: ULVR) (NYSE: UL.US), Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) and Mountview Estates (LSE: MTVW) are worth consideration for a beginner’s portfolio.

Unilever

Unilever, a £32bn FTSE 100 company, owns dozens of top international brands in the areas of food (eg, Knorr soups and sauces), personal care (eg, Dove beauty products) and home care (eg, Cif cleaners). Two billion people around the world use Unilever products on any given day.

Size, geographical diversification and the non-cyclical nature of the so-called ‘fast-moving-consumer-goods’ industry make Unilever a relatively steady share through all economic conditions. Investors are willing to pay a premium for such businesses, and Unilever’s current share price of 2,506p equates to over 19 times current annual earnings.

I’ll put that into context for you with the next company…

Tesco

Supermarket giant Tesco is trading on less than 10 times earnings at a current price of 179p. Tesco is so ‘cheap’ because of well-publicised troubles that you’re doubtless aware of.

Now, it’s the easiest thing in the world for investment pundits like me to only ‘tip’ companies that happen to be on the top of their game at the moment. The fact is, though, a fair number of tomorrow’s biggest long-term winners will come from among companies that are currently struggling and rated lowly by the market.

Tesco remains the dominant force in UK food retail, has established itself in a number of exciting foreign markets, and looks to me to have every prospect of being one of those big long-term winners, even if there may be a few years’ pain to go through yet.

And Buffett himself, who bought Tesco shares at a much higher price — an investment he recently described as a “huge mistake” — nevertheless continues to hold. Whether he will for ever remains to be seen.

You may not be able to bring yourself to back a struggling company if you’re a new investor. But do make a note of Tesco’s share price today, and see how the company performs over the next 10-plus years compared with currently highly-rated stocks, such as Unilever.

Mountview Estates

I suspect most new investors, as well as many seasoned market participants, won’t have heard of Mountview Estates. This £300m property company is tiny relative to the likes of Unilever and Tesco, but it has qualities I think make it worth consideration for a beginner’s portfolio.

The essence of what Mountview does is extremely simple, and is only really possible because of the very long-term view taken by the family that founded the company in 1937, and their descendants, who still run it today. Mountview acquires tenanted residential properties at a discount to their notional vacant-possession value, then sells them when they become vacant, often many years later.

The properties are recorded on Mountview’s books at cost, and so the market value is far in excess of the worth indicated by the company’s current share price of 7,725p. In other words, if Mountview simply shut down today and sold all its assets, you would see a handsome reward on your investment.