Back in 2019, a couple of years after I graduated from university, I decided to return to academia to study for a PhD and got offered a position in the computer science department at the University of York. This ultimately didn’t work out, but that’s a story for another day.

At the time, I was living in a small town in Cambridgeshire, around 2 hours from York, and needed to secure some accommodation before I could move. Since I was still working, I had limited time to travel up to York to view properties and couldn’t move as fast as local residents when new properties came on the market. It also became apparent that I was seen as a relatively high-risk tenant by landlords, due to the fact I wasn’t already established in the area and working. While I had been granted a stipend, and separately offered a part-time role elsewhere, neither had actually paid me anything at that point and I was losing out to other people on every attractive property for which I applied.

It was starting to look like I would have to get somewhere more remote, which was not ideal as I didn’t have a car at the time, or in a bad area. Then I came across what appeared to be a great option: a spacious, centrally located, 2-bed-2-bath apartment with its own dedicated parking space (giving me the option to get a car in the future) in a good area, at an affordable price. This seemed too good to be true: worse properties were being snapped up within a week, and this one had already been listed for more than two. I assumed there must be something wrong with it, but expressed my interest to the estate agent and booked a viewing.

As soon as I stepped into the apartment I realised why it had been passed over: two women had been living there and the place was an absolute mess. The apartment came unfurnished and neither girl had purchased any furniture, meaning they’d been sleeping on mattresses on the floor and their clothes were strewn everywhere. You could barely see the carpets in the bedrooms beneath a mass of hair and other detritus, and I don’t think you want to hear a description of the bathrooms. All the pictures shown on the listing were from before the girls had moved in, and therefore belied the current reality.

This is where the value investor mindset comes in. Looking past the immediate issues, which had scared most people off, the underlying fundamentals of the apartment remained sound: it was spacious, centrally located in a good area with a dedicated parking space and affordable rent. From this perspective, the immediate issues had created an opportunity for me to get a property otherwise inaccessible had it been issue free.

However, there still remained the immediate problems to resolve. I asked the estate agents, who also managed the property, whether they would be carrying out a deep clean before the new tenant moved in. They assured me this would be the case, and I asked for it to be added to the tenancy agreement before I signed and paid the deposit. The estate agents had a pretty good reputation, so I felt reasonably confident putting my faith in them to sort it out.

Around a month later, we moved in, and experienced something value investors commonly encounter when investing in business recoveries: things getting worse before they get better. The property had been unoccupied for several weeks prior to our arrival, and while the estate agents had been true to their word on cleaning the apartment, there had been a slow leak from the apartment above’s recently installed washing machine which had gone unnoticed due to our apartment being empty. We walked into the kitchen to find an entire corner of the room covered in black mould, rendering it pretty much unusable.

Thankfully, the property manager lived up to their reputation and had it sorted within a week. From that point onwards, the apartment delivered on my expectations and served us well over the two years we lived there.

When we moved out, the property was clean and well maintained, leaving nothing to repel prospective tenants. The landlord relisted it with a rental price 25% above what we were paying and found a new tenant within two days.

I feel this story is an excellent analogy for the kind of opportunities I’m seeking as an equity investor: good, resilient businesses with strong fundamentals facing short-term problems that have put them out of favour with the market and depressed their share price. Resilience is essential, as situations can always deteriorate further and a company needs to be able to survive the turbulence with shareholders’ capital intact. Provided it does survive, the eventual recovery in business performance and share price can provide outsized returns to investors who bought when pessimism was rife.

As always, if you want to see all my in-depth research, head over to https://firmreturns.com

MacFarlane Group (MACF)

Share price: £0.714
Market capitalisation: £110.03m

MacFarlane Group is a vertically integrated manufacturer and distributor of packaging headquartered in Glasgow, with operations throughout the United Kingdom and recently expanding into parts of Europe. Its products span every category, from cardboard packaging used for e-commerce, to specialist foam used for transporting aerospace components.

The company has a long track record of growth, both organically, and through an average of 1-2 complementary acquisitions each year, made possible by the highly fragmented and diverse nature of the protective packaging market. In fact, 2024 was the company’s 15th consecutive year of growth in profit before tax.

Recent expansion into Europe has been driven by requests from existing international customers who wish to have a consistent supplier of protective packaging across all the regions in which they operate. Being demand-led significantly reduces the risk of entering these new markets, and the expansion has been largely facilitated by the acquisition of established local companies rather than building new businesses from scratch.

So where’s the turbulence you might ask? Firstly, the general economic slowdown in the UK, impacting customer demand, combined with (and in part due to) increased employment costs, linked to rises in employers National Insurance contributions and the National Minimum Wage, have squeezed the company’s margins. Secondly, a fatal accident at a significant and recently acquired subsidiary in H2 2025, resulting in the temporary halting of its operations. These two factors together decreased the profit outlook for 2025 and the share price responded accordingly.

Given the historic track record, it seems highly likely to me that the business will survive these near-term headwinds and return to growth in the medium-term. Leverage has increased following the subsidiary acquisition, but remains sustainable at a little over 1x EBITDA (excluding lease liabilities), with interest well covered.

Using the 2024 results, which, while likely higher than 2025, are probably closer to a normalised level, the shares trade with an earnings yield of 14.1%. The company also pays a progressive dividend, providing a yield of 5.1% on the current share price.

Hilton Food Group (HFG)

Share price: £5.08
Market capitalisation: £459.67m

Hilton Food Group processes, packages and distributes food - primarily meat and fish - to retailers globally. The company was founded in 1994 in Huntingdon, UK, where it still has its head office today, and listed on the London Stock Exchange in 2007.

Like MacFarlane, it also has a long track record of growth, both organic and inorganic, and in 2024, generated revenue of just under £4bn and net profit of £41.6m, compared with revenue of £1.1bn and net profit of £21.5m in 2015.

Today it’s revenue is split between the United Kingdom (c.£1.5bn), Asia Pacific (c.£1.5bn) and Europe (c.£1bn), with a portion of revenue from some regions being attributable to exports (e.g. salmon from Europe to the United States). Counted among its customers are some very large blue-chip retailers, including, Tesco in the UK, Woolworths in Australia and Costco in the US.

The company is in the process of setting up new operations in Canada and Saudi Arabia, in both cases with a local partner: Walmart in Canada and NADEC in Saudi Arabia. These projects have required significant investment, but are scheduled to begin operations in 2026, and start contributing to group profits in 2027, with returns on capital employed above the company’s hurdle rate of 20%.

The headwinds that have hit the company and its share price have been two-fold: 1) food inflation - 30% for beef and 60% for white fish in the last year - which has impacted demand for certain products 2) the detection of low levels of listeria bacteria in some shipments of salmon to the US from the company’s processing facilities in Greece, forcing them to shift production to the Netherlands pending regulatory approval from the FDA. This approval was delayed by US government shutdowns during 2025, and as a result, required the company to maintain this sub-optimal supply arrangement for most of the year, at significant cost. The other factor you might have expected to impact the company was US tariffs, but apparently these have been passed on to customers with no change in demand.

