Is There Hidden Value In Tesco PLC, Nanoco Group PLC & Enterprise Inns plc?

Could investors make big profits by buying Tesco PLC (LON:TSCO), Nanoco Group PLC (LON:NANO) and Enterprise Inns plc (LON:ETI)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The three firms featured in this article are not obvious value buys, but I believe that at least two of these stocks offer the potential for big profits at today’s prices.

Enterprise Inns

Pub chain Enterprise Inns (LSE: ETI) came close to going bust during the financial crisis, thanks to net debt which peaked at well over £3bn. Enterprise’s net debt is now down to £2.3bn and the firm’s shares trade on a forecast P/E of just 5.4. Is there hidden value here?

Possibly.

Should you invest £1,000 in NatWest Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if NatWest Group made the list?

See the 6 stocks

The group’s property assets are valued at £3.7bn. Yet the total value of Enterprise’s equity and its net debt it just £2.8bn. In theory, this means that a trade buyer could buy the entire Enterprise business for 24% less than the value of its property assets.

However, while net debt is falling, so is the value of Enterprise’s property portfolio. For Enterprise shares to deliver on their hidden value potential, net debt needs to fall faster than the value of the group’s property portfolio.

In other words, Enterprise’s loan-to-value ratio needs to improve. So far, it’s fallen from 66% in 2010 to 62.7% in 2015. It’s a promising start, but progress may be slow.

Tesco

Another firm with a big property portfolio and a large pile of debt is Tesco (LSE: TSCO).

The recent sale of Tesco’s Korean business means that Tesco’s net debt and the value of its property portfolio have fallen since the firm’s half-year results.

My calculations suggest that Tesco’s net fixed assets, which include property along with other long-term assets such as investments, may now be worth about £21bn. I estimate that the firm’s net debt may now be around £7bn.

As with Enterprise, we can look for hidden value by comparing the value of Tesco’s fixed assets with its enterprise value (market cap plus net debt). I estimate that Tesco’s enterprise value is currently about £21bn, equivalent to the value of its net fixed assets.

This means that unlike with Enterprise, there is no obvious hidden value in Tesco’s portfolio of property and investments.

With a 2016/17 forecast P/E of 19, Tesco stock doesn’t look cheap against forecast earnings, either. However, I don’t see any obvious reasons for the shares to fall further, so now could be a good time to start thinking about a recovery buy.

Nanoco Group

Nanotechnology small-cap Nanoco Group (LSE: NANO) is not an obvious value buy. The firm makes quantum dots and nanoparticles for use in technology such as LED displays and solar panels, but has yet to make a profit.

However, Nanoco has net cash of £24m and moved from AIM to the LSE Main Market earlier this year. The group also has some high-powered institutional investors, including Henderson Global Investors (17%) and Baillie Gifford (14%).

After years of waiting, there is now a big potential catalyst for share price growth. Commercial production of Nanoco technology by the group’s licensing partner, Dow Chemicals, is expected to start during the first half of 2016

Analysts’ forecasts suggest Nanoco could report earnings per share of 3.08p in 2016/17. That puts the shares on a forecast P/E of 16 — not expensive for a high-tech growth business.

Nanoco shares are down by 65% so far this year. Although this remains very speculative, now could be a smart time to buy.

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares of Tesco. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Around a 1-year high, is there enough value left in Next’s share price to make it worth me buying?

Next’s share price has risen a lot in eight months, but there could still be a lot of value left…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

OMG DYOR but IMO this ‘cool’ FTSE 100 stock offers bangin’ VFM!

Despite being one of the least trendy 50-somethings around, our writer considers how Gen Z could help push this FTSE…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 growth stocks to consider as stock markets sink

I think these Footsie and FTSE 250 growth shares could be very shrewd buys to consider in the current climate.…

Read more »

Investing Articles

3 shares I’ve bought in the 2025 stock market sell-off

The stock market has experienced a lot of turbulence in recent weeks. Edward Sheldon has been taking advantage and buying…

Read more »

Investing Articles

Investors considering HSBC shares could aim for £8,453 a year in passive income from just £5 a day!

A relatively small daily investment in HSBC shares over several years can produce an extraordinary level of annual passive income…

Read more »

Investing Articles

The Rolls-Royce share price has fallen! Is this the moment investors have been waiting for?

Even the Rolls-Royce share price can't escape current stock market volatility, falling slightly over the last week. Should investors consider…

Read more »

Modern suburban family houses with car on driveway
Investing Articles

Down 59% from its 12-month highs, is this FTSE 250 stock too cheap to ignore?

Shares in FTSE 250 housebuilder Vistry are almost certainly too cheap to ignore. But are they discounted enough to offset…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

As the S&P 500 struggles to recover, here’s what Warren Buffett’s doing

The S&P 500 is fighting to regain its February highs amid ongoing trade tariff uncertainty. Our writer looks to the…

Read more »