Head to Head: The Supermarkets (Tesco, Sainsbury and Morrison, U.K.)

By G. A. Chester |
September 10, 2012 

LONDON -- In this series, some of your favorite FTSE 100 (UKX) shares go head to head in a three-round contest for superiority.

In Round 1, the firms fight on earnings; in Round 2, on dividends; and Round 3 is a battle of the balance sheets. The winner will be the company that has racked up most points at the end of the contest.

In a twist to the usual format, we have three companies stepping into the ring today: Tesco(LSE: TSCO.L  ) , J Sainsbury (LSE: SBRY.L  ) and Wm Morrison (LSE: MRW.L  ) .

Fears about the fragile economy and eurozone worries have driven investor demand for defensive companies -- companies that perform reasonably well in all economic conditions -- including supermarkets.

The shares of Tesco, Sainsbury and Morrison have outperformed the FTSE 100 index over the last six months. The Footsie is flat over the period, but Tesco is up 11%, Sainsbury 13% and Morrison 3%.

Let's take our seats at ringside.

Round 1: Earnings	Tesco	Sainsbury	Morrison
Recent share price	347p	331p	292p
Last year price-to-earnings (P/E) ratio	9.2	11.8	11.4
Current year forecast P/E	10.2	11.3	10.7
Four-year average earnings-per-share growth (%)	8	9	7
Current year forecast EPS growth (%)	-1	5	8
Forecast operating margin (%)	5.4	3.2	5.1

Source: Digital Look. Winners in bold.

Tesco scores points for its low P/E and industry-leading operating margin. It just loses out to Sainsbury on historic earnings growth but falls down badly on forecast earnings growth, where Morrison takes the point.

Nevertheless, Tesco's P/E and margin give it a comfortable victory in the first round.

Round 2: Dividends	Tesco	Sainsbury	Morrison
Last year dividend yield (%)	4.3	4.9	3.7
Current year forecast dividend yield (%)	4.3	5.0	4.0
Four-year average dividend growth (%)	8	8	23
Current year forecast dividend growth (%)	1	3	10
Forecast dividend cover	2.3	1.8	2.3

Source: Digital Look. Winners in bold.

Sainsbury starts the second round strongly, out-pointing its rivals by some margin on historic and forecast dividend yield. However, Morrison is equally dominant in winning points for historic and forecast dividend growth -- and pips Sainsbury to victory in the round by sharing a point with Tesco for dividend cover.

Mustering just half a point, this is a poor round for Tesco after its commanding performance in the first round.

Round 3: Balance sheet	Tesco	Sainsbury	Morrison
Price-to-book ratio	1.6	1.1	1.3
Net gearing (%)	53	35	32

Source: Digital Look. Winners in bold.

Tesco weakens further in the final round, with Sainsbury and Morrison sharing the points. Overall, Tesco has won one round, Morrison has won one round, and Sainsbury and Morrison have drawn a round. The points tally comes out as Morrison 4.5, Sainsbury 4.0, and Tesco 3.5.

Post-match assessmentThis was a narrow victory for Morrison in a hard-fought contest. Tesco scored particularly well for its earnings rating and Sainsbury particularly well for its dividend yield. But Morrison's all-round performance won the day. Morrison was very strong in the areas of forecast earnings and past and forecast dividend growth, supported by good dividend cover and conservative gearing.

Morrison is also the pick of the supermarkets in the eyes of U.K. master investor Neil Woodford, whose funds have beaten the wider market by over 300% in the last 15 years. In fact, Woodford has increased his stake in Morrison this year.

Meanwhile, U.S. investing legend Warren Buffett has also bought a trolley-load of shares in a U.K. supermarket this year. Does Buffett see eye to eye with Woodford? Find out in this special Motley Fool report -- "The One U.K. Share Warren Buffett Loves" -- which you can download for free.

http://www.fool.com/investing/international/2012/09/10/head-to-head-the-supermarkets.aspx

Tesco's recovery plan may be working - Kantar

Tue Sep 11, 2012 7:46am EDT

* Tesco UK market share 30.8 pct in 12 weeks to Sept. 2
    * Asda remains fastest growing of big four grocers
    * Grocery inflation 2.9 pct

    LONDON, Sept 11 (Reuters) - The recovery plan unveiled by Tesco, Britain's biggest retailer, after a profit warning in January is showing signs of working, industry data showed on Tuesday.

