Stephen Bland takes a mechanical index trawl through the FTSE Small Cap index.
Completing the trilogy of my mechanical trawls for value, I'm looking this week 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/TB) ratios are from the last annual accounts.
As with any database search, you must go back to the source accounts and news etc. in order to verify the information and obtain the most up-to-date facts.
Top 10 yields
10 lowest P/E
10 lowest P/TB
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 multiple scorers, and I have no triples here. But I do have a few doubles and some sector themes, though.
PR business Huntsworth, publisher Mecom and printer St Ives make the Yield and P/E tables. Not only that, but you can see a bit of a theme there, reinforced by the presence of Trinity Mirror, publisher of the Daily Mirror among many other newspaper titles, in the P/E group.
JKX Oil and Gas is the sole share to be found in the P/E and P/TB tables, and that's it for double showings.
There are some further sector clusters in addition to the PR/Print/Publishing axis I mention above. Pub groups Punch Taverns and Enterprise Inns are low P/E shares.
There are several investment companies of various kinds in the P/TBs. This is to be expected because companies like investment trusts and property businesses frequently trade below book. And where their assets are of the more speculative kind, such as shares or property in more questionable regimes or difficult markets, the discounts can be very large due to the underlying risks.
Interestingly, the investment types of business have three in the Yields, being table topper and equity fund manager City of London Investment Group, MedicX -- which invests in GP surgery properties -- and Chesnara, which invests in closed life funds.
Excessive debt can also have a disproportionately negative effect on asset discounts, something that has been a problem with the two pub groups mentioned above, though they don't feature in the P/TBs.
There's a vague transport theme in the P/TBs with cargo shipping business Goldenport and budget airline Flybe, and you could include shipbroker Braemar Shipping in the Yields for a wider cluster.
I wrote up Goldenport some years ago on the Fool as a good value play, and it worked out okay upon my calling a sell on the share (as far as I recall). But don't read this as if I'm saying anything about it here, though, because I'm not; its appearance in this article is purely a result of my mechanical exercise for readers to follow up for themselves.
Foolish final thought
This finishes my mechanical review over the last three weeks of the three main indices that cover most of the UK stock market, which I hope has been of some use to value players. As I've mentioned repeatedly, mech trawls must always be just a starting point for further investigation. Whatever your investing style, value or other, you should never rely on database information alone because these too often contain errors and omissions for a variety of reasons. The gospel is the original accounts and any subsequent related news from the company.
Sometimes, database failing may be due to simple human error when inputting the data. In other cases, I've noticed it can be because these systems can't handle certain situations like foreign currency accounts or more than one class of share capital. Those cases are not at all rare. Quite a number of the biggest caps in the market account in US dollars, for example.
Unfortunately for some investors, having to go back to the original accounts requires a knowledge of accounting that many find difficult. There's no easy answer to that if you want to do your own research rather than rely on others. DIY value investing does require the ability to analyse accounts because they are ultimately the only reliable source of the required information.
Note that even the accounts are not foolproof because they deal with the past whereas investors deal with the future. There is no foolproof way to score from value, like all risk investing it's about likelihoods not certainties. What we seek is to push those likelihoods a little more in our direction.
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> Stephen does not own any of the shares mentioned. The Motley Fool owns shares in City of London Investment.