A UK Cash-Cow Trading At 3X FCF
Plus a decade of positive FCF and 70% upside to its fair-value (which is increasing YoY).
Mr Deep-Value also offers:
Dirt-cheap access to Bloomberg’s No.1 competitor
Separately managed accounts for US clients
Today’s stock is one I have held since the end of 2023.
It was a net-net (just) when I first found it, and was trading below TBV.
It was one of the highest quality deep-value stocks I’d found in many years, and immediately caught my attention.
My gut feeling was that losing money on this stock, at that initial price, was virtually impossible.
So much so, that I allocated 10% to the stock almost immediately.
The extra allocation paid off handsomely.
During the following year, it appreciated over 200%, before declining back down, to its current levels (still 115% higher).
I found it so attractive, because it was an absolute cash-machine.
At the time, Its 5Y FCF figure was around £70m, on a market cap of around £250m.
The business has been operating for 40 years.
Over the last decade, it has been FCF positive in 9 out of 10 years.
This is a very healthy, cash-rich, cash-flowing business, formerly priced below its liquidation value.
It gets better…
Over the last couple of years the metrics have been improving.
For example, the 5Y FCF figure has now increased to £100m on a current EV of just £300m, while the market cap is only £600m.
In other words, it’s still cheap, especially given how solid the business is.
Despite being over 100% up since buying it, I still calculate over 70% more upside remaining, until it reaches a ‘fair value’.
(I explain how I calculate fair value at the start of this post)
I still believe that this stock is worthy of a full allocation, as part of a diversified, concentrated, group of cheap stocks.
And as fresh capital becomes available, that’s exactly what I continue to do.
Let’s dive in…