    Market researcher Kantar Worldpanel said Tesco's share of the grocery market edged down 0.1 percentage point year-on-year to 30.8 percent in the 12 weeks to Sept. 2.
    This was "a relatively small decline compared with most of 2012 and evidence of some success in its fight-back," Kantar director Edward Garner said.

    In April, Tesco slashed expansion plans for its British chain and said it would spend over 1 billion pounds ($1.6 billion) improving stores and online shopping in a bid to reverse a decline in market share. 
 
    Tesco's sales rose 2.8 percent over the 12-week period,Kantar said, behind growth of 4.5 percent at Wal-Mart's Asda, Britain's No. 2 supermarket chain, and growth of 3.8 percent at Sainsbury, the No. 3 player.    Wm Morrison Supermarkets, Britain's No. 4 grocer, was the laggard, with growth of 1.1 percent, reflecting its lack
of an online offer and only a small number of convenience outlets.

    Kantar said the total grocery market grew 3.3 percent over the 12 weeks, above its inflation measure of 2.9 percent.

    "Despite ongoing pressures, things seem to be looking up in the grocery market and shoppers are not having to trade down to the same extent as they have done over the past year," said Garner.

    However, Kantar noted the inflation measure may have bottomed out with poor grain harvests driving inflationary spikes ahead.
    
      Following is a summary of market share and sales (pounds):

                  12 wks to     12 wks to     pct change
                  Sept 2 2012   Sept 4 2011   
 Total till roll  30.79 bln     30.15 bln     2.1 pct
 Total grocers    23.49 bln     22.74 bln     3.3 pct
 Total multiples  22.98 bln     22.22 bln     3.4 pct
 
      Market share (percent)
                  12 wks to     12 wks to     pct change
                  Sept 2 2012   Sept 4 2011   in sales
 Tesco            30.8          30.9          2.8
 Asda             17.6          17.4          4.5
 Sainsbury        16.4          16.3          3.8
 Morrison         11.5          11.7          1.1
 Co-operative     6.8           7.1           -1.2
 Waitrose         4.6           4.4           7.8
 Aldi             2.9           2.4           26.6
 Lidl             2.8           2.6           10.9
 Iceland          2.0           1.9           8.5

http://www.reuters.com/article/2012/09/11/britain-grocers-kantar-idUSL5E8KBA9020120911?feedType=RSS&feedName=cyclicalConsumerGoodsSector&rpc=43

Is Tesco Mounting A Recovery?

Is Tesco Mounting
A Recovery?

• Tesco shares have rebounded from their recent low
• Recent sales figures look more encouraging
• Its digital investment seems to be paying off

Monday, 10th September 2012

Dear Collective Reader,

It came out of the blue, slashing nearly a quarter off the share price in one fell swoop.Tesco’s (LSE: TSCO) profit warning in January, its first for 20 years, divided investors between bulls, who saw it as a temporary glitch, and bears, who saw more serious writing on the wall.

It wasn’t just among private investors that opinions were sharply divided. Investment guru Warren Buffett rapidly upped his stake in the company to over 5%, while high-yield fund management superstar Neil Woodford took a more pessimistic view, selling out completely. Our analysts at Motley Fool Share Advisor have also been watching the business closely, as it has the sort of dominant market position we love to see.

So how is Tesco faring now?

As far as the share price goes, there has been a little recovery. Tesco shares are up about 15% since the end of May, when they briefly dipped below £3. They have also outpaced the FTSE 100 index of leading UK shares by over 10% over the last six months.

That said, at around 345p, the shares are still some 15% below the level they enjoyed in January, before the aforementioned profit warning.

Hubris

Tesco’s sin was one of hubris, perhaps not surprising in the light of former CEO Terry Leahy’s very long and successful tenure. It took its core UK grocery business for granted, and neglected it in favour of exciting growth opportunities internationally and in non-food business, from out-of-town hypermarkets to banking.

Nemesis came when the UK shopper woke up to Tesco’s poorer customer service and product offering, and its grocery market share slipped. Meanwhile, the new markets proved tough.

