(Please note I have a long position in Property Franchise (LON:TPFG))

Remember Brexit? Life seemed so much simpler back then.

To the 2020 stock market investor, robust business models and strong balance sheets reign supreme. Financially sound, high quality operators should be able to withstand the storm and be better positioned to pick up the pieces, once all is said and done.

I would argue that Property Franchise (LON:TPFG) is one such safe, high quality operator that has a fair chance of emerging from this lockdown in a position of relative strength.

TPFG operates a franchise model focused on residential lettings and property management services. There are similar listed operations - such as M Winkworth and Belvoir Group - all of them small and illiquid but looking like good value on the face of it.

TPFG is on my mind because it updated the market on its full year results a couple of days ago. I consider these results below.

Small, cash-generative companies with growing recurring revenue streams, long histories of above average returns on capital, and plenty of growth opportunities in fragmented markets usually trade at a punchy share price premium.

Not so with TPFG. This micro-cap Super Stock continues to figure well according to Stockopedia’s rankings:


Perhaps TPFG’s name and operations are so mundane that people just can’t bear to think about them for any length of time. Peter Lynch was a fan of finding companies with boring names, or companies that do dull things, precisely because others often overlook them. You could argue TPFG, with its prosaic name and property lettings and management operations, is both.

Could that be an opportunity? Here are some of TPFG’s Quality stats:

  • Five year gross margin: 92.23%
  • Five year operating margin: 39.01%
  • Five year average return on equity: 27.6%
  • Long term average return on capital: 22.25%
  • QM Rank: 99

Those are top tier long term profitability averages - When you find companies that generate those kinds of figures, it is worth tracking their trading and understanding their business models.

Growth over five years at TPFG has been similarly encouraging. These are compound annual growth rates over the five years to FY18:

  • Revenue: 22.1%
  • Operating profit: 37.8%
  • Net profit 39.9%
  • Normalised earnings per share: 22.1%

These averages will come down once official FY19 figures are released (more on this below). Nevertheless, TPFG appears to be a high quality…

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