This page is quite old hence its rather spartan appearance.
Why not check out our Latest Stories page for our newest articles or search our site for anything.
VALUE INVESTING
|
|
By
It can be rewarding sometimes to run a few of the typical value filters over the FTSE 100 index. My belief with value shares is the bigger the better, size matters here. My personal lower capitalisation limit for a value share in which I might be prepared to invest heavily is £100m though I might go a little lower for a good one. But you can't beat a blue chip value share. The recent play in Royal & Sun Alliance (LSE: RSA) that was featured extensively on the value shares board is a great example. The great advantage of a large cap value share is that it is prominent. It will in consequence very likely achieve far greater media and broker coverage than smaller caps. Since value is all about perception, than the greater number of people that are induced to do the perceiving the better. Of course when they start to perceive too much, in the wrong direction, it is time to leave. Remember, we are about doing the opposite of the majority. But it follows unfortunately that great value shares in this index are rare. The very fact that these shares are so large and widely known, makes it less likely that quality value plays will appear amongst them but it does happen on occasion. I wrote recently about Corus (LSE: CS.) as another example but that is more of a pure asset/recovery play, inferior quality to Royal & Sun because of a lack of dividend and losses in the last financial year, but still quite attractive. In fact the shares have fallen a little since I wrote them up, thus increasing the attraction. However a potential investor cannot call the bottom except by luck. A wonderful contrarian play, as well, because all brokers are rating the company neutral to sell. Anyway, my point this week is that I have run the FTSE 100 through various filters and came up with the following: Top ten lowest forecast P/Es Note that this includes three mortgage banks and two tobacco companies. Top ten highest forecast dividend yields Here we have three utilities and two mortgage banks. Top ten lowest Price/Book ratios Bit of an industrial mish-mash this time. No real sector similarities between any of them although there is a secondary link between BA and BAA I guess, and maybe also between Land Securities and BAA. Now the interesting features. Six companies appear both in the high yield and low P/E list. In descending order of yield they are: ICI Two out of the six are mortgage banks, indicating just how low rated this sub-sector is at present. And remember, that is taking into account the kick up the backside given to mortgage banks by the recent Barclays (LSE: BARC) / Woolwich (LSE: WWH) deal. Value players looking at the FTSE 100 pulchritude parade might consider having a bank by looking closely at these two centrefolds. Tobacco, of course, is a victim of the constant lawsuit threat, which can make them good plays at times. In fact, British American has had a very powerful rise this year from an extreme low point and still manages to rank in this value list. ICI is shot to hell with debt. Only one company appears in all three value lists – brewer Scottish & Newcastle (LSE: SCTN). Does this make S&N a great Footsie value play? Well, as always with value, we need an "outer" in the form of rising earnings per share (EPS). Breweries in general have gone nowhere in the last few years and many are trading on persistent value ratings without the value coming out because EPS is flat. As a result, brewery shares have been poor or static performers. A value trawl on basic filters across the market is certain to catch a few. For S&N, normalised EPS for the last three years has been around 50p. The consensus forecast for the year to 30 April 2001 is 52.3p, with the lowest of recent ones at 50.7p. In other words the forecast remains in the same area as the last three actual years. Not encouraging for dragging them out of the value closet. The only possible glimmers I can see are a very recent comment by the company that it is selling its Center Parcs and Pontins holiday camp operations. Also, in August the chairman stated that "we are confident that the completion of this transformation will deliver improving shareholder returns." Quite bullish, if it's not bullshit. Summing up, despite the appearance of S&N in three Footsie value filter lists, the only share to so qualify, the strongly rising EPS factor is missing, at least for the current financial year. It doesn't poke me in the eye the way Royal & Sun did. Nevertheless, there may well be some mileage in the slightly longer term in S&N. Thus possibly a good share for a long-term hold portfolio, the high and likely rising yield being a powerful factor when considering long term value investing.
PowerGen (LSE: PWG) 6.9
British American Tobacco (LSE: BATS) 7.1
Alliance & Leicester (LSE: AL.) 7.6
Scottish & Newcastle (LSE: SCTN) 7.8
Hanson (LSE: HNS) 8.8
Rolls-Royce (LSE: RR.) 8.8
ICI (LSE: ICI) 8.8
Abbey National (LSE: ANL) 9.0
Halifax (LSE: HFX) 9.3
Imperial Tobacco (LSE: IMT) 9.5
United Utilities (LSE: UU.) 7.6%
ICI 7.4%
Scottish & Newcastle 7.1%
British American Tobacco 7.1%
PowerGen 6.8%
Alliance & Leicester 6.8%
Corus 6.7%
Royal & Sun Alliance 6.1%
Scottish & Southern Energy (LSE: SSE) 6.0%
Abbey National 5.8%
Corus 0.3
Land Securities (LSE: LAND) 0.8
Associated British Foods (LSE: ABF) 1.1
British Airways 1.2
Scottish & Newcastle 1.2
P&O (LSE: PO.) 1.2
Marks & Spencer (LSE: MKS) 1.2
Royal & Sun Alliance 1.2
BAA (LSE: BAA) 1.4
United Utilities 1.4
Scottish & Newcastle
British American Tobacco
PowerGen
Alliance & Leicester
Abbey NationalWhere Next?