Internationally, Tesco lacks the market power it has at home, hypermarkets found online competition tougher than was expected, and some new domestic ventures, such as second-hand cars, were just a step too far.

Tesco’s act of repentance, unveiled by new CEO Philip Clarke in April, was to refocus investment on its core UK grocery operations. Store expansion would be cut back, while more would be spent on refurbishing existing stores, improving staffing, and in price promotions.

Trench warfare

Is it working? Competition in the UK grocery sector is rather like trench warfare. Tesco’s market share is around the 30% level, roughly double that of each of its big three rivals, Sainsbury (LSE: SBRY), Morrison (LSE: MRW) and Asda.

Tesco’s market share has continued slipping all year, but recent figures hint at a turnaround. Measured over the 12 weeks to 5 August, its market share slipped marginally to 30.9%, but in the final four weeks of that period it rose to 31.4%, according to data from Kantar Worldpanel.

In those last four weeks, sales grew 5.1%, ahead of Asda at 4.9%, Sainsbury at 2.7% and Morrison at 1.4%. It’s a very small sign but, as the company says, ‘every little helps’.

Morrison’s results last week showed how it has been struggling recently. Like-for-like sales, a key measure of underlying trading, saw a 0.9% decline over the last six months. Both Tesco and Sainsbury are due to issue their next figures on 3 October, so that will be our next opportunity to assess the state of play.

Digital expansion

One area where Tesco does seem to be stealing a march on the competition is online. It recently bought Mobcast, an online bookstore co-founded by Andy McNab of Bravo Two Zero fame. While the price paid was less than £5m, tiny in the context of Tesco’s overall business, this was the third digital acquisition in a year.

Click & Collect, essentially a drive-through grocery pick-up service, also appears to be gaining some traction, with customers seemingly finding it easier to pop in on the way back from work, rather than wait at home for a set collection window.

All this activity seems to be centred on blending the company’s online and offline presence, which appears to be winning the company plaudits from many quarters.

So, in conclusion, while it seems Tesco shareholders can expect to wait a while yet before the shares recover their previous levels, it seems to have the market and financial power to claw its way back. Nate Weisshaar, an analyst here at Motley Fool Share Advisor, agrees. He believes “Tesco still has the long-run potential for strong international growth and defence of its domestic dominance”.

From:  Motley Fool 

TESCO - some historical information

12.6.2012
TSCO.L

Based on its latest 2012 financial report.  Per share (British currency:  Pence)
Equity or book value 164.46
EPS 36.64
Dividend 14.76


Historical Information from 2003 - 2012
Revenue GR 10.8%
Pretax Profit Margin 5.2%
EPS GR 11.9%
DPO ratio 43%
ROE 26%

Average High PE  17.4
Average of Historical Average PEs 15.2
Average Low PE  13.0






One UK Share That
Warren Buffett Loves

http://g.foolcdn.co.uk/art/download/tmf/0911_TMFUK-OneUKShareThatBuffettLoves.pdf?email=investbullbear@gmail.com&iid=27001&repeatecap=&vsaid=4381&src=usksittxt0000011
TescoQ2V2

Is Tesco Turning?

By Tony Reading
September 7, 2012

LONDON -- It came out of the blue, slashing nearly a quarter off the share price. Tesco's (LSE: TSCO.L  ) profit warning in January -- its first for 20 years -- divided investors between bulls who saw it as a temporary glitch and bears who saw more serious writing on the wall.

It wasn't just among private investors that opinions were sharply divided. Investment guru Warren Buffett rapidly upped his stake to over 5%. But high-yield fund management superstar Neil Woodford took a bearish view, selling out completely in April.

So how is Tesco faring now?

As far as the share price goes, there is little indication of recovery. At 338 pence, they are still 16% below their early-January high of 411 pence. But there is some indication they're slowly clawing their way back. They are up 6.5% from the post-profit-warning low, during which time the FTSE 100 has gone nowhere. Meanwhile, rival J Sainsbury has motored up 14%, and William Morrison has slipped 3%.

