Stephen Bland looks for value in the FTSE Small-Cap Index.
Completing the trilogy of my mechanical trawls for value, this week I'm looking at the FTSE Small Cap index, which comprises the tertiary level of shares ranked by decreasing market cap. The data is on the same basis as my last two articles, which analysed the 100 and 250 indices and, as before, there may well be errors here arising from the database I utilised. Price-to-earnings (P/E) ratios and yields are forecasts, but price-to-book (P/B) ratios are from the last annual accounts.
As with any database search, you must go back to the source accounts and news, etc, for any share that looks interesting in order to verify the information and obtain the most up to date facts.
Top 10 yields
Ten lowest P/E
Ten lowest P/B
As might be expected, this exercise covers a wider range of businesses than the larger cap indices. It includes those that are newer, or former larger companies on bad times that have shrunk, or that simply are not of a nature that are ever likely to grow to the size of a big cap. Given the greater number and diversification of shares that make up the smaller caps of the stock market, there is probably less likelihood of finding triple scorers, and I have none here.
But I do have a number of doubles and some sector themes, though.
A Fool's findings
RSM Tenon, an accountancy firm, appears in the yield and P/B tables. Its showing here is perhaps ironic for a company whose trade, among other things, consists of advising business clients. Not exactly confidence inspiring, and I speak as someone who is no stranger to this profession.
Famed holiday business Thomas Cook is a P/E and P/B candidate, its problems connected with excessive debt being fairly well known. Because of that debt, I wouldn't regard it as exactly the most desirable value share in the market.
Publishing, printing and pubs
One clear theme is publishing and printing, as indicated here by the double showing of Yell and Trinity Mirror in the P/E and P/B lists, plus Smiths News and St Ives in the yields. There's also a bit of a media thing going on with the presence of Huntsworth in the yields plus Creston in the P/B. However, media companies usually have a large proportion of intangible assets, so be careful there, I haven't checked.
Another over-represented sector is pubs, with Punch Taverns and Enterprise Inns appearing in both the P/E and P/B tables. Debt is likely to be a problem here for value investors.
Oil, gas and coal
Two resource companies, JKX Oil & Gas and Melrose Resources -- three if you include UK Coal -- make it into the P/E tables, continuing the mining and oil value story revealed in my articles over the last couple of weeks. This sector is becoming attractive for value players because I think the collapsing commodity price story is being overdone, in the way the market so often overdoes its reaction to anything. And, in that sort of situation, lies value for the patient.
As an example, by chance Shell today revealed some excellent figures for their first quarter. It was picked up in my 100 trawl two weeks ago by being selected twice, in the P/E and P/B tables. In fact, it was a close call for being a triple with its yield not that much outside the top 10. On top of all that, it has modest debt, too.
Best of the rest
Chesnara, a specialised life insurance business is the only share from that sector share here. A high yielder, it follows the downtrodden state of the insurance industry as revealed among the bigger caps I featured previously. Like mining and oil, I think insurance presents some interesting value shares.
The other shares are a diversified bunch of businesses. Quintain in the P/Bs is a property company. Actually, this sector is notable by its absence from this table. Quite often, any asset-based trawl picks up some of those shares because they tend to trade below book. It explains also the existence of the two pub companies, which are a property-related business.
PV Crystalox Solar is a crashed maker of solar cells. Some value players liked this share a while back because it was standing on attractive fundies. Not me, though; I don't like anything new or very techy. Far too often these shares go wrong because someone finds a better or cheaper way of doing whatever they do or it just turns out to be a dead end.
Aga Rangemaster Group has often come up in value trawls in the past by me and others. Among other things, they make those monstrous yet fashionable cooking ranges that every country home seems to possess. Never understood the attraction of those things myself, though that has nothing to do with the merits of the shares.
This completes my regular mechanical fishing expedition across the market. In addition to the individual companies that were caught, other shares in their sectors that were possibly just outside my filters may reward enquiry.
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