I have a real fondness for investing in businesses where the founding family have a major shareholding – they are often well run, exercise patience and keep their focus on the long game. Here are three of the best.
Nick Scali Limited ASX: NCK) is an extremely well run furniture retailer operating two brands – the flagship Nick Scali and the value based Sofas2Go. This company stands to benefit from the ongoing shift to apartment living as well as the general upturn in housing construction. Being an importer a risk for this company would be a substantial depreciation of the A$.
The Scali family are major shareholders and the second generation (Anthony Scali) has assumed the role of managing director. Like many family businesses Nick Scali is financially conservative but operationally savvy.
Nick Scali has no borrowings, net return on equity is well above 50% and the EBIT margin (earnings before interest and tax) is 15%. At $2.65 Nick Scali sells at a projected 2015 multiple of 12.62 and a fully franked yield of 5.7%.
OrotonGroup Limited (ASX: ORL) is an iconic leather goods and accessories brand founded in 1938 by Boyd Lane – the family is still involved and has a significant shareholding as well as a position on the board. A setback occurred when a long standing licence deal with Polo Ralph Lauren ceased in 2013; virtually halving profits.
With shops in Malaysia, Singapore, China and the Middle East, Oroton’s international push is gaining traction. Recent initiatives include a joint venture with the well established Brooks Brothers and a licence deal with Gap Clothing. Setup and establishment costs involved with these will curb profits in the short term; however indications are that both initiatives are off to a reasonable start.
Looking to the 2015 year, Oroton ($4.30) is selling at 14.6 times estimated earnings and a fully franked yield of 5.3%. With no debt and 60% net return on equity, I think Oroton is likely to surprise on the upside.
Servcorp Limited (ASX: SRV) is a true international with operations in 21 countries. Servcorp provides serviced and virtual offices and is known for its industry-leading technology. In fact founder Alf Moufarrige describes this business as just as much a software provider as a serviced office business. All offices are located in prestige CBD buildings and have outstanding facilities. Although management is decentralised the Moufarriges (Alf and son Taine) are the drivers of this company.
An aggressive move into the U.S. in the aftermath of the GFC secured long-term leases on favourable terms and Servcorp is very well positioned to benefit from the rise in international business confidence.
Servcorp ($4.85) sells at 15 times estimated 2015 earnings and a yield of 5.2%. This company has no debt, $90m in the bank and strong growth prospects.
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Motley Fool contributor Peter Andersen owns shares in Nick Scali, Oroton and Servcorp