Hubris
Tesco's sin was one of hubris -- perhaps not surprising in the light of former CEO Terry Leahy's very long and successful tenure. It took its core U.K. grocery business for granted and neglected it in favor of exciting growth opportunities internationally and in nonfood businesses from out-of-town hypermarkets to banking.

Nemesis came when the U.K. shopper woke up to Tesco's poorer customer service and product offering, and its grocery market share slipped. Meanwhile, the new markets proved tough. Internationally, Tesco lacks the market power it has at home, hypermarkets found online competition tougher than was expected, and some new ventures such as second-hand cars were just a step too far.

Tesco's act of repentance, unveiled by new CEO Philip Clarke in April, was to refocus investment on the core U.K. grocery. Store expansion would be cut back, while more would be spent on refurbishing existing stores, improved staffing, and price promotions.

Trench warfare
Is it working? Competition in the U.K. grocery sector is rather like trench warfare. Tesco's market share is around the 30% level -- roughly double that of each of its big three rivals, Sainsbury, Morrison and Wal-Mart-owned Asda. A big push in sales translates into just a small increase in market share.

Tesco's market share has continued to slip all year, but recent figures hint at a turnaround. Measured over the 12 weeks to Aug. 5, its market share slipped marginally to 30.9%, but in the final four weeks of that period, it rose to 31.4%, according to data from Kantar Worldpanel. In those four weeks, sales grew 5.1%, ahead of Asda at 4.9%, Sainsbury at 2.7%, and Morrison at 1.4%. It's a very small sign, but as the company says, "Every little helps."

Not all are convinced. Asda hit out at Tesco's complex promotions, describing them as "basket bingo." ING's analysts have suggested that Tesco needs to make much deeper price cuts to stop customers switching to Asda. Meanwhile, Tesco's international business has its own headaches, with the U.S. stores still making losses and the business in Korea hit by government regulation.

So Tesco shareholders can expect to wait a while yet before the shares recover their previous levels. But Tesco has the market and financial power to claw its way back, and I remain a patient bull.

A good run
Sainsbury's share price has had a good run over the summer, matching its sales success over the period. Up 12% since June 1, they look a little expensive at 324 pence, but with tangible net assets of about 290 pence and a yield of 5%, they remain a good defensive investment.

Morrison makes a virtue of its slowness to act. It is only now rolling out a plan for a chain of convenience stores, long after Tesco and Sainsbury. Having eschewed hypermarkets, its chief executive has recently dismissed them as "a blip on the pages of retail history." And its adventures into nonfood retailing have been specifically confined to its acquisition of baby-goods retailer Kiddiecare.

Just why has Warren Buffett singled out Tesco as a rare foreign investment? You can delve into this question in this report from the Motley Fool: "The One U.K. Share That Warren Buffett Loves." It's free, and you can download it here.

Where is the U.K.'s leading dividend stock-picker investing today? The identities of Neil Woodford's favorite blue chips are revealed in this free Motley Fool report -- "8 Shares Held By Britain's Super Investor."

More investment opportunities:

• New Brooms To Sweep Clean At Astra and Barclays
• How To Unearth Great Oil And Gas Shares
• 10 Steps To Making A Million In The Market

http://www.fool.com/investing/international/2012/09/07/is-tesco-turning.aspx

Now at Tesco: Drive-Through Grocery Pickup

By Sarah Shannon - Sep 4, 2012

Jason Alden/Bloomberg

A page from the Tesco website is displayed for a photograph on an iPad.

When Nikki Dye tired of supermarket queues, she tried having her groceries delivered, but that meant committing to being at home for a two-hour delivery window. Now, she’s switched to a service where she can order online and then collect her groceries from a local store.

Enlarge image

By yearend, Tesco expects to complete collection points in 150 stores as part of a 1 billion-pound ($1.6 billion) initiative to revive domestic sales. Photographer: Simon Dawson/Bloomberg

“It’s so quick,” the 25-year-old working mother said as Tesco Plc (TSCO) staff at the store in the southern English town of Harlow loaded her car trunk with goods costing 80 pounds ($127).

With same-store sales falling, Tesco is betting it can get a lift from shoppers like Dye by tripling the number of outlets offering what it calls click and collect. The chain’s leading share of the U.K. grocery market shrunk to a seven-year low this year as more Britons chose upscale competitors such as Waitrose Ltd. or discounters like Iceland Foods Ltd. and Aldi.

