Regular Motley Fool readers will know I’ve been banging on for years in praise of the couple of dozen long-established family businesses listed on the UK stock market. Pubs group Fuller, Smith & Turner (LSE: FSTA), soft drinks firm Nichols (LSE: NICL), and lighting company FW Thorpe (LSE: TFW) are three such firms. Let me show you their blue-chip credentials, and why I’d be more than happy to buy them today.

Building long-term wealth

Strong balance sheets, and careful stewardship through multiple economic cycles and market crashes, are features of these businesses. I believe these qualities align well with the aims of investors seeking to steadily build wealth over the long term.

Furthermore, with a largely stable shareholder base of family members, and like-minded long-term investors, these companies’ share prices tend to hold up relatively well through the sort of market crash we’re currently experiencing.

The table below shows the performances of the FTSE 100, Fullers, Nichols, and Thorpe since markets went into free-fall after 21 February.

Seven decades of dividend growth

Fullers (founded 1845) owns premium pubs and hotels, as well as craft cider and gourmet pizza restaurant chain The Stable. As you can see, it’s outperformed the FTSE 100. This is despite it being in one of the sectors most heavily impacted by Covid-19 fears. For example, blue-chip Whitbread, the owner of Premier Inn — and food and drink chains, including Brewers Fayre — has seen its shares plummet 46%.

Fullers has a strong, freehold property-backed balance sheet. Furthermore, the sale of its brewing business last year, with cash proceeds of over £200m, now looks very timely. The company has a remarkable dividend record of seven decades of unbroken growth. The running yield of 3% and price-to-earnings (P/E) ratio of 14 indicate value against historical standards. And the same is true for Nichols and Thorpe.

Defensive out-performer

Nichols (founded 1908) owns a portfolio of still and carbonated drinks brands, headed by its flagship brand Vimto. The superior performance of its shares (-5%) versus the FTSE 100 reflects the defensive characteristics of the business. Having said that, it’s also outperformed Footsie drinks giant Diageo (-23%), which is widely seen as an exemplar of blue-chip quality.

Nichols’ latest annual results show cash of £40.9m on the balance sheet at the year-end, and no debt. The cash-adjusted P/E is 17 and the running dividend yield is 3%.

Another cash-rich small-cap stock

FW Thorpe (founded 1936) designs, manufactures and supplies professional lighting systems. It serves diverse industries and customers. Nevertheless, it’s more geared to the general economic backdrop than a company like Nichols. In other words, it’s a cyclical rather than defensive business. Yet its shares (-14%) have significantly outperformed not only the FTSE 100 during this market crash, but also classy blue-chip sector peer Halma (-19%).

Thorpe is another cash-rich family business. It had £30.8m on its balance sheet and no debt at its last year-end. The cash-adjusted P/E is 17.8 and the running dividend yield is 2%.

Hopefully, you can now see why I believe Fullers, Nichols and Thorpe deserve to be called blue-chip small-caps.

Strong performance

The Worcestershire-based business revealed that trade of late has been improving. Despite ongoing competitive pressures of its road tunnel and street lighting business, the group is seeing excellent revenue and operating profit growth at its retail and display business Thorlux and Lightronics in the Netherlands, which continues to drive double digit growth for the group as a whole.

Annual revenues for the year to 30 June grew by 18.6% to £105.4m, following a particularly strong performance from its overseas operations. And this helped annual pre-tax profits to grow 12.8% to £18.4m and earnings per share to increase by 11.6% to 12.54p.

Meanwhile, cash and cash equivalents at the end of the year had risen to £24.7m from £18.3m a year earlier, paving the way for a 0.3p increase in the final dividend to 2.85p – and bringing the ordinary full-year dividend up from 3.75p in the previous year to 4.20p.

Bumper returns

Shareholders in lighting specialist have enjoyed bumper returns over the last couple of years as the firm moves on from its past troubles, but is there further room to run?

Going forward, Chairman Mike Allcock is cautious about the company’s outlook, as he warned investors that a repeat of this year’s performance will be difficult given “ongoing economic uncertainty from Brexit, government instability and exchange rate variations”.

FW Thorpe also sounds very much still in the market for acquisitions, although nothing seems imminent. “We continue to review options for further acquisitions. We have the financial capacity, so it could be said that it is easy to acquire, and there are indeed frequent options for us to review,” added Mr Allcock.

