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VALUE INVESTING
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I'll admit to encroaching almost on growth player territory here with this one: Acal (LSE: ACL). An area about as familiar to me as the dark side of the moon. This company is described as being involved in the sale and marketing of electronic and industrial control products. Other than that I have not a clue as to what it does, no doubt readers will know more. Again, like the other shares in this series, not a pyad share for many reasons, almost not a value share at all except for the P/E as can be seen from the fundies: Have I taken leave of my value sense with this one? Probably. As I say above the only real value feature is the modest forecast P/E. Yield, P/BV and gearing are not in the value league at all. There are only two brokers forecasting, but the forecasts are quite close in their estimates, having been made in September and October. Directorspeak is very positive, with the following from the chairman in September: "The company has maintained buoyant trading conditions through the first half of the current financial year and expects performance for the first half year ending 30 September 2000 to be ahead of market expectations." The shares have already more than doubled from the low point this year so it could be argued that a lot of the potential has already been stripped out. But it still looks cheap to me: assuming, of course, that the forecasts are met. Always a big risk with any share. But if so, we are looking at a 35% rise in earnings per share to 2001, and a further rise of 19% on that to 2002. Beware of two-year forecasts, though, they are even less reliable than the one-year figure. But taking on that risk, the P/E seems quite low for a share with this much potential. As with any share that is going into the growth area, and away from value, the possible problem is that a biggish fall could face holders if the forecasts are not met. There is not a lot of downside protection here, in contrast to a proper value share. Would I buy it? Of course not! But then I doubt that I would buy any of the shares that I have featured in this series of non-pyad value shares. I write about them for two reasons. Firstly my kind of value share is very rare and therefore does not provide enough material for a weekly article on specific shares. Secondly, most value board readers do not follow my style anyway and consequently will be interested in potential value plays with differing characteristics. Acal is possibly the "least value" share of all those upon which I have commented so far and really, could just as well be featured in a growth share article. Well, for the kind of growth player that looks for low P/E combined with a high EPS growth rate anyway. It has an interesting smell. The shares are placed in the Distributors sector, often a difficult kind of business in which to make money, because of fairly easy competition. But Acal seems to have something going for it, as evidenced by the powerful recent and forecast growth pattern. Note though that it was fairly static between abou 1996 and 1999, normalised EPS being flat at about 29-30p. 2000 was the big growth year, going up to 40.2p, so it looks like they have undertaken some new move, but I do not know what that might be. The P/E during those flat years ranged between about 11 and 18, so you can see that the switch from level EPS to growth has not been taken into account with a raised P/E, which is what you would expect to happen. It could be of course that the growth is a blip and not sustainable, in which case it does not deserve to move to a higher P/E plane. That is the risk one takes, but there is no indication of this at the moment that I can see.
Where Next?