One exciting company believes the answer is yes. They are a conglomerate, or 'agglomerate' as they call themselves of small profitable businesses around the world and they are growing at quite a clip.
Reporters caught up with their founder and CEO Callum Laing to learn what investors can expect from MBH Corporation PLC (M8H:GR) in 2020 and how they believe they can combine value and growth.
YF: Growth and Yield seems like a paradox, how does MBH plan to achieve that?
Laing: MBH is a publicly listed holding company that is very attractive for small, well run, profitable companies to join. 100% of the company is acquired and the owners are compensated in stock. Typically MBH are able to acquire them for a lower multiple than we trade at, making each acquisition earnings per share (EPS) accretive.
In our first 12 months of being a listed entity MBH were able to acquire nine, profitable companies. giving us, on a pro-forma basis, £110m in revenue and nearly £10m in EBIT. Although we have yet to announce our first full year financials, the Board has made it clear that where possible they will return earnings to shareholders through dividends.
YF: Nine acquisitions must make you one of the most acquisitive and fast growing small cap PLC's out there. Is that sustainable in the future, and if so how do you manage the required integration?
Laing: Firstly, we believe it is sustainable. We offer a unique solution to the businesses that join us and we receive around 1000 applications a year which we reduce down to around 10-20 that are the right fit for MBH and our way of working. In our agglomeration model we do not integrate the businesses - meaning that they continue operating as they were. Typically the founder is still running their business and is joining our group so that they can grow even more effectively. If they want to partner with others in the group, that is of course in everyone's interests but they can do so in their own time and it's certainly not something we impose on them.
YF: And because you are using stock instead of cash, you can use the free cash flow from the businesses to pay dividends?
Laing: That is definitely the intention. Around 70% of the stock is owned by the Principals of the companies we acquire, so of course we want to reward them for continuing to own the stock. We also hope the investors that acquire our stock on the market are joining us for the long term and that a dividend is a good incentive.
In its first 12 months on the market this company grew its revenue by 189% and tripled its EBIT to nearly £10m. It certainly hits the definition of fast growth, but the path hasn't been straight forward. Perhaps the novelty of the model has put investors off, meaning the share price has halved since its listing. The most recent analysts reports say that MBH is currently significantly undervalued (target price €2.25). Potential investors are left with three key questions: Can MBH continue this growth in 2020 and beyond? Will they actually announce a dividend with their year end numbers in April? And if the answer to the first two questions is yes, then just how much of this stock can I get in my portfolio?
MBH Corporation PLC is a UK PLC trading on the Frankfurt Main Market (https://www.bloomberg.com/quote/M8H:GR). For further insights from Chairman Callum Laing you can read his Chairman's letter on the company website: https://www.mbhcorporation.com/chairmans-letter