And from a valuation perspective, with shares in the company trading at 22 times next year’s expected earnings, things aren’t looking too demanding given the rapidly expanding bottom line.

Turnaround play

Elsewhere, Nigeria-focused small cap oil explorer Eland Oil & Gas (LSE: ELA) may be a better pick for investors looking for a turnaround play.

Eland recently reported a positive start to its Opuama-7 sidetrack operations, with production expected to ramp up to 5,900 barrels of oil a day by October. As increasing crude shipments flow to the market, the firm is on course to improve its cash position and deliver high potential rewards to its shareholders.

Following a successful equity raise earlier this year and growing operational cash flow, the company is set to deliver further progress with its pipeline of development assets. As such, City analysts expect the significant upside in its financial performance in the coming year, after a number of operational difficulties in recent years.

Its shares are up 31% year-to-date, but Eland still seems very attractively valued, with shares trading at a forward price-to-earnings ratio of 5.9, based on analysts’ 2017 forecasts.

JLT’s core business is serving as a middle-man between insurers and customers seeking speciality insurance policies. The company has made itself a go-to leader in the niche market and in 2016, this segment accounted for 60% of group revenue and is growing at a steady clip of 3-4% per annum.  

On top of the speciality insurance broking business, JLT also serves as a reinsurance broker and provides advice and services for employee benefit plans. This set of offerings makes JLT’s services incredibly sticky, which leads to high levels of recurring revenue, the ability to cross-sell services to clients, and enviable pricing power.

In addition to steady organic growth in core markets slightly ahead of GDP growth as it consolidates the fractured speciality insurance broking market, JLT has very good growth prospects in the US and emerging markets. The company’s new US operations are currently loss-making but as the business scales up and brings on board new customers it is expected to turn a profit by 2019. Elsewhere, fast-growing divisions in Asia and Latin America are already profitable and earn margins in line or above group average.

The company also generates impressive cash flow with operations kicking off £141m last year from £1,261m in revenue. Last year this excess cash flow was mainly returned to shareholders through £18m in share purchases and £66m in dividends that at the current share price represents a very nice 2.7% yield.

While JLT’s shares are slightly expensive at 20 times forward earnings, its solid and growing dividend combined with very good growth prospects have it at the top of my watch list.

Lighting up the market

Another growth share flying under the radar of many retail investors is professional lighting manufacture, designer and supplier FW Thorpe (LSE: TFW), which provides lighting displays for everything from car dealers to train stations and retail stores.

The business has grown nicely in recent years through small bolt-on acquisitions and expansion into new markets across the UK, Europe and Asia. Thanks to organic growth and the weak pound, the company reported a very, very nice 23.8% year-on-year (y/y) rise in H1 sales to £51.2m. Y/y operating profit growth was a bit lower at 19.7%, due to a large order that necessitated extra overtime, but this appears to be a short-term blip and increased orders are, after all, to be welcomed.  

There are still problems with the company’s UAE operations but management is confident that the Australian business is now primed for a period of good growth. Expansion in these markets, together with the constant rollout of new products, bodes well for the company’s future. Unfortunately, its shares are very pricey at 30 times forward earnings. But should that valuation come down, I’d be more interested. 

FW Thorpe

All hail manufacturer FW Thorpe (LSE: FW), now the shiniest, brightest star in my portfolio having risen 372% since I bought it back in August 2013. This AIM-traded designer, manufacturer and supplier of professional lighting systems is a family firm chaired by the ever-cautious AB Thorpe, whose bearish pronouncements on the challenges facing the global economy are repeatedly contradicted by the success his company enjoys in tackling them.

Interim results for the six months to 31 December showed continued growth, with group revenues up 23.8% to £51.2m and and operating profit rising 19.7% to £7.8m. AB Thorpe still found time to worry about rising production costs, caused by extra overtime and shift working as the company battled to meet a spike in customer demand (a nice problem to have, if you ask me). The company’s Australian office is doing well, although its UAE operation is still finding its feet. The interim dividend was increased a progressive 12.5% to 1.35p, although the yield is low at 1.24%. Its valuation of nearly 30 times earnings doesn’t bother me because I have seen the light.

Prudential

I bought insurer Prudential (LSE: PRU) in October 2009 on its Asian operation’s stellar growth prospects, and my only regret is that I didn’t buy more of the stock. My holding is up 154% since then, which is a pretty handsome rate of return for a solid blue-chip that has sprung few nasty surprises.

