VALUE INVESTING
20 Value Ideas

By Stephen Bland (TMFPyad)
April 20, 2001

This week I thought I would run the pyad criteria mechanically over the database I use and see what comes up. I do this regularly anyway for my own purposes. Note that satisfying these four basic filters is only a starting point for me because ultimately I do not select mechanically.

Once these mechanical filters are satisfied I then look for stuff like earnings per share growth, market capitalisation, the presence of substantial shareholdings by the board or others, a bit of the history of EPS, dividends, and "smell" factors like the nature of the business, but only in a shallow manner in the sense of whether I generally like it. I have no interest in doing deep research into the widget market or whatever; that is far too macroeonomic for me. But finding something to "out" the value is essential, and nearly always that something will be rising forecast EPS, even though that means betting on analysts' forecasts, with all the obvious risks involved in so doing.

The idea, though, is that the criteria shown provide a high measure of security against it going wrong so as to minimise the downside. This does not mean that you cannot lose if something goes wrong, it means that if it does, the likelihood of serious loss is far lower than with much higher rated shares. And as far as I am concerned as an odds player, my first worry is not how much I might make but how much might I lose if I cock up.

Here are the results of this search. The criteria were:

• Price/Earnings < 12
• Yield > 4%
• Price/Tangible Book < 1 and > 0
• Net gearing < 0

The ten largest companies satisfying this were:

Allders (LSE: ADS)
Silentnight (LSE: SNGT)
Low & Bonar (LSE: LWB)
Oxford Instruments (LSE: OXIG)
Hardys & Hansons (LSE: HDYS)
600 Group (LSE: SIXH)
Rowe Evans Investments (LSE: RWEG)
Pifco Holdings (LSE: PFCO)
Bullough (LSE: BLGH)
Mallett (LSE: MAE)

The capitalisations range from Allders at about £100m down to Mallett at about £23m.

Note that several of these companies have been featured in previous articles in this slot. Others have been mentioned by readers on the value discussion board. None of this is surprising. There are only a couple of thousand or so shares in the whole market, excluding the AIM, and of these only a small proportion could be classed as having basic value characteristics. Most of those will be of poor quality leaving only a fairly limited number of genuine value shares in the sense of being worth buying as distinct from being merely cheap. So any regular series of articles on value shares or message board discussions will not have a tremendous choice of decent shares even with wider criteria than the above.

Whether any of the above are attractive or not I leave readers to judge for themselves. It is quite possible that none of them are so. In any case different value investors have different views, so some may like a share on this list whilst others may not. I have not considered things like EPS growth, for example, because all I wanted to do with this feature was to generate a start list that may have attractions upon further investigation. But I want people to carry out that further investigation alone. Give a man a fish, blah blah....

For those interested in even smaller caps, here are the next ten on the list in order of decreasing capitalisation:

Portmeirion Group (LSE: PMP)
Airsprung Furniture Group (LSE: APG)
Birse Group (LSE: BIE)
i-spire (LSE: IS.)
Black Arrow Group (LSE: BLKA)
Dyson Group (LSE: DYS)
F W Thorpe (LSE: TFW)
Chamberlin & Hill (LSE: CMH)
Singer & Friedlander AIM VCT (LSE: SGF)
Walker Greenbank (LSE: WGB)

The caps range from Portmeirion at £22m down to Walker Greenbank at £11m. In my view smaller caps are more risky and once you start getting into tiny caps like these it can get really hairy. That does not mean that you cannot do very well with small cap pyad shares -- you can, and I have in the past. It is just that the failure rate is much higher for a variety of reasons that I have written about before. As above I make no comment on the further criteria like EPS growth or the general quality of these shares, leaving readers to investigate that for themselves and make up their own minds.

Note that nearly all the twenty shares I have shown are tinpots -- term used by some on the value board to mean small caps, defined as under £100m. Allders is just about that. Personally I very rarely invest in shares this small and much prefer the big ones for reasons of risk reduction. Many readers though do not share this particular obsession of mine. Whatever lights your candle.

More: Value investing discussion board