A familiar example among larger companies is Marks and Spencer. This is particularly pertinent, because one of the outstanding winners among smaller companies is the textiles group, Dewhirst, a leading M&S supplier. My other two choices are Leeds Group, a fabrics dyer and printer of fabrics, which also does some business with M&S, and Morland, a brewer increasingly well known for its Old Speckled Hen brand.
These three are long-haul stocks with a vengeance. Since 1980, Leeds shares are up more than 20-fold, with Dewhirst and Morland up 17-fold and 12-fold respectively. Based on total return, the multiple goes up to almost 20-fold for Morland, nearly 25-fold for Dewhirst and more than 40-fold for Leeds. That is in the context of a 15-fold appreciation for the FT All-Share index over the same period.
None of these companies has been operating in boom conditions recently, but the environment for Morland has been particularly adverse. There have been severe overcapacity in brewing, regulatory pressure, and competition from cheap imported beers. But between 1990 and last year, Morland has put together a sequence of steadily rising earnings per share, from 20.2p to 33.4p. Over the same period, dividends have advanced from 6.26p to 10.71p.
Conditions are now said to be easing, with beer volumes stabilising, and analysts are forecasting further progress to take earnings per share above 35p this year and towards 40p for 1995-96. Dividends could rise slightly more quickly. At 516p, an historical price-earnings ratio of 15.4 for such good performance looks excellent value.
The Leeds Group chairman, Robert Wade, has often argued that it is misleading for his shares to be listed under textiles. The group provides a service printing and dyeing fabrics for clothes and household goods.
Although the textiles are often imported cheaply from Third World countries, the printing and dyeing is a highly skilled process that needs to be performed close to the customers - the latter want fast responses, top quality and the ability to ring the changes with increasing frequency, to tempt customers and give them the latest colours their Epos systems tell them are selling best. On top of steady organic growth and well-timed moves into such new areas as household goods, Mr Wade has shown a remarkable touch on acquisitions.
Leeds' shares have been weak for most of the past 18 months, falling from a peak of over 340p to their present 283p, largely because of cautious remarks by Mr Wade when reporting the figures for the year to last September. But, after a slow start, the second quarter was much stronger. Analysts' expectations for the year range from pounds 8m to pounds 8.5m against pounds 7.6m last time. That would take the p/e down to around 14 and give a yield of 3.1 per cent - good value for a company with an unbroken record of dividend rises over 20 years.
Last but not least is Dewhirst, where a management team led by Tim Dewhirst has transformed the group's efficiency, product range, and responsiveness over recent years. Dewhirst had a wonderful run supplying suits for M&S, but suffered when the high street giant moved too far upmarket in the late 1980s, and suits fell out of fashion. It then adjusted brilliantly to capitalise on the volume gains generated by M&S's hugely successful "Outstanding Value" campaign: margins soared in the latest financial year.
Some analysts feel the shares have run far enough in the short term, but on a p/e ratio falling to perhaps 15 at 165p this year and under 13 next, the shares could have further to climb.Reuse content