The only major surprise is that more private investors haven’t turned onto the Pru, which is nicely diversified across the UK and US, and now generates a third of its revenues in Asia (and rising). It offers the Asian middle-class the pensions and protection that they do not expect to get from the state, and demand for both is strong. The joy of global diversification is that this has offset the hit to UK annuity sales following pension freedom reforms.

Income seekers may pass over the Pru because the yield is typically low, currently 2.45%, but management is progressive, hiking last year’s final dividend by 12%. The valuation is currently 13.35 times earnings, and I am tempted to top up my holding. My aim is still Pru.

Smith & Nephew

I took a fairly big punt (for me) on medical appliances maker Smith & Nephew (LSE: SN) in November 2011 and have been rewarded with a more than doubling of the stock’s value since then. This was my play on the ageing population, who are going to need a lot of hip and knee operations, if my own parents are anything to go by.

With any long-term holding, you can expect the patchy period and recent months have been underwhelming, with the company hit by a Goldman Sachs downgrade, after failing to fulfil the investment banker’s prediction of a 5% acceleration in revenues.

Growth prospects may have slowed, notably in wound, trauma and emerging markets, so I wouldn’t rush to buy at today’s toppy valuation of 18.37 times earnings, and disappointingly low yield of 2.03%, but I will certainly hold. Time and the ageing population are on my side.

However, a turnaround is most certainly on the cards for Santander. It may suffer yet further from weakness in a number of its key markets, but the crucial takeaway for investors is that Santander’s share price now seems to fully price-in further pain. In other words, it offers a relatively wide margin of safety, as evidenced by a price-to-earnings (P/E) ratio of just 9.2.

Furthermore, Santander offers an excellent income outlook. It currently yields 4.6% and with dividends being covered 2.4 times by profit, there’s considerable scope for them to rise at a high rate over the coming years. As such, Santander’s total return from dividends as well as an upward rerating could help its investors retire early.

Making light work

While Santander’s share price has slumped in the last year, professional lighting specialist FW Thorpe (LSE: TFW) has recorded a rise of 38%. And looking ahead, there could be further gains to come since FW Thorpe is performing well.

In its most recent half-year results, FW Thorpe was able to deliver a 26% increase in sales and a 14% rise in earnings. Although these numbers were aided by the acquisition of Lightronics, even with that purchase excluded, FW Thorpe was still able to post a rise in sales of 5% and an increase in earnings of 7.5%. And with Lightronics performing ahead of expectations, its long-term future is highly encouraging.

Although FW Thorpe trades on a P/E ratio of 23.7, it could still offer further capital gains over the medium-to-long term. The increase in dividends of 9% as well as a special dividend of 2p per share show that FW Thorpe’s management has confidence in the long-term outlook for the business, which indicates that now could be a good time to buy.

Scope for rising payouts

Meanwhile, information management solutions specialist Idox (LSE: IDOX) also has a bright future. It’s expected to grow its bottom line by 12% in the current financial year and by a further 8% next year. This has the potential to cause an improvement in investor sentiment in the stock even after its 50% share price rise over the last 12 months.

With Idox trading on a price-to-earnings growth (PEG) ratio of just 1.3, it holds considerable growth and value appeal. And due to dividends being covered 3.7 times by profit, there’s scope for a rapid rise in shareholder payouts to boost Idox’s 1.7% yield.

Decent-value buy

Netplay has had to negotiate regulatory changes that saw betting and gaming duties rise to £3.8m this year from £0.5m in 2015. The company more than offset the rise by slashing marketing expenses by £4m with a more targeted strategy, and also by reducing operating and administrative costs.

Netplay has a strong balance sheet with £10.8m of corporate cash and no debt, putting it in a good position for pursuing acquisitions as well as organic growth. Management recently looked at purchasing the Football Pools business from Sportech, but decided against entering a sealed-bid auction process, which suggests the board are only interested in doing the right deals at the right price.

Trading on 13.8 times last year’s earnings at a share price of 10.5p, and with cash representing 3.7p a share, Netplay appears a decent-value buy. A dividend yield of 6.3% (which excludes the special) is an added attraction.

Good business but rich rating

Lighting firm FW Thorpe (LSE: TFW) released half-year results this morning, and also saw its shares rise (up 7% as I write). Like-for-like earnings were 7.5% higher, but actual earnings rose 14% thanks to the contribution of an acquisition.