Net debt grew in the first half of 2025, as the company ramped up investment in its Canadian development and made the decision to tactically increase inventory ahead of the Christmas period to ensure stock availability. Despite the increase in net debt, leverage remained very manageable at 1.3x EBITDA with interest amply covered.

Using the 2024 results, the shares currently offer an earnings yield of 9.0%, free cash flow yield of 13.5% (calculated using total capex; 23.5% if you subtract only maintenance capex) and dividend yield of 6.9%.

Eurocell (ECEL)

Share price: £1.26
Market capitalisation: £125.65m

Eurocell is a vertically integrated manufacturer, distributor and recycler of PVC window, door and roofline products based in the United Kingdom. The company is split into two divisions: Profiles, which manufactures extruded rigid PVC profiles, sold to third-party window and door fabricators, and foam PVC products; and a Branch Network, that sells building plastics, including foam products from the profiles division, to a variety of trade buyers.

Eurocell’s revenue comes from three key markets: 1) Private residential repair, maintenance and improvement (RMI), accounting for c.85%; 2) private residential new build, accounting for c.10%; and 3) commercial (RMI and new build), accounting for c.5%.

In Mar 2025, the company acquired Alunet for £29m plus up to £6m in contingent consideration, subject to EBITDA performance over the next 4 years. Alunet manufactures and distributes aluminium window and door products and premium composite doors with solid wood cores, making it highly complementary to Eurocell’s existing business and expanding its offering into more premium product lines. Performance since acquisition has been strong, with Alunet providing £1.6m in adjusted operating profit to the Group from the beginning of March to 30 Jun 2025.

The current CEO, Darren Waters, launched a 5-year plan at the beginning of 2024, with the ambition to reach £500m in revenue and £50m in operating profit by the end of 2028. This is to be delivered through: the expansion of the branch network to 250 branches from 212 at 31 Dec 2024; utilisation of spare capacity across the branch network to stock and sell more windows from the branches; growing new business lines, such as extended living space products, which include garden rooms and extensions; and improving operational efficiency through organisational restructuring and investment in new trade counter and ERP systems. For reference, revenue and underlying operating profit (removing expenses related to the implementation of the strategic plan) in the year to 31 Dec 2024 were £357.9m and £22.8m, respectively.

The company has had a good track record of growing revenue since it went public in 2015 - more than doubling - but profit growth has lagged behind, with net profit remaining fairly flat at around £20m for most of those years. High levels of inflation and depressed demand have seen margins shrink in the last couple of years, causing net profit to decrease to around £10m and the share price to fall commensurately.

Cash flows have remained healthy however, and the company has been deploying them to aggressively repurchase shares. In 2024 it spent £15m on share repurchases, equating to approximately 10% of the company’s market capitalisation. Another £5m was allocated for share repurchases in 2025 and management intends to continue repurchases at around this annual rate while the share price remains depressed. The company also pays a progressive dividend, with payments totalling £6.1m in 2024.

Another data point worth factoring in is a number of substantial share purchases made by Derek Mapp, the company’s Non-Executive Chairman, since his appointment in 2022. At 31 Dec 2024 he held 589,417 shares and has subsequently purchased around 60k more.

The company’s net debt has grown following the Alunet acquisition, but its leverage remains very sustainable at less than 1x EBITDA, with interest well covered.

Using the 2024 results, the shares currently offer an earnings yield of 8.4%, a free cash flow yield of 11.8% and dividend yield of 4.9%. There’s also the buyback yield, which currently equates to around 4.0% on the basis of £5m annual spend. A recovery in earnings to their historic level of c.£20m would double the earnings yield, and achieving management’s 5-year targets would take it considerably higher.

If you’d like to find out which, if any, of these companies I’ve added to my own portfolio and get access to all my full research reports, consider becoming a paid subscriber on my main website: https://www.firmreturns.com/three-contrarian-investment-ideas-for-january-2026/.

There’s currently an offer running which you’ll find detailed at the bottom of the linked article.

I’ve been publicly documenting all my portfolio moves for a couple of years now, so I think it’s time I provided a review of how my portfolio has performed. This is something I plan to do each year as an “annual review”, wherein I’ll provide an update on my cumulative performance to that point, along with some discussion of the key drivers in the past year, and the current portfolio composition.

As you can see from the table below, 2025 has been a very good year with a return of 50.39%, markedly better than the -5.97% decrease seen in 2024. The cumulative return since inception now stands at 41.41% with a compound annual growth rate of 18.92%.

I’m obviously very pleased with this result and hope to be able to continue increasing the cumulative return and CAGR in 2026.

Newsletter performance

I’d also like to give you an update on how my newsletter has been doing.

During 2025, I published two new research reports on Jet2 (JET2) and James Latham (LTHM); six company updates on Aviva (AV), Warner Bros. Discovery (WBD), Ecora Resources (ECOR), Fuller, Smith & Turner (FSTA), tinyBuild (TBLD) and Secure Trust Bank (STB); and twenty portfolio updates.

I was able to attend five AGMs during the year (ECOR, STB, FSTA, LTHM and SHEP), and one investment conference (Mello2025). Unfortunately, TBLD clashed with the conference and JET2 clashed with a visit from my in-laws, so I wasn’t able to attend either of their AGMs this year. As much larger companies, with regularly published analyst calls and very detailed reports, attending the AGMs of AV and WBD is less crucial. I did attend Aviva’s AGM in 2024, however, as that year it was held pretty close to where I live.

It’s been a good year for subscriber growth, with the number of paid subscribers reaching 26 at the year-end, having started the year at 9.

I’m sure you’ll be reassured to know that, even with a relatively modest portfolio, my investment returns were more than 22x my subscription revenue and probably closer to 50x once you factor in tax, which I have yet to pay. The subscription revenue has gone a long way towards covering my travel and other newsletter-related expenses, however, so it is certainly very valuable.

It would be remiss of me not to thank my paid subscribers at this point, whom I hope to continue to provide good value for money in 2026.

For the full portfolio breakdown, head over to my main website: https://www.firmreturns.com/2025-annual-review/

• Shepherd Neame is a British hospitality business with its own brewery - Britain’s oldest, founded in 1698 - and a substantial estate of freehold properties in the South East of England. There is a healthy level of insider ownership, and the founding family remains actively involved in management through the Chief Executive - Jonathan Neame.

• The shares trade on the Aquis Stock Exchange (AQSE) Growth Market, but technically remain unlisted, leaving them largely ignored by institutional investors and inadmissible for any kind of index. This creates the kind of illiquidity that facilitates large share price dislocations.

• The company is well capitalised with plenty of equity in its freehold property estate and a large proportion of its debt consisting of long-term loans with fixed interest rates. Leverage ratios are perfectly manageable, and interest expense is well covered.

• Several years of economic and regulatory headwinds have had a major impact on the company’s financial results, but it remains profitable and highly cash generative.

• A positive of the recent downturn is that the share price has become very depressed. The shares currently trade at 0.39x book value, and as a result of property values being understated in the accounts, 0.31x the company’s real net asset value. In terms of earnings, the shares currently offer a 6.2% earnings and 4.4% dividend yield. On a normalised basis, you’re looking at a comfortably double digit earnings yield and mid-to-high single digit dividend yield.

