Michael Simpson, CFAK-Bro Linen IncKBL.TOTOP PICKMar 04, 2011

A boring, but recurring, defensive business. They do laundry for hotels and hospitals, the latter of which is growing. They bought a UK company that was great. More synergy is coming. Has more upside.

Star Mayan, acquired for $200M last June, has been reflected in recent quarterly results. Year-over-year comparisons for Q1 and Q2 will show strength from the added revenue, though analysts have already incorporated this acquisition into their estimates. The most recent quarter was solid, and the stock trades at a reasonable 21x earnings. It's not a business likely to face AI disruption. Expected EPS growth of roughly 20% this year makes it unexciting but reliable. Unlock Premium - Try 5i Free

Laundry primarily for healthcare, but also some hospitality. Likes it long term. A good diversifier. Steady business, good management team. He adds when it dips below $35. Recent big acquisition, so may be a couple of years away from dividend growth. Yield is ~3.5%.

Smallest name her firm owns, and the small-cap space is not typical for them. Stability, long-term contracts, both organic and M&A growth. Diversified and defensive. Stock's down on its transformational acquisition this year. Expects it can achieve stated synergies of that deal. Strong management team. Yield is 3.44%.

Laundry, primarily for hospitals (a guaranteed business, and guaranteed to increase with demographics). Mainly Canada. Made a major UK acquisition (more in hospitality, economically cyclical) earlier in the year, and the equity issue pushed down price of stock. Small, sleepy company. Doesn't usually do a lot of acquisitions or equity issues. 

Last quarter was good, core business doing well. Loves the very solid management team, focused on the work. Yield is 3.34%.

In the world today, he's pretty worried about market valuations. Today's Top Picks won't hurt an investor if markets go down, give you that dividend, and should perform over the long haul. These aren't 1-year picks, but more decade-long or "forever" picks. 

Dirty laundry ;)  Healthcare and hospitality. It's a bit small, but if some stock became available he'd surely buy it. Started in Canada, expanded to UK. Hurt by Covid. Good company with good growth prospects ahead. One of the most efficient laundry providers in Canada. Should do well as more $$ spent on healthcare and as they win more contracts. Strong management.

An essential service, often overlooked. Long-term contracts of 7-10 years with hospitals. A little gem in the Canadian market.

You won't double or triple your money, but this is solid and steady, tied to the Canadian economy. Managed well and has a high market share in Canada. Plus, you collect a dividend. The hospital business is stable which is part of their business.

Sleepy company, not much marketing, not covered by many analysts. Very frugal and well managed, only coming to market when required (as they did for transformative UK acquisition this past spring). Popped on recent earnings.

Boring laundry business, but stable long-term contracts. Hotels, hospitality, healthcare. Used to be predominantly in Canada, but a series of small acquisitions in UK. Big, transformational acquisition in UK yesterday, making them a regional player. Immediately accretive, synergies to be gained. Revenue split between Canada and UK now 50/50. Issued equity, stock came off. 

Likes management. Fragmented industry, so can expect more tuck-in acquisitions. Yield is 3.48%.

Be patient with it. Has good, long-term fundamentals. Likes the managers for being focused. Could be taken out. They are executing, but sort of fly under the radar.

It is a solid business, very much under the radar. It is well run with an excellent management team. In 2022 there was a 20% increase in natural gas prices in the UK but it has worked its way though that. It has a strong business with the medical profession. He doesn't want it taken out..
Buy 6  Hold 0 Sell 0

Not the most exciting until you look under the hood. Its M&A cadence is picking up with more deals done recently. Stable business with long-term contracts, recurring revenue. Hospitality, but also healthcare. Finally starting to see more volume since Covid. Great business, generates a lot of cash, yet trades at only 6-6.5x EBITDA. Right in the crosshairs of private equity.

Once it makes an acquisition, it can use its size, scale and know-how to grab more contracts from that geographic area. Don't forget -- they have to pick the stuff up and then deliver it after they clean it. That know-how is really valuable, and they can do it at quite a margin. 15-20% EBITDA margins on contracts.

Likes the managers whom he recently met. Last year was crazy because of European gas prices, especially in the UK where they operate raised their expenses. They're in a stable business and are well-run. Lots of free cash flow that could lead to buybacks and/or dividends. He added on dip earlier this year. KBL is adding capacity that could raise the dividend.

Their business has moved more into healthcare. Last year was hit by extreme gas price movements in the UK. He thought they were protected from inflation when he bought it, though. A stable, underknown business that cranks out cash flow. Likes management.