VALUE INVESTING
The Market's Least Favourite Shares

By Stephen Bland (TMFPyad)
August 3, 2001

At the request of our reader Lord Essex, who is our own erstwhile TMFEssex subsequently ennobled for services to Fooldom and who earned a zillion recommendations for this suggestion on the value board, I bring you this week a quick rundown on the cheapest companies in the FTSE 350. I don't think his Lordship is too fond of small caps so I stuck with the biggies in the market. The object is to try and locate the downtrodden, the financial pariahs amongst the largest 350 companies in the market using three common value ratios as the indicators.

I would add that our aristocratic reader is also a keen motorcyclist. I am aware that a number of value oriented readers are also keen on bikes though it is not obvious why this may be so. Some bull about going your own way, not too keen on obeying other peoples' rules, the ride is what's important not the destination and other examples of the cliché artist's work are what spring to mind by way of explanation.

Here we go then and remember I make no comment at all as to the quality of these shares, that is up to readers to decide for themselves, they are just leads which may throw up something interesting, or alternatively may merely make you throw up in disgust. It's your call.

Note that the yield and P/E lists are on a forecast basis. The P/TB list is based on the last annual accounts.

Ten Highest Yielders

Company                       Dividend yield, %
                                (forecast)

Laird (LSE: LARD)                   9.0
Railtrack (LSE: RTK)                8.2
Cookson (LSE: CKSN)                 7.9
Innovation (LSE: TIG)               7.8
awg (LSE: AWG)                      7.6
United Utilities (LSE: UU.)         7.2
IMI (LSE: IMI)                      7.0
British Vita (LSE: BVIT)            6.7
Coats (LSE: CO.)                    6.7
Tate & Lyle (LSE: TATE)             6.7

Ten Lowest Price/Earnings Ratios

Company                      Forecast P/E

Wilson Connolly (LSE: WSNC)         5.3
Taylor Woodrow (LSE: TWOD)          5.7
Wimpey (LSE: WMPY)                  5.8
Persimmon (LSE: PSN)                6.1
Ashtead (LSE: AHT)                  6.4
Barratt Devs (LSE: BDEV)            6.5
Bovis Homes (LSE: BVS)              6.5
Berkeley (LSE: BKL)                 6.8
Wilson Bowden (LSE:WLB)             7.1
Rexam (LSE: REX)                    8.4

Ten Lowest Price/Tangible Book Ratios

Company                         Price/Tangible book
                                      value

Thistle Hotels (LSE: THO)           0.5
Corus (LSE: CS.)                    0.6
London Merchant Secs (LSE: LMSO)    0.6
British Land (LSE: BLND)            0.6
Liberty Int (LSE: LII)              0.6
Coats (LSE: CO.)                    0.6
De Vere (LSE: DVR)                  0.6
Millennium & Cop. (LSE: MLC)        0.6
Railtrack (LSE: RTK)                0.7
Gt. Portland Est (LSE: GPOR)        0.7

Something upon which to chew then. Readers who have not become blind through excessive mastication may notice that the P/E and P/TB lists in particular contain an extremely marked bias towards certain sectors.

Specifically the lowest P/E list has nine out of the ten companies in construction-related businesses, which is quite remarkable. Most of these are pure housebuilders.

More expectedly, the lowest P/TB list has a predominance of property and hotel businesses, the latter being closely related to the former in any case. Not surprising, because property shares traditionally trade below book value as the norm.

The high yielders are a mish-mash of British industry, including the inevitable couple of utilities. It is perhaps a little surprising with this list that there aren't more of them.

So there you have it. Lord Essex's junk pile. The detritus of leading British companies as decided by the market on fundamentals. But we all know that the market doesn't always get it right. Don't we?