• There’s uncertainty around the timing of a recovery, but I’d expect the shares to reach at least £10-12 per share from their current price of £4.85 within the next 3 years, presenting a highly attractive opportunity for the discerning investor.

Company overview

Shepherd Neame is Britain’s oldest brewer, with operations at its brewery, based in Faversham, Kent, officially starting in 1698. The owner at the time was Richard Marsh, who was also the mayor of the town. The brewery passed to Samuel Shepherd through marriage in 1732, and then down the line to Henry Jr Shepherd who took on Percy Beale Neame as a partner in 1864. At this point the business became known as Shepherd Neame & Company. It was incorporated as a private limited company in 1914, after Percy died, with his children as the shareholders.

As an interesting aside, Richard Marsh held King James II captive in the brewery after he attempted to flee to France during the Glorious Revolution of 1688.

Shepherd Neame remains a private limited company, but its shares trade on the Aquis Stock Exchange (AQSE) Growth Market - formerly known as the ICAP Securities and Derivatives Exchange (ISDX) Growth Market. Prior to 2014, there were two classes of share: A and B. Both share classes had equal voting rights, but the A shares had a nominal value of £1 and were quoted on the ISDX, while the B shares had a nominal value of 2p and were held exclusively by direct descendants of Percy Beal Neame and their spouses. With 68,000,000 B shares and 11,457,500 A shares in issue at the time, the B shares represented 85.6% of the voting rights, giving the family complete control of the company.

In 2014, the two share classes were converted into 14,857,500 ordinary shares with a nominal value of 50p. Immediately following this conversion, family members, directors and employees held an aggregate beneficial interest of 54%, with the ability to sell their shares on the exchange. If you’re wondering why Shepherd Neame was kept a private limited company and the shares trade on the AQSE Growth Market, the answer is quite simple: inheritance tax relief.

Beyond the brewery, the company has a substantial estate of 286 pubs spread across London and the South East, 85% of which are freehold properties. It famously owns the Westminster Arms, frequented by members of Parliament.

While the portfolio contains a diverse mix of pub types and locations, they are on average more rural and “wet-led” - i.e. trade is focused on drink sales. The rural weighting means the turnover of each pub is lower than a portfolio of pubs in high-traffic urban locations, and as such, lends itself to the tenanted model - where an individual entrepreneur leases the pub from Shepherd Neame and runs it as their own business.

Shepherd Neame has three core business segments: Brewing and Brands; Retail Pubs and Hotels; and Tenanted Pubs. Further detail on each is provided in the following sections.

For the full article, head over to my main website: https://www.firmreturns.com/shepherd-neame-research-report/

Below you'll find my latest research report on James Latham.

I have done my usual level of due diligence: travelling down to Hemel Hempstead to speak with management and other shareholders at the AGM; going through more than 10 years of financial statements, extracting and interrogating the relevant figures contained within; compiling data on 7 competitors and performing a comparative analysis; studying the company's product ranges and customers; and looking at the management and ownership structure, with a focus on the alignment of incentives.

However, responding to Reader feedback, I've made the report more concise (a little over 5,000 words), focused the competition section on a comparative analysis rather than a detailed case study of each competitor, and provided some hard numbers on potential return expectations in the investment outlook. If you agree that these changes are an improvement, please let me know by replying to this email or commenting on the website.

Regards

James

Executive summary

James Latham (Lathams; LTHM) is an independent distributor of timber, panels and decorative surfaces, operating in the United Kingdom and Republic of Ireland, and listed on the Alternative Investment Market (AIM) of the London Stock Exchange with a market capitalisation of £221m.

The founding Latham family has run the company for more than two and a half centuries, and the alignment between management and shareholders could hardly be better: remuneration is relatively modest, there's minimal share dilution, and very substantial insider ownership.

As you'd expect for a commodity business, there's a healthy amount of competition from companies of varying sizes; smaller regional businesses - some more than a century old - coexist with mid-sized national (e.g. Lathams), and large international corporations.

Despite the competition, Lathams has built itself a considerable moat and outperforms its competitors on many key metrics. These include: efficiency, where Lathams had the highest revenue per employee and best operating margins in a study of 7 direct competitors, with revenues ranging from £10m to £2bn; product range, including a very wide variety of both commodity and specialist products from highly sought after suppliers; reputation, built over literally centuries; and service, such as next day delivery on pretty well all products from its network of depot's operating 24/5.

After a period of unprecedented profits in 2021 and 2022, the company has around £50m of excess cash on its balance sheet, which has now been allocated for the construction of a national distribution centre costing £45m over two years. If by 2030 (once the excess cash has been fully deployed), the company is able to generate a return on capital employed/equity around its historical level of 14-15%, the return for investors would be 18-21% per annum - assuming it continues to trade at its current multiple of earnings.

If, however, we don't see this boost to growth or a return of excess capital to shareholders, a conservative projection would put the annual return for the next 5 years at around 10% (from the current share price). You've therefore got an opportunity with attractive upside and pretty minimal downside.

Read the full report

This week’s edition can be found here:

https://www.firmreturns.com/bottom-feeding-xpf-aim-cta-aim-and-ckn-lse/

I’ll continue posting links on here for a few more weeks, but I’d encourage any new subscribers to sign-up to Firm Returns so you get them directly.

This is just a quick note to say I’ve moved Bottom Feeding over to the same platform I use for Firm Returns, namely ghost.org. This means you’ll also get posts sent out to free Firm Returns subscribers, but you can unsubscribe from these if you so wish while still receiving Bottom Feeding.

Anyone who has emails disabled and just uses the substack app won’t have been moved over, so if you’d like to continue receiving Bottom Feeding you’ll need to sign up at firmreturns.com.

Best wishes

James

FNM manages railway and motorway infrastructure in the Lombardy region of Italy. The company is state-controlled, with around 57.6% of shares being held by Regione Lombardia (Lombardy Region), and another 14.7% by the Ferrovie dello Stato Italiane S.p.A (State Railway).

In the year ended 31 Dec 2024, the company generated total revenues and other income of EUR 949,874k (FY23: EUR 776,006k), operating profit of EUR 74,270k (FY23: EUR 104,682k), and net profit of EUR 59,603k (FY23: EUR 81,998k).

Total equity at 31 Dec 2024 was EUR 374,314k (FY23: EUR 355,334k), of which EUR 15,852k was tangible (FY23: EUR 47,630k). Net debt including lease liabilities at this date was EUR 615,111k (FY23: EUR 549,811k).

FNM generated net cash flows from operations of EUR 195,998k in FY24 (FY23: EUR 182,693k), and invested EUR 86,692k in PP&E purchases (FY23: EUR 42,938k). Free cash flow was EUR 106,306k (FY23: EUR 139,755k), which it used to pay EUR 10,000k in dividends (FY23: EUR 10,003k).

Market capitalisation: EUR 178.31m

Valuation: Using the FY24 figures, the shares currently offer a 33.4% earnings yield, 59.6% free cash flow yield, and 5.6% dividend yield.