By yearend, Tesco expects to complete collection points in 150 stores as part of a 1 billion-pound ($1.6 billion) initiative to revive domestic sales. The grocer is also hiring 20,000 staff, updating its house brand products, refreshing stores and adding more personalized promotions.

Bryan Roberts, an analyst at Kantar Retail in London, said click and collect will give shoppers a reason to choose Tesco over its competitors. Among the top four grocers in the U.K., onlyWal-Mart Stores Inc.’s Asda, (WMT) the No. 2 chain, has a similar service for groceries, and it’s just in a trial stage. The service also helps Tesco stand out from online retailers.

‘Ahead of the Pack’

“It’s going to be a key growth opportunity,” Roberts said. “The economics are much superior to home delivery,” which requires grocers to operate a fleet of vans and drivers.

Tesco, based in Cheshunt, England, expects that making shopping easier will convince customers to come back more often. Deloitte LLP estimates that people who shop via different methods -- the Internet, smart phones and visits to the supermarket -- spend more than double those who only shop at physical stores.

Click and collect “is gaining traction, and Tesco is ahead of the pack,” said Clive Black, an analyst at Shore Capital who recommends holding the stock. “While it’s a very modest part of supermarket activity it is one that’s expected to grow.”

Web sales, which accounted for 3.4 percent of U.K. grocery spending last year, are set to almost double over the next five years, according to the Institute of Grocery Distribution.

Declining Sales

Tesco’s domestic sales have declined for the last four quarters, with U.K. same-store revenue falling 1.5 percent in the 13 weeks ended May 26. That has left Chief Executive Officer Philip Clarke to seek new avenues for growth. Expanding click & collect, which started from a store in southern England two years ago, forms a part of his plan.

The service relies on its simplicity and convenience, said Ken Towle, Tesco’s director of Internet retailing. For a 2-pound fee, a shopper’s groceries are picked, packed and stored at the drive-through point. When the customer arrives, a staffer loads the groceries into the trunk.

“What customers like is they are in control,” Towle said. “They choose when they want it to be available. It de-stresses the whole experience for them.”

The expansion has come at a cost. Tesco has had to train staff in customer service and product returns, Towle said. And adding the collection points to stores has cut the floorspace available to sell products.

A big challenge is linking up online orders with picking and packing the groceries in the chosen time-slot from the store, according to Chris Gates, director of retail at Hitachi Consulting, a technology adviser that has worked with Tesco. Another issue is ensuring stores can handle returns and have enough supplies to account for both online and physical buyers.

Asda Trial

“Whilst companies realize it’s the way customers want to shop, it takes a lot of investment to make it happen,” Gates said. Retailers, he said, typically see a return on their investment in two years.

Asda says it has had trouble getting planning permission to set-up drive-through collection points. The company started testing a 1.50-pound-per-order click & collect for groceries this year and has about 10 outlets. Stores with the service get about 60 to 100 orders a week almost immediately, said Jon Wragg, director of Asda’s multi-channel strategy.

The retailer has trialed low-cost alternatives like a simple shelter in a carpark with a van that customers collect from, to a formal drive-through attached to the store.

French Insight?

“It’s all the understanding and refining of the experience for customers that I think is going to be tough,” Wragg said.

France may offer some insight into the concept’s potential. While British grocers have focused on home delivery of online orders, French companies have embraced drive-throughs instead.

Groupe Auchan SA has had drive-in collection since 2000, and Le Clerc, Casino Guichard-Perrachon SA (CO) and Carrefour SA (CA) also now offer the service. Planet Retail estimates there were about 1,000 drive-through points in France in May. Le Clerc expects about 5 percent of its sales to come from the drive-through format by 2015, up from 1.4 percent in 2011.

Planet Retail analyst Malcolm Pinkerton estimates that Tesco will generate about 6.4 percent of its overall U.K. sales from online orders this year, which will surge to 9.3 percent, or 5.9 billion pounds, by 2017 as click & collect is extended.

