Why I believe this UK consolidator can deliver 17%+ annual returns over the next 5 years on a low risk profile
Consistent grower consolidating an industry with operating leverage
Hey there,
Today, I’m looking at a high-quality UK mid-cap in the B2B distribution space. The company has a history spanning way over 100 years and has delivered compounded revenue growth of 8% over the last 20 years in a very predictable, defensive industry. As with many UK businesses, insiders sadly don’t own much stock, but that did not stop the company from returning a 15% CAGR over the last 45 years. This is a nice and stable business currently trading below what it’s worth with rerating potential.
Why is it interesting now?
The company has posted a small profit warning for its US business, as uncertainty around tariffs makes it harder to predict than usual. This has sent the business to an unusually high drawdown, close to the Covid-19 crash levels (-45%).
Over the long term, they’ll continue to see growth from inflation, new customer wins, acquisitions, and improve their margin profile. We’re looking at a stable business with:
15% ROIC on average
low EPS growth volatility of 8-9% versus 28-37% for peers
Actively buying back shares
Decentralized operating model with founder mentality
80% of products sourced domestically, counteracting potential tariff impacts
Increasing spend towards accretive acquisitions
Cash conversion of almost 100% on average
Long-term customer relationships with <5% churn
9% dividend per share CAGR
While this won’t be the fastest grower, it’s the rare occasion where a very stable consolidator in a defensive industry trades below its usual multiple, amidst temporary uncertainty.
What’s next? Free Trial throughout May
The full premium pitch covers the following:
How the company makes money
What drives scalable, capital-efficient growth
Their operating leverage
How they can deliver a 17%+ IRR from here
Throughout the whole month of May, I’m running a free trial to convince you of the value I can provide you. Give it a try! Don’t like it? There are no strings attached within the first 7 days. Just click the button below or this link.
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