Reason: Higher interest rates are probably a factor given the amount of leverage the company uses; but that said, its interest is well covered by earnings. The shares have been relatively flat since mid-2022, which is when inflation and interest rates started to pickup.

Interest level: Moderate - Language and lack of local familiarity are definitely obstacles for me; I don’t know what limitations state control creates regarding shareholder distributions; the current payout ratio is very low.

Treatt (TET.LSE)

TET manufactures and supplies various natural extracts and ingredients to the flavour, fragrance, beverage, and consumer product industries in the UK, Germany, Ireland, USA, China, and elsewhere.

In the year ended 30 Sep 2024, the company generated total revenue of £153,066k (FY23: £147,397k), gross profit of £44,486k (FY23: £44,824k), operating profit of £19,239k (FY23: £14,521k), and net profit of £14,401k (FY23: £10,942k).

Total equity at 30 Sep 2024 was £142,014k (FY23: £137,246k), and it had net debt including lease liabilities of £739k (FY23: £10,382k).

TET generated net cash flows from operations of £21,068k (FY23: £21,491k), and invested £5,668k in capital expenditure (FY23: £5,714k). Free cash flow in FY24 was £14,232k (FY23: £14,536k), which it used to pay dividends of £4,924k (FY23: £4,802k), alongside net debt repayments totalling £8,393k (FY23: £7,095k).

Market capitalisation: £129.19m.

Valuation: Using the FY24 figures, the shares currently offer an 11.1% earnings yield, 11.0% free cash flow yield, 3.8% dividend yield, and trade at 0.9x book value.

The company has also announced a £5m share buyback programme commencing 10 Apr 2025, equating to a 3.9% buyback yield.

Reason: Weak consumer sentiment in the USA - its largest market, accounting for £58m of revenue in FY24 - has led the company to issue a profit warning for FY25.

Interest level: High - This seems like a great example of a high quality company facing some short-term headwinds. Direct tariff exposure should be somewhat mitigated by the fact it manufactures its products in both the UK and USA.

Danaos Corporation (DAC.NYSE)

DAC is a Greek shipping company that owns and operates a fleet of containerships in Australia, Asia, Europe, and the USA.

In the year ended 31 Dec 2024, the company generated total revenue of $1,014,110k (FY23: $973,583k), operating profit of $540,884k (FY23: $580,661k), and net profit of $505,073k (FY23: $576,299k).

Total equity at 31 Dec 2024 was $3,424,800k (FY23: $3,016,317k), and it had net debt of $281,399k (FY23: $132,365k).

DAC generated net cash flows from operations of $621,750k (FY23: $576,292k), and invested $659,343k in capital expenditure (FY23: $268,035k). Free cash flow in FY24 was $466,129k (FY23: $445,113k), which it used to pay dividends totalling $62,807k (FY23: $60,696k), in addition to spending $53,332k on share repurchases (FY23: $70,610k). Note: I’ve used depreciation to calculate FCF since capex is running well above a maintenance level.

Market capitalisation: $1.34bn

Valuation: Using the FY24 figures, the shares currently offer a 37.7% earnings yield, 34.8% free cash flow yield, 8.7% shareholder yield (dividends + share buybacks), and trade at 0.4x book value.

Reason: Charter rates and profit margins are near their cyclical peak and markets are evidently expecting them to fall.

Interest level: Moderate - Undoubtedly cheap, but the return shareholders will enjoy is going to depend on management’s capital allocation - new vessel acquisitions are currently being prioritised over returning capital to shareholders.

While the current charter rates are largely locked in for several more years, if we start to see trade slow down (as seems likely), margins could shrink quite rapidly in the medium-term, along with vessel values, closing the gap between the market valuation and book value. Investors may be looking through the market cycle here.

If you want to read much more detailed research on individual companies, head over to https://www.firmreturns.com, where you’ll find a large library of articles and can sign-up to my free or paid newsletter.

I write 2-3 research reports on new companies each year for paid members, in addition to providing portfolio updates whenever I buy or sell shares.

Free members get updates on each of the companies in my portfolio, usually coinciding with a key event such as an earnings release. Companies currently covered include: JET2.L, FSTA.L, TBLD.L, ECOR.L, AV.L, STB.L, and WBD.

CHH manufactures and sells ceramic and related products in the UK, Europe, US, and further afield, to customers primarily within the hospitality sector.

In the year ended 31 Dec 2023, the company generated total revenue of £82,339k (FY22: £82,528k), operating profit of £10,252k (FY22: £9,689k), and net profit of £7,717k (FY22: £7,895k).

Total equity at 31 Dec 2023 was £59,941k (FY22: £56,648k), and it had net cash excluding lease liabilities of £13,933k (FY22: £9,604k), and £13,256k (FY22: £9,127k) including lease liabilities.

CHH generated net cash flows from operations of £8,475k in FY23 (FY22: £3,973k), and invested £5,407k in capital expenditure (FY22: £4,704k). It generated free cash flow of £4,635k (FY22: £727k), which it used to pay dividends totalling £3,519k (FY22: £3,062k). Note: I’ve used depreciation and amortisation in the FCF calculation, since maintenance capex isn’t disclosed.

Market capitalisation: £51.14m

Valuation: Using the FY23 figures, the shares currently offer an earnings yield of 15.1%, free cash flow yield of 9.1%, dividend yield of 6.9%, and trade at a price to book value of 0.9.

Reason: Downturn in UK and European hospitality sectors (it’s largest markets), causing profit guidance to be downgraded. Labour cost inflation resulting from the UK budget is also likely to have an impact on profits.

Interest level: High - The company is nearly 230 years old and run very conservatively, making it likely it will be able to get through this period of economic weakness intact.

IG Design Group (IGR.AIM)

IGR manufactures and distributes a range of paper and stationary products in the Americas, UK and other regions.

In the year ended 31 Mar 2024, the company generated total revenue of $800,051k (FY23: $890,309k), gross profit of $141,519k (FY23: $131,740k), operating profit of $28,996k (FY23: $12,023k loss), and net profit of $37,119k (FY23: $26,459k loss).

Total equity at 31 Mar 2024 was $369,487k (FY23: $334,722k), of which only $74,754k (FY23: $77,133k) was intangible. The company had net cash excluding lease liabilities of $95,227k (FY23: $50,484k), and $27,881k (FY23: $29,703k net debt).

IGR generated net cash flows from operations of $77,708k (FY23: $46,397k), and invested $10,696k in capital expenditure (FY23: $5,827k). Free cash flow in FY24 was $46,960k (FY23: $13,437k), which it used to repurchase shares worth $3,548k (FY23: $865k) and paid no dividend. Note: I’ve conservatively used depreciation when calculating FCF since it exceeded capex.

Market capitalisation: £50.14m ($64.68m).

Valuation: Using the FY24 figures, the shares currently offer an earnings yield of 57.4%, free cash flow yield of 72.6%, and trade at a price to tangible book value of 0.2.

Reason: Several of the company’s largest US customers have gone under, and it has issued a profit warning for FY25.

Interest level: Moderate - Company’s balance sheet is still pretty robust with a net cash position, and it has been selling off property assets to raise further liquid funds. However, over-exposure to the US does create cause for concern; especially in the retail sector, which will be particularly hard hit by tariffs.