“Anybody that’s in retail who is not multi-channel would want to think quickly about having a strategy,” said Colin Jeffrey, director of retail research at Deloitte Digital. Click and collect is “a must, but it’s a massive challenge.”

http://www.bloomberg.com/news/2012-09-03/now-at-tesco-drive-through-grocery-pickup.html?cmpid=yhoo

Tesco sales growth closer to rivals' levels - Kantar

Tue Aug 14, 2012 8:07am EDT

LONDON, Aug 14 (Reuters) - The rate of sales growth at Tesco
, Britain's biggest retailer, rose closer to the rates
of its rivals in the 12 weeks to Aug. 5, industry data showed on
Tuesday.
    Market researcher Kantar WorldPanel said Tesco's sales
growth accelerated to 3.4 percent in the 12-week period from a
rate of 0.7 percent in similar data from the prior month.
    Sales grew by 6.2 percent at Wal-Mart's Asda,
Britain's No. 2 supermarket chain; by 4.6 percent at J Sainsbury
, the No. 3 player; and by 1.8 percent at Wm Morrison
, the No. 4.
    Kantar said the overall grocery market grew 3.9 percent.
    Tesco's market share was 30.9 percent in the 12 weeks, up
from 30.7 percent reported in the prior month's data and 31.0
percent in the same period last year. 
    "Shoppers might not yet notice it at the tills, but they are
starting to benefit from lower grocery inflation, with prices
now rising at 3.2 percent - the slowest rate for 18 months and a
sign that things are starting to look up," said Kantar retail
analyst Fraser KcKevitt.
    
    Following is a summary of market share and sales. 
                  12 wks to     12 wks to     pct change
                  Aug 5 2012    Aug 7 2011    
                                              
 Total till roll  31,175,890    30,392,490    2.6
 Total grocers    23,797,410    22,909,250    3.9
 Total multiples  23,283,470    22,378,000    4.0
 
    Market share (percent) and change in sales (percent)
                  12 wks to     12 wks to     pct change
                  Aug 5 2012    Aug 7 2011    in sales
 Tesco            30.9          31.0          3.4
 Asda             17.4          17.0          6.2
 Sainsbury        16.5          16.4          4.6
 Morrison         11.7          11.9          1.8
 Co-operative     6.7           7.1           -1.3
 Waitrose         4.5           4.4           7.4
 Aldi             2.9           2.4           26.0
 Lidl             2.8           2.6           11.8
 Iceland          2.0           1.9           7.0

Tesco sales growth closer to rivals' levels - Kantar

S&P revises Tesco outlook to negative;'A-/A-2' rtgs affirmed

Tue Jul 31, 2012 8:06am EDT

2012  July 31 -

Overview

-- We believe that in light of currently difficult industry conditions, a trend of weakening profitability and low top-line growth will continue for U.K.-based retailer Tesco PLC.

-- The decline in Tesco's profitability and difficulties in protecting its U.K. market share, in particular, could in our view lead to a deterioration in its business risk profile.

-- We are revising our outlook on Tesco to negative from stable and affirming our 'A-/A-2' corporate credit ratings on the company.

-- The negative outlook reflects our view that declining profitability and difficult trading conditions could dilute its credit metrics beyond the levels we consider adequate for the current ratings.

Rating Action

On July 31, 2012, Standard & Poor's Ratings Services revised its outlook on U.K.-based Tesco PLC (Tesco) to negative from stable. At the same time, we affirmed our 'A-/A-2' long- and short-term corporate credit ratings on Tesco.

http://www.reuters.com/article/2012/07/31/idUSWLA122620120731?feedType=RSS&feedName=rbssFinancialServicesAndRealEstateNews&rpc=43

5 Shares Warren Buffett Might Buy Today

16 July 2012


A look at Buffett's buys to see what UK shares he may consider.

Warren Buffett is the world's best investor.

In an investment career spanning decades, Mr Buffett has frequently explained his investment strategy.

Using what I know about Buffett, I have tried to identify the UK-listed companies he might consider buying. Given the funds available to Mr Buffett, he is unlikely to invest outside the FTSE 100 (UKX). I have added some extra shares I expect Buffett would like if he could buy smaller companies.

