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VALUE INVESTING
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Following my search for FTSE100 value last week, I have trawled my database of the whole market for pyad shares. The following, in descending cap order, all satisfy the criteria of: The above list excludes those companies with negative P/Es and P/TBVs. Note also that the asset and gearing figures are taken from the last annual accounts with no updating for interims