Orzel Bialy S.A. (OBL.WSE)

OBL is a Polish producer of refined lead recycled from waste lead-acid batteries, majority owned by ZAP Sznajder Batterien S.A..

In the year ended 31 Dec 2023, the company generated total revenue of PLN 736,885k (FY22: PLN 885,944k), gross profit of PLN 157,777k (FY22: PLN 166,564k), operating profit of PLN 119,443k (FY22: PLN 136,965k), and net profit of PLN 106,522k (FY22: PLN 100,375k).

Total equity at 31 Dec 2023 was PLN 601,967k (FY22: PLN 484,834k), and it had net cash including lease liabilities of PLN 75,659k (FY22: PLN 105,642k). Note: it’s possible this net cash figure is understated, as the company has a lot of “other financial assets” on its balance sheet, which are likely to be short-term debt securities.

OBL generated net cash flows from operations of PLN 88,696k (FY22: -ve PLN 2,568k), and invested PLN 4,183k in capital expenditure (FY22: PLN 9,021k). Free cash flow in FY23 was PLN 78,163k (FY22: PLN -ve 12,473k), and it didn’t pay a dividend. Note: I’ve conservatively used depreciation to calculate FCF since it exceeded capex.

Market capitalisation: PLN 582.77m ($149.66m)

Valuation: Using the FY23 figures, the shares currently offer an earnings yield of 18.3%, free cash flow yield of 13.4%, and trade at a price to book value of 1.

In the first 9M of FY24, the company paid out dividends totalling PLN 16,651k, equating to a dividend yield of 2.9%.

Reason: Growth seems to have been impacted over the last couple of years by a falling lead price, resulting in the shares being fairly flat over this period.

Interest level: Moderate - Seems reasonably cheap, but there are language barriers to overcome when due diligencing this company.

If you want to read much more detailed research on individual companies, head over to https://www.firmreturns.com, where you’ll find a large library of articles and can sign-up to my free or paid newsletter.

I write 2-3 research reports on new companies each year for paid members, in addition to providing portfolio updates whenever I buy or sell shares.

Free members get updates on each of the companies in my portfolio, usually coinciding with a key event such as an earnings release. Companies currently covered include: JET2.L, FSTA.L, TBLD.L, ECOR.L, AV.L, STB.L, and WBD.

TSTL is a manufacturer of infection prevention products for the health industry.

In the year ended 30 Jun 2024, the company generated total revenue of £41,933k (FY23: £36,009k), gross profit of £33,578k (FY23: £27,918k), operating profit of £6,982k (FY23: £5,281k), and net profit of £6,489k (FY23: £4,461k).

Total equity at 30 Jun 2024 was £32,410k (FY23: £30,684k), and it had net cash excluding lease liabilities of £11,789k (FY23: £9,545k), and £5,925k (FY23: £4,365k) including lease liabilities.

TSTL generated net cash flows from operations of £10,886k in FY24 (FY23: £8,490k), and invested £2,182k in capital expenditure (FY23: £2,423k). It generated free cash flow of £9,093k (FY23: £6,852k), which it used to pay dividends totalling £6,224k (FY23: £4,511k).

Market capitalisation: £144.54m

Valuation: Using the FY24 figures, the shares currently offer an earnings yield of 4.5%, free cash flow yield of 6.3%, and dividend yield of 4.3%.

Reason: The company has just started expanding into the US, and expects a significant proportion of future growth to come from this market. Therefore, I’d say investors are pricing in the potential impact of US tariffs on near-term growth.

Interest level: High - My first impressions are that it’s a high quality and growing company, able to pay out most of its earnings to shareholders.

Wästbygg Gruppen AB (WBGR.OM)

WBGR is a Swedish construction and project development company that builds and develops a mixture of residential and commercial buildings.

In the year ended 31 Dec 2024, the company generated total revenue of SEK 4,989m (FY23: SEK 4,991m), gross profit of SEK 88m (FY23: SEK 25m loss), an operating loss of SEK 216m (FY23: SEK 361m), and net loss of SEK 213m (FY23: SEK 369m).

Total equity at 31 Dec 2024 was SEK 968m (FY23: SEK 1,181m), though this included SEK 427m of intangible assets (FY23: SEK 430m). Net debt at this date was SEK 526m (FY23: SEK 1,126m).

WBGR generated net cash flows from operations of SEK 88m (FY23: -ve SEK 717m), and invested SEK 69m into various tangible and intangible assets (FY23: SEK 36m). Free cash flow was break-even at best, and a fair amount of debt restructuring occurred.

Market capitalisation: SEK 480.19m (USD $47.97m) - This is post-dilution.

Valuation: Using the FY24 figures, the shares currently offer an earnings yield of -44.4%, and trade at a price to tangible book value of 0.7.

Note: these figures account for share dilution from a rights issue and the SEK 150m in cash it raised.

Reason: Business downturn; resignation of CEO and CFO; and share dilution.

Interest level: Low - Don’t see much value here.

CML Microsystems (CML.AIM)

CML develops mixed-signal, RF and microwave semiconductors for global communications markets.

In the year ended 31 Mar 2024, the company generated total revenue of £22,893k (FY23: £20,643k), gross profit of £16,210k (FY23: £15,611k), operating profit of £1,943k (FY23: £4,990k), and net profit of £2,060k (FY23: £4,810k). Note: the FY23 operating and net profit figures were boosted by an asset sale.

Total equity at 31 Mar 2024 was £51,076k (FY23: £50,754k), but a significant proportion of total assets consisted of intangible assets valued at £32,949k (FY23: £22,214k). The company had net cash excluding lease liabilities of £18,213k (FY23: £22,259k), and £17,357k (FY23: £21,207k) including lease liabilities.

For context, CML acquired Microwave Technology Inc on 2 Oct 2023 (2H24) for total consideration of £10,796k, split between £6,266k cash and £4,530k shares. This explains the increase in intangible assets and decrease in cash from FY23 to FY24.

CML generated net cash flows from operations of £5,044k in FY24 (FY23: £5,412k), and invested £5,065k in capital expenditure (FY23: £5,387k). Free cash flow in FY24 was £1,584k (FY23: £2,629k), and the company paid £1,739k in dividends (FY23: £1,589k) alongside repurchasing shares worth £1,750k (FY23: £4,767k). Note: since the company doesn’t split out growth and maintenance capex, I’ve used depreciation/amortisation to calcuate FCF.

Market capitalisation: £33.42m

Valuation: Using the FY24 figures, the shares currently offer an earnings yield of 6.2%, free cash flow yield of 4.7%, dividend yield of 5.2%, and shareholder yield of 10.4%.

Reason: Depressed semiconductor market and FY25 profit warning.

Interest level: High - Could be an opportunity to buy a well capitalised and cash flowing business near the bottom of the economic cycle.

If you want to read much more detailed research on individual companies, head over to https://www.firmreturns.com, where you’ll find a large library of articles and can sign-up to my free or paid newsletter.

I write 2-3 research reports a year for paid members, in addition to providing portfolio updates whenever I buy or sell shares.

