MARKET COMMENT
Dogs Of The FTSE

By Stuart Watson (TMFTiger)
March 11, 2004

From whichever angle you inspect it, Royal & SunAlliance (LSE: RSA) is a dog of a share. Although some progress has been made in getting the business back on an even keel recently, it hasn't lost its capacity to disappoint. This morning, its shares are down 12% after annual profits came in at the low end of expectations.

In fact, Royal & Sun is second-worst performing FTSE 100 share of the last five years. The table below shows it and nine other canine companions, each of which has lost more than half of their value in the last half-decade.

The FTSE has hardly covered itself with glory over this period either, losing more than a quarter of its value before dividends are taken into account.

Interestingly, well I thought it was anyway, nearly all of the companies listed have seen significant management changes in the last couple of years. The top six dogs have all undertaken major restructuring of their businesses following these appointments, shedding large chucks of their operations. Most are therefore in 'recovery' mode. The trick for investors is to assess how likely and how substantial these recoveries will be.

Given some of hefty losses on show, you might be surprised to learn that many of these shares have bounced back to a considerable extent. Cable & Wireless has trebled from its low point while Royal & Sun has doubled. Reuters is up almost fourfold over the last year. Despite these recoveries, long-term holders will still be deeply in the red.

Back, however, to Royal & Sun. It's been a popular share on our investing discussion boards, often showing decent value credentials. In fact, it even got the nod as the speculative selection in the first edition of our value newsletter.

At the current price of 91.5p, it offers a respectable yield of 4.9%. It can also boast a 10% discount to tangible net asset value. To my mind this isn't enough to make it an attractive investment. Its tendency of continually having to increase reserves to cover asbestos claims and other nasties means further hits to net asset value would not be much of a surprise. For risk lovers only!