Stephen Bland trawls the blue chip index for value shares.
I haven't done this for a few months, so I'm going to repeat the FTSE 100 value analysis system I devised many years ago and run occasionally here.
The idea is to locate big cap value from a purely mechanical survey of the index which readers may find useful as a starting point for further investigation. I stress the latter point, readers should not invest on the basis alone of any findings here as the results are intended more to be a pointer to something potentially interesting lurking amongst these shares so further research would be required if you spot something you like. Not too much further research though, you don't want to overanalyse.
Three ratios
What I do is to consider three popular ratios, yield, P/E and P/B, selecting the top ten of each in value terms from the index.
The idea is to look for multiple appearances in the tables and any share scoring three may be an attractive value candidate with a score two possibly worth a look as well, maybe some of the single appearances too.
Note that I have drawn the selections from Digital Look with little checking on the veracity of the figures though I have amended some of the information where I was aware of inaccuracies. It must be borne in mind that databases like this do contain errors and that is another reason to look behind my results here if you like a share.
Note that the yields and P/Es are forecasts whilst the P/Bs are last full year actual. Book in the P/B calculation refers to net assets, not net tangible assets, because that is the way the database I used is shown.
Value players though may be more interested in net tangibles, which is something they will have to work out themselves.
Top ten yields
Ten lowest P/E
Ten lowest Price to Book
That's the raw data but what is it saying?
Aviva again
First thing is to look for triple appearances and this throws up just one, a repeated pick of mine in the value portfolio I run here, life and general insurer Aviva.
When I last did this exercise in May, the same share dropped out as the sole triple scorer. The big difference is that Aviva was then 312p and now it's 395p, a rise of 27%. I think that says something about the validity of this little mechanical jobbie of mine. Despite that decent rise though, plus the fat yield on this share adding to returns, the very interesting fact is that it remains as the sole triple.
That might not have been the expected result given the rise to date, but it happened because the share was monstrously undervalued at the earlier price and now it is merely grossly undervalued. There is a lot more to come from Aviva I'm convinced before its value is played out.
Financials and oil
Insurers actually occupy quite a few positions in these tables with Old Mutual in two and others putting in various single showings.
In fact financials of various types actually occupy a large proportion of all places with Barclays managing the double amongst banks and Royal Bank of Scotland top of the P/B listing. Continuing the financial theme, fund manager Investec scores twice.
BP unsurprisingly appears as the lowest P/E, but Royal Dutch Shell does a double making it look quite attractive right now, possibly because it has been bargepoled by many investors frightened by what happened to BP as this could just as easily happen to Shell. But how likely is that? Not very in my view.
Retail and property
An oddity amongst doubles, or in appearing here at all really, is Home Retail. This is the Homebase DIY and Argos catalogue shops business.
The share caught my eye a while back and at that time I seem to recall it even had that value player's wet dream, net cash. I almost reached for my wallet but in the event sheer funk prevailed because it didn't quite smell right somehow. I am very wary of specialist retailers because so many fail but they are not all rubbish and some do prosper.
Normally I would expect a few property shares in the P/B table because these traditionally trade below book but there's only SEGRO this time.
Oddly though perhaps, British Land appears though not on P/B but on yield. It's packing a pretty high yield for a major property share, and looks quite good to me for that reason, though for others it may depend upon your view of the progress of the recovery.
What would be my personal candidates for further investigation as possible value plays here? Well, I've already mentioned Aviva, which I hold, and British Land and Shell look too cheap. As an outsider for the extremely patient, though with the downside for a value investor of no yield for the time being, RBS sooner or later will deliver, and may do so in majestic fashion. Just don't hold your breath.
More from Stephen Bland:
> Of the shares shown, Stephen holds Aviva, BAE, BP, BT, National Grid and Scottish & Southern.
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