Free members get updates on each of the companies in my portfolio, usually coinciding with a key event such as an earnings release. Companies currently covered include: JET2.L, FSTA.L, TBLD.L, ECOR.L, AV.L, STB.L, and WBD.

LNR is a diversified advanced manufacturing company, serving a range of industries including automotive, agriculture, construction, and medical technology. Sales are pretty concentrated in automotive, but at the profit level the segmental split is more evenly balanced.

In the year ended 31 Dec 2024, the company generated total revenue of CA$10,582.0m (FY23: CA$9,733.5m), gross profit of CA$1,504.0m (FY23: CA$1,322.8m), operating profit of CA$611.3m (FY23: CA$774.8m), and net profit of CA$258.3m (FY23: CA$503.1m). The net profit figure for FY24 was impacted by a CA$385.5m goodwill impairment charge on its European subsidiary, linked to a significant decline in European automotive production. Taking this out, the normalised net profit was CA$604.4m (FY23: CA$541.1m).

Total equity at 31 Dec 2024 was CA$5,427.9m (YE23: CA$5,322.1m), and it had net debt excluding lease liabilities of CA$982.8m (FY23: CA$875.0m), and CA$1,192.3m including lease liabilities (FY23: CA$1,078.5m).

LNR generated net cash flows from operations of CA$1,464.9m in FY24 (FY23: CA$1,002.1m), and invested CA$532.6m in PP&E (FY23: CA$762.7m), alongside CA$620.5m in business acquisitions (FY23: CA$407.1m). The company generated free cash flow in FY24 of CA$660.5m (FY23: -ve CA$13.6m), which it used to pay dividends totalling CA$61.5m (FY23: CA$54.1m), in addition to spending CA$42,025m on share repurchases (FY23: nil).

Market capitalisation: CA$3.07bn

Valuation: Using the FY24 figures, the shares currently offer an earnings yield of 8.4% (19.7% normalised), free cash flow yield of 21.5%, dividend yield of 2.0%, and trade at a price to tangible book value of 0.9.

Reason: Fears around the impact of US tariffs, and weak automotive market in Europe.

Interest level: Moderate - The valuation is compelling, but I’d like to see them returning more cash to shareholders rather than making business acquisitions.

Mitchells & Butlers (MAB.LSE)

MAB is a UK hospitality business with a portfolio of over 1,700 pubs and restaurants, operated under a wide range of brands including, amongst others: All Bar One, Harvester, Toby Carvery, O’Neills, and Vintage Inns.

In the year ended 28 Sep 2024, the company generated total revenue of £2,610m (FY23: £2,503m), operating profit of £300m (FY23: £98m), and net profit of £149m (FY23: £4m net loss).

Total equity at 28 Sep 2024 was £2,566m (YE23: £2,130m), backed almost entirely by tangible assets. Net debt was £1,008m excluding lease liabilities (YE23: £1,204m), and £1,455m including lease liabilities (YE23: £1,667m).

MAB generated net cash flows from operations of £386m (FY23: £248m), and invested £152m in PP&E (FY23: £154m). Free cash flow in FY24 was £328m (FY23: £181m), used principally to repay debt, with no dividend payment to shareholders.

Market capitalisation: £1.34bn

Valuation: Using the FY24 figures, the shares currently offer an earnings yield of 11.1%, free cash flow yield of 24.5%, and trade at a price to book value of 0.5.

Reason: The company is facing c.£100m of cost headwinds in the next year, primarily due to labour costs which will increase as a result of changes to employer national insurance contributions and the UK minimum wage.

Interest level: Moderate - Valuation looks very attractive, but it seems questionable whether this value will be returned to shareholders given the current lack of distributions.

4imprint Group (FOUR.LSE)

FOUR is a direct marketer of promotional products, with operations in North America, the UK and Ireland, but North America contributes the vast majority of the company’s revenue and profits.

In the year ended 28 Dec 2024, the company generated total revenue of $1,367.9m (FY23: $1,326.5m), gross profit of $435.4m (FY23: $401.9m), operating profit of $154.4m (FY23: $140.7m), and net profit of $117.2m (FY23: $106.2m).

Total equity at 28 Dec 2024 was $185.1m (FY23: $134.5m), and the company had a net cash position of $142.3m (FY23: $92.2m).

FOUR generated net cash flows from operations of $132.6m (FY23: $137.0m), and invested $19.6m in PP&E (FY23: $10.0m). Free cash flow in FY24 was $108.6m (FY23: $128.5m), which was used to pay $65.5m in dividends to shareholders (FY23: $110.8m).

Note: the FY23 total dividend includes a special dividend of $58.1m. The regular dividend increased in FY24 from $52.7m the prior year.

Market capitalisation: £1.07bn ($1.38bn)

Valuation: Using the FY24 figures, the shares currently offer an earnings yield of 8.5%, free cash flow yield of 7.9%, and dividend yield of 4.7%.

Reason: Fears around impact of US tariffs.

Interest level: Moderate to high - Valuation looks appealing given historic growth rates, and management has established a good precedent of returning capital to shareholders.

If you want to read much more detailed research on individual companies, head over to https://www.firmreturns.com, where you’ll find a large library of articles and can sign-up to my free or paid newsletter.

I write 2-3 research reports a year for paid members, in addition to providing portfolio updates whenever I buy or sell shares.

Free members get updates on each of the companies in my portfolio, usually coinciding with a key event such as an earnings release. Companies currently covered include: JET2.L, FSTA.L, TBLD.L, ECOR.L, AV.L, STB.L, and WBD.

Tullow Oil (TLW.L)

TLW is an independent energy company with over 30 drilling licences across several countries in Africa and South America.

In the year ended 31 Dec 2023, it generated $1,634.1m of revenue (FY22: $1,783.1m), $764.9m of gross profit (FY22: $1,085.6m), $295.9m of operating profit (FY22: $733.9m), and made a net loss of $109.6m (FY22: $49.1m net profit). Revenue guidance for FY24 is c.$1.5bn.

Total equity at 31 Dec 2023 was negative $359.4m (FY22: -ve $459.5m), and it had net debt of $1,608.4m (FY22: $1,863.7m). We don’t have the audited financials for FY24 yet, but the company has disclosed that its net debt has been brought down to c.$1.45bn at YE24, and its gearing stands at c.1.3x.

TLW generated net cash flows from operations of $876.2m in FY23 (FY22: $1,077.8m), and invested a net $268.5m (FY22: $356.2m) into principally PP&E assets. It generated free cash flow of $170.2m in FY23 (FY22: $267.2m), and FCF guidance for FY24 is c.$156m. Looking out to FY25, the company is forecasting FCF of c.$200m.

Market capitalisation: £217.42m

Valuation: Using the FY23 figures, the shares currently offer a very negative earnings yield of 38.8%, a very positive free cash flow yield of 60.3%, and a nil dividend yield. Debt repayments do arguably give you a good shareholder yield, but with negative equity this doesn’t count for much at the moment.

The guided FCF for FY24 would equate to a 55.2% yield on the current share price, and the forecast for FY25 would give you a 70.8% yield.

Reason: Heavy debt burden, recent CEO departure, and uncertaintly around contingent liabilities.