1) Tesco

Buffett already owns shares in Tesco (LSE: TSCO). Perhaps he will be buying more. Tesco has a very strong position in its industry, bringing with it substantial buying power. Although recent trading has worried the markets, Buffett is not being put off.

If you want to know more about Buffett's reasons for buying Tesco then get our special free report on the company "The One UK Share Warren Buffett Loves". This report is free and will be delivered to your inbox immediately. It contains must-read information for anyone that wants to understand Warren Buffett, the wonder-investor.

2) Reckitt Benckiser

One theme common in analysis of Warren Buffett's investment style is that of the 'defensive moat' -- a competitive advantage that is hard to replicate.

Companies that own respected brands can enjoy greater economies of scale (because they are selling more) and better terms from retailers (because some brands are must-stock products). The result is large profits and high reliability of future earnings.

Reckitt Benckiser (LSE: RB) owns a portfolio of leading consumer brands. These include Dettol, Nurofen and Durex. The company's brand assets have helped deliver massive investment returns for shareholders. In 2002, Reckitt Benckiser paid shareholders a dividend of 25.5p per share. For 2012, this dividend reached 125p per share. In this time, the shares have increased more than threefold.

A smaller alternative might be Portmeirion (LSE: PMP). This £50m tableware firm owns brands that date back to the 18th century. Portmeirion has not cut its dividend since it started paying out in 1988.

3) AG Barr

Buffett is a known investor in Coca-Cola (NYSE:KO.US). He likes the company's product, its strong brand, market position and pricing power.

The closest share to Coca-Cola in the UK is probably AG Barr (LSE: BAG).

AG Barr is the Glasgow-headquartered manufacturer of Irn-Bru, where it vies with Coca-Cola for top spot among the nation's soft drinkers. The company also owns the fast-growing Rubicon and KA brands.

In the last five years, AG Barr has demonstrated compound annual earnings growth rate of 11.9% per year. The dividend has similarly increased, on average, 9.8% a year in that time.

With a market capitalisation of just £490m, AG Barr is likely too small for Buffett to invest in. If you are willing to buy shares in even smaller companies, you might take a look at Nichols (LSE: NICL). This is the company behind Vimto. Nichols has a market capitalisation of £260m. The company has increased its shareholder dividend year-on-year since 2004. In the last five years, eps at Nichols has increased, on average, by 17.1% a year.

4) Smith & Nephew

Smith & Nephew (LSE: SN) is a specialist manufacturer with a market capitalisation of £5.8bn. The company is a world leader in the manufacturer of artificial joints for orthopaedic healthcare. In a world with an ageing population, Smith & Nephew looks well placed to cash in.

In the last five years, Smith & Nephew has increased earnings per share at an average rate of 13.3% and shareholder dividends by 10.0% a year on average.

Smith & Nephew is a beneficiary of the strength of its brand. Healthcare buyers are likely very reluctant to start using a rival without a comprehensive history of successful deployment. This helps ensure strong profit margins and a high degree of earnings reliability. All this considered, I am slightly surprised to see the shares trading on a forward price-to-earnings (P/E) ratio of just 13.1 times consensus earnings estimates.

A smaller alternative might be Diploma (LSE: DIPL). Diploma supplies connectors and valves to the energy and aerospace industries. Similar to Smith & Nephew, its products must be reliable as they are so expensive to replace. The result is Diploma can demand a high price for its products as the risk involved in switching supplier are high.

5) SAB Miller

SAB Miller (LSE: SAB) is a global brewer with strong brands, strong cash flows and operates in an industry that continues to enjoy growth. I'm guessing Warren Buffett might also like this stock.

I wrote about SABMiller recently in my article 12 Shares That Thrashed The Market.

If you are interested in a smaller alternative, Greene King (LSE: GNK) might be the share for you. The brewer and pub chain has a market capitalisation of £1.3bn. Greene King trades on just 10.1 times consensus forecasts for the coming year and is expected to yield 4.6%.

Further investment opportunities:

• What Every New Investor Needs To Know
• The Share that Made Fools Millions
• 10 Steps To Making A Million In The Market

http://www.fool.co.uk/news/investing/2012/07/16/5-shares-warren-buffett-might-buy-today.aspx?source=ufwflwlnk0000001