N Brown (LON:BWNG) is a FTSE 250 company with more than 20 different internet and catalogue home shopping brands, mostly selling clothing and household goods.  You might even recognise some of them, such as Figleaves.com, Simply Be and JD Williams.

The company was added to the UK Value Investor model portfolio in May 2012 at 241.5 pence per share.  Last week I sold those shares for 359.1 pence, which produced a capital gain of 47%.  Add to that a dividend income of 13.2p and the total returns were more than 52% in just 8 months.

So what was it about this particular company and its share price that made it a buy at 241p and a sell at 359p?

A company with a solid track record

Investing for a reliable and growing income and capital gains is all about buying good businesses at sensible prices, and it’s easy to describe N Brown as a good business.

The chart below shows the company’s results over the last decade.

In the last decade the company was consistently profitable and raised its dividend almost every year.  Annual growth has been well above average at more than 10%.

But there’s nothing exciting about it, no twenty or thirty percent a year growth or new invention about to change the world.  It’s just a solid business which has generated good results year-after-year.

Cheap shares relative to earnings and dividends

It’s one thing to find a good company, but that’s only half the story.  The price you pay is just as important as the quality of the business you’re buying.  So why exactly did a share price of 241p look cheap?

In the last decade N Brown earned an average of 18.8 pence per share, with the most recent amount being 29p.  With the shares at 241.5p that’s a PE ratio of 12.9 relative to the 10 year average earnings, and 8.3 relative to the latest earnings.  Both of those are lower than the market average, even though N Brown appears to be an above average business.

In terms of dividends the story was much the same.  The yield at 241.5p was 5.4%, well above the FTSE 100 yield of 3.6% and even further ahead of the FTSE 250.

So this was a profitable, growing, dividend paying, market leading business on offer at a price…

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