Interest level: High - The company is looking to bring its net debt down below $1bn and maintain gearing of <1x. It’s also talking about implementing a capital returns framework following the completion of its debt refinancing and the appointment of a new CEO, so there’s the potential for a very high dividend/buyback yield in the near future.

J D Wetherspoon (JDW.L)

JDW owns and operates an estate of 796 pubs and hotels in the UK and Ireland, and sits very much at the value end of the market, with a focus on the affordability of the food and drink it serves.

In the year ended 28 Jul 2024, it generated £2,035.5m of revenue (FY23: £1,925.0m), £142.6m of operating profit (FY23: £106.0m), and made a net profit of £48.8m (FY23: £59.6m).

Total equity at 28 Jul 2024 was £401.6m (FY23: £413.1m), and it had net debt of £660.0m excluding lease liabilities (FY23: £641.9m), and £1,072.8m including lease liabilities (FY23: £1,063.5m). Since 2010, the company has been steadily increasing the percentage of its estate for which it owns the freehold; it currently stands at 72% compared with 41% in 2010.

JDW generated net cash flows from operations of £172.6m in FY24 (FY23: £362.4m), and invested a net £98.6m (FY23: £67.2m) into predominantly a mix of maintenance and growth capex, and freehold reversions (acquiring the freehold for properties it currently leases). It also repurchased £52.2m worth of its own shares (of which £12.7m will be used for share-based payments), and declared a final dividend for FY24 of 12.0p per share (FY23: nil), with a cash cost of £14.4m. The company generated free cash flow in FY24 of £33.0m (FY23: £271.1m).

It should be noted that the FY23 operating and free cash flow figures are skewed by the cash proceeds on termination of the company’s interest-rate swaps.

Market capitalisation: £687.22m

Valuation: Using the FY24 figures, the shares currently trade with an earnings yield of 7.1%, dividend yield of 2.1%, free cash flow yield of 4.8%, and price to book value of 1.7.

If we normalise the earnings and free cash flow to their pre-pandemic levels, which I’d say they’re likely to return to in the medium-term, we’re looking at double digit yields for both with the current share price.

Reason: Near-term outlook is grim due to £60m of additional labour costs from the 1 Apr 2025 as a result of the national insurance (NI) and minimum wage increases - more than the company made in profit in FY24.

Interest level: High - I have a feeling the share price will continue to fall as the industry feels the impact of the NI and minimum wage changes, which could produce an excellent buying opportunity for this high quality business. JDW has proven itself to be very resilient over the decades, and I’m confident it will be able to return to profitability in the medium-term.

Speedy Hire (SDY.L)

SDY provides tool and equipment hire services in the UK and Ireland, with clients across the construction, infrastructure and industrial sectors.

In the year ended 31 Mar 2024, it generated revenue of £421.5m (FY23: £440.6m), gross profit of £230.0m (FY23: £219.0m), operating profit of £17.8m (FY23: £10.4m), and net profit of £2.7m (FY23: £1.2m).

Total equity at 31 Mar 2024 was £175.7m (FY23: £184.6m), and tangible net asset value was £136.0m (FY23: £159.6m). Net debt at this time amounted to £101.3m excluding lease liabilities (FY23: £92.4m), and £198.9m including lease liabilities (FY23: £178.5m).

SDY generated net cash flows from operations of £52.6m in FY24 (FY23: £40.4m), and invested a net £24.2m (FY23: £3.4m), primarily in PP&E and a business acquition. Dividends totalling £11.8m (FY23: £10.9m) were paid during FY24, and in the prior year the company repurchased £24.0m of its own shares. Free cash flow in FY24 was £23.5m (FY23: £10.6m).

Market capitalisation: £87.44m

Valuation: Using the FY24 figures, the shares current offer an earnings yield of 3.1%, dividend yield of 13.5%, free cash flow yield of 26.9%, and price to tangible book of 0.64.

Reason: Outlook for the construction sector in 2025 is looking bleak, along with delays to some infrastructure projects that impact SDY.

Interest level: Moderate to high - Valuation looks very attractive, but there are questions around how well the company could withstand a serious and prolonged economic downturn.

If you want to read much more detailed research on individual companies, head over to https://www.firmreturns.com, where you’ll find a large library of articles and can sign-up to my free or paid newsletter.

I write 2-3 research reports a year for paid members, in addition to providing portfolio updates whenever I buy or sell shares.

Free members get updates on each of the companies in my portfolio, usually coinciding with a key event such as an earnings release. Companies currently covered include: FSTA.L, TBLD.L, ECOR.L, AV.L, STB.L, and WBD.

Greggs (GRG.L)

GRG is a popular bakery chain in the UK with over 2,600 stores, offering a range of freshly baked and freshly prepared food-on-the-go products.

In the year ending 28 Dec 2024, revenue totalled £2,014.4m (FY23: £1,809.6m), gross profit £1,243.6m (FY23: £1,099.1m), operating profit £209.4m (FY23: £192.3m), and net profit £153.4m (FY23: £142.5m). It should be noted that the operating and net profit included £14.1m of exceptional income from the disposal of the company’s Twickenham bakery site, and the reversal of certain provisions.

Total equity at 28 Dec 2024 was £570.5m, with assets predominantly comprising PP&E and right-of-use assets associated with building leases. Excluding lease liabilities, GRG had a net cash position of £125.3m.

Net cash generated from operations was £310.9m (FY23: £310.8m), which it used, among other things, to acquire £230m (FY23: £189.5m) of PP&E, and pay out £106.8m (FY23: £60.8m) in dividends to shareholders. Note: this included a special dividend of £40.7m paid in 2024.

Market capitalisation: £1.8bn

Valuation: The shares currently offer a 8.5% earnings yield, 5.9% dividend yield (3.7% excluding special dividend), and 8.6% free cash flow yield (based on maintenance capex of c.5% of revenue).

Reason: Fears the company won’t be able to mitigate the impact of upcoming employer national insurance and minimum wage rises, currently estimated to cost c.£45m in 2025, and >£50m in 2026.

Interest level: moderate - I’d like to see the price come down a little further to allow for a potentially slower growth rate in future as the UK market nears saturation.

Cargojet (CJT.TSX)

CJT is a Canadian cargo airline, operating flights both within Canada and internationally.

In the year ending 31 Dec 2024, revenue totalled CAD$1,000.8m (FY23: CAD$877.5m), gross profit $225.8m (FY23: $138.1m), operating profit $135.2m (FY23: $67.6m), and net profit $108.4m (FY23: $37.3m).

Total equity at 31 Dec 2024 was $737.7m (FY23: $784.5m), with assets predominantly comprising PP&E. Net debt (excluding lease liabilities) amounted to $650.1m (FY23: $648.3m).

The company generated net cash from operations of $328.6m (FY23: $191.9m), which it used, among other things, to purchase a net $144.9m (FY23: $139.7m) of PP&E, buyback $127.7m (FY23: $35.5m) worth of shares, and pay $26.7m (FY23: $19.7m) in dividends.