The strong performance, and £22m cash and no debt on the balance sheet, have persuaded Thorpe’s board to pay a 2p a share special dividend on top of a 1.2p ordinary dividend.

Thorpe is a old family-run business, and the board tends not to be gushing about performance and prospects: thus, underlying growth was generally “solid rather than astounding” and management is “cautiously optimistic” about the rest of the financial year.

Thorpe’s shares have had a strong run, and while this is a company I very much like, the current share price of 236p gives a rich rating of 22.6 times trailing 12-month earnings and yield of 1.6% (excluding the special dividend). Not a price at which I’m rushing to buy.

Risky and speculative

News this morning from Amur Minerals (LSE: AMC) didn’t get the positive response from the market that the results from Netplay and Thorpe received. The shares of the nickel-copper explorer with projects in the far east of Russia are down 2.3%, as I write.

Nevertheless, the news was positive. The company reported that it had completed the annually-constructed 350km ice road to its Kun-Manie project and begun the restocking of the site for its 2016 drilling programme. Amur also said it anticipates being able to release results soon showing a successful conversion of 2015’s targeted Inferred resource area to Indicated and to have successfully added 400 metres of Inferred resource.

Given the stage of development and the geo-political location, Amur remains a risky and speculative proposition, well outside my personal comfort zone.

Here are the reasons (some serious; some a little more light-hearted!) why I think Mr Miliband — and you — might want to consider buying shares in BAE Systems (LSE: BA), WM Morrison Supermarkets (LSE: MRW), DFS Furniture (LSE: DFS), Halma (LSE: HLMA) and FW Thorpe (LSE: TFW).

BAE Systems

Mr Miliband has described FTSE 100 blue-chip BAE Systems as “a great company that offers skilled jobs to its workforce and offers thousands of apprenticeships a year”. The aerospace, defence and security firm has what Mr Miliband sees as the qualities of Britain’s best “world-class businesses” (Rolls-Royce and GlaxoSmithKline are others he’s praised for the high-quality jobs and training they offer).

BAE’s chairman has recently spoken out in support of Mr Miliband’s plans to abolish the “non-dom” tax regime — commenting, “it is seen as a relic of the past which unfairly favours the few at the expense of the many” — so, I’d suggest BAE is a stock the Labour leader might not be averse to buying. And the company looks decent value on a below-market-average price-to-earnings (P/E) ratio of 12.8, and with an above-average dividend yield of 4.1%.

Morrisons

Mr Miliband has decried the “Tesco-isation” of the high street. He and other prominent party members — such as Ed Balls and Harriet Harman — are more likely to be found on walkabout in Britain’s number-four supermarket Morrisons. Mr Miliband’s advisor on zero-hours contracts is a former Morrisons HR & Communications director, while the company’s current chief executive has a CBE for his services to employment, skills and apprenticeships in retail.

Morrisons is fighting tough competition in the sector, particularly from hard discounters Aldi and Lidl, but analysts reckon Morrisons can battle through with 6% earnings growth this year, followed by 19% next year. A P/E of 13.8 with 19% earnings growth suggests the shares could be decent value.

DFS Furniture

Discount retailer DFS Furniture has been around since 1983, but has only recently joined the stock market. I don’t suppose many DFS products have found their way into the £2 million north London home of “Two-Kitchens Miliband”, but an investment in the company could serve the Labour leader and Doncaster North MP well.

With his London base, and coming only fourth on a recent list of the most influential people in Doncaster, an investment in the discount furniture group, which has its headquarters in the town, could help re-connect him with his constituents and bolster his man-of-the-common-people credentials. DFS isn’t the highest-quality business in terms of profit margins, but a P/E of 12 and 16% earnings growth forecast for the company’s financial year ending July 2016 is not unattractive.

Halma

FTSE 250 firm Halma does a load of stuff that would get a big thumbs-up from Mr Miliband. Its products improve such things as workplace safety, personal and public health, and the quality of the environment.

Halma’s markets are relatively non-cyclical, and there are good drivers for sustainable growth of the business and significant barriers to entry for potential competitors. The company trades on a premium P/E of over 20, but I think that’s merited, because of the nature of the business and the company’s ability to knock out strong earnings growth year-in, year-out.

FW Thorpe

There was a bit of a buzz among the chattering classes earlier this year about Ed Miliband’s arrangement of family affairs, via a deed of variation of his father’s will, to reduce possible inheritance tax liabilities. If Mr Miliband would like to reduce IHT on his estate, without raising a furore, he could invest in some AIM market shares, many of which become exempt from IHT if held for two years or more.

FW Thorpe is one candidate Mr Miliband could consider. This lighting company has a forward-looking philosophy and has invested heavily over recent years in developing LED products, which now account for 58% of group turnover — and rising fast. This long-established family-run firm is conservatively stewarded, but is still delivering high-single digit earnings growth.

However, the three companies I’m writing about today are not the crème de la crème of the FTSE 100, but AIM-listed firms that many investors will never have considered — or perhaps even heard of. James Halstead (LSE: JHD), Nichols (LSE: NICL) and FW Thorpe (LSE: TFW) are well-established family businesses, run with a view to enduring long-term success, making for ideal buy-and-hold investments.

Put these companies in an ISA and you’re sheltered from tax on capital gains and income. Hold the shares for two years and they also become exempt from inheritance tax — one of the reasons the families have chosen an AIM listing for their businesses in preference to being on the main market.

James Halstead

• Founded: 1915
• Business: Flooring
• Share price: 327p
• Market cap: £678m
• Last year revenue: £223.5m
• Last year pre-tax profit: £41.8m (margin 18.7%)
• Net cash: £38.5m

You’ll find Halstead’s products around the world in schools, hospitals, airports, retail spaces and so on. Geographically, revenue breaks down as: UK 35%, Europe and Scandinavia 43%, and Rest of the World 22%.

The company posted record numbers last year, with the chief executive commenting:

“We remain on track to continue growth, and following a decade which has seen a financial crisis and a global construction contraction and in which we have doubled turnover, tripled our profit after tax and quadrupled the dividend, I can only say not bad at all”.

Halstead trades on a trailing P/E of 21.5 — well below the AIM market P/E of 53, but at a slight premium to the FTSE 250‘s 19.8 (the index the company would be in, if it were listed on the main market).

Halstead’s dividend yield is 3.1%, compared with 2.5% for the FTSE 250. Furthermore, Halstead has paid special dividends from time to time, and I wouldn’t be surprised to see another in what is the company’s centenary year this year. Interim results are due to be released tomorrow (Tuesday).

Nichols

• Founded: 1908
• Business: Soft drinks
• Share price: 1,180p
• Market cap: £435m
• Last year revenue: £109.2m
• Last year pre-tax profit: £25.7m (margin 23.5%)
• Net cash: £34.5m

Nichols’ brand portfolio includes founding brand Vimto, which is sold in over 65 countries and Levi Roots, Sunkist and Panda which are sold in the UK. The company generates 78% of total revenue from the UK, with all bar 4% of the remainder coming from the Middle East and Africa. In the Arabian peninsula, Vimto has enjoyed over 80 years of dominance as the beverage of choice for the sunset feast during Ramadan.

Nichols’ earnings have increased by a compound annual growth rate (CAGR) of 16.3% over the last four years — well ahead of IRN-BRU maker AG Barr (10.6%), beer behemoth SABMiller (10.7%) and global spirits supremo Diageo (7.3%).

Nichols trades on a trailing P/E of 21.3 and a yield of 1.9% — a slight premium to the FTSE SmallCap’s 20.7 and 2.5% (the index the company would be in, if it were listed on the main market).

FW Thorpe

• Founded: 1936
• Industry: Lighting
• Share price: 148p
• Market cap: £171m
• Last year revenue: £62.9m
• Last year pre-tax profit: £12.4m (margin 19.7%)
• Net cash: £19.3m

Thorpe’s subsidiaries specialise in various areas of the lighting industry, including industrial, retail and display, signage and cleanroom (laboratories, semi-conductor manufacturing spaces and so on). The company generates 88% of total revenue from the UK, with the majority of the remainder coming from Europe.

Profit growth has been subdued in the last few years, as Thorpe has been investing heavily in LED-orientated product development and new manufacturing facilities, as well as supporting a road and tunnel lighting start-up business that is only now moving into profit. A four-year dividend CAGR of 15% is probably a better indicator of the progress of the underlying business.

Like Nichols, Thorpe would be in the FTSE SmallCap index if it were listed on the main market. Thorpe’s P/E of 16.4 is on the value side of the index’s 20.7. The company’s dividend yield of 2.2% is a little lower than the 2.5% of the index, but — like Halstead — the lighting firm has a history of paying special dividends from time to time.