Market capitalisation: CAD$1.45bn

Valuation: The shares currently offer a 7.5% earnings yield, 12.7% shareholder yield (dividends + buybacks + debt repayment), and 10.4% free cash flow yield.

Reason: Primarily fears around the impact of tariffs on global air cargo demand.

Interest level: moderate - not sure how resilient the company would be in a major downturn.

Howden Joinery Group (HWDN.L)

HWDN is a trade kitchen and joinery supplier operating in the UK, France and Belgium.

In the year ending 28 Dec 2024, revenue totalled £2,322.1m (FY23: £2,310.9m), gross profit £1,431.1m (FY23: £1,403.9m), operating profit £339.2m (FY23: £340.2m), and net profit £249.3m (FY23: £254.6m).

Total equity at 28 Dec 2024 amounted to £1,128.7m (FY23: £978.4m), with assets spread between PP&E, right-of-use assets, inventories, receivables, and cash. The company had a net cash position of £343.6m (FY23: £282.8m), excluding lease liabilities.

Net cash generated from operations was £400.1m (FY23: £372.3m), which it used, among other things, to spend £122.0m (FY23: £118.9m) on PP&E, and pay £115.9m (FY23: £114.1m) in dividends.

Market capitalisation: £4.21bn

Valuation: The shares currently offer a 5.9% earnings yield, 2.8% dividend yield, and 4.9% free cash flow yield.

Reason: The business has been treading water over the last couple of years due to the macroeconomic environment and this has been reflected in the share price. Outlook for 2025 doesn’t look great due to continued inflationary pressures and a general market contraction.

Interest level: moderate - continued investment through this downturn should give the business a solid rebound, but I’d like to see the share price come down a little further.

If you want to read much more detailed research on individual companies, head over to https://www.firmreturns.com, where you’ll find a large library of articles and can sign-up to my free or paid newsletter.

I write 2-3 research reports a year for paid members, in addition to providing portfolio updates whenever I buy or sell shares.

Free members get updates on each of the companies in my portfolio, usually coinciding with a key event such as an earnings release. Companies currently covered include: FSTA.L, TBLD.L, ECOR.L, AV.L, STB.L, and WBD.

This week we’re going to start with 3 small-to-mid cap companies listed on the London Stock Exchange, in variety of different sectors ranging from commercial real estate to travel. Let’s dive in.

B&M European Value Retail S. A. (BME.L)

BME is value/discount retailer operating in the UK and France, under the b&m and Heron Foods brands. The b&m stores sell a range of general merchandise, groceries, and fast moving consumer goods (FMCGs), and are typically located in out of town retail parks or town centres. In contrast, Heron Foods stores are convenience stores located in local neighbourhoods and shopping parades, selling a range of ambient, chilled and frozen food.

The UK is its largest market, with 741 b&m and 335 Heron Foods stores, while France has 124 b&m stores.

In the year ending 30 Mar 2024, BME generated revenue of £5,484m (FY23: £4,983m), gross profit of £2,035m (FY23: £1,801m), operating profit of £607m (FY23: £535m), and net profit of £367m (FY23: £348m).

Total equity at 30 Mar 2024 was £734m (FY23: £720m), but pretty intangible given £921m of goodwill on the balance sheet. Net debt (excluding lease liabilities) at 30 Mar 2024 was £728m (FY23: £717m).

The company generated cash flows from operations of £746m in FY24 (FY23: £782m), which it used, amongst other things, to invest £123m in property, plant and equipment (FY23: £93m), and pay out £348m in dividends to shareholders (FY23: £366m).

Market capitalisation: £2.79bn

Valuation: Using FY24 figures, the shares currently trade at an earnings yield of c.13.2%, free cash flow yield of c.11.9%, and dividend yield of 12.5%. The company has a negative tangible book value.

Reason: Profit outlook has been pretty negative for FY25, despite significant investment in new store openings. Like-for-like sales have been down in each quarter, and the company has guided for full-year operating profit to be flat to down on FY24.

As a retailer with a large workforce, the company has been particularly impacted by the UK Government’s Autumn budget, which included significant increases to employer national insurance contributions and the minimum wage.

Additionally, the company announced on 24 Feb 2025 that the CEO would be leaving on 30 April, having held the role since Sep 2022.

Interest level: moderate to high

Derwent London (DLN.L)

DLN is a central London office focused real estate investment trust (REIT), with a portfolio of 63 properties, totalling 5.3m sqft.

In the year ending 31 Dec 2024, it generated net property and other income of £198.3m (FY23: £190.5m), an operating profit of £156.4m (FY23: £428.9m loss), and a net profit of £115.9m (FY23: £476.4m loss).

Total equity at 31 Dec 2024 was £3,539.8m (FY23: £3,508.8m), backed by an investment property portfolio valued at £4,670.1m (FY23: £4,551.4m). Net debt (excluding lease liabilities) at this time was £1,392.1m (FY23: £1,263.1m), with interest covered 3.9x by operating income.

The company generated £64.6m in cash flows from operations (FY23: £97.0m), and invested £101.9m (FY23: £98.0m) in principally property acquisitions and capital expenditure. It also paid dividends totalling £89.6m (FY23: £88.7m).

Market capitalisation: £2.07bn

Valuation: Using the FY24 figures, the shares currently trade at an earnings yield of 5.6%, free cash flow yield of negative 3.6%, dividend yield of 4.3%, and price to book value of 0.58.

Reason: There have been several negative property revaluations in the last few years, and cash flows from operations have been trending down, while net debt has increased. The dividend looks increasingly unsustainable and I wouldn’t be surprised to see it cut.

Interest level: low

Fuller, Smith & Turner (FSTA.L)

Fullers is a company I’ve covered extensively over at Firm Returns, and hold in own my portfolio at time of writing.

Having divested its brewery, it is now a pure hospitality business with 185 internally managed pubs and hotels, and 153 tenanted inns.

In the year ending 30 Mar 2024, the company generated revenue of £359.1m (FY23: £336.6m), operating profit of £27.7m (FY23: £10.9m), and net profit of £9.1m (FY23: £7.9m).

Total equity at 30 Mar 2024 was £431.3m (FY23: £442.6m), backed by property, plant and equipment carried at £581.9m (FY23: £583.3m). It should be noted however, that the property values recorded on the balance sheet are based on historical cost, which significantly understates their true value: north of £950m.

Net debt at 30 Mar 2024 was £133.1m (FY23: £126.8m), and interest expense was 2.46x covered by operating income.

Cash generated from operations in FY24 was £68.3m (FY23: £47.5m), which the company used to invest £27.2m in capital expenditure, purchase £12.4m of own shares, and pay £10.4m in dividends.

Market capitalisation: £299.3m

Valuation: If the company is able to return to its normalised earnings level, which I believe to be likely in the medium term, the current share price will offer around a 10% earnings yield, while the current dividend yield is 3.4%, and free cash flow yield is 14.8%.

Price to tangible book value is around 0.7x, and given the historical cost base, less than 0.5x realisable net asset value.

Reason: The share price has fallen since the Autumn budget last year due to fear of the impact of national insurance and minimum wage increases. Management has quantified the short-term cost at c.£8m if unmitigated through cost cutting/price rises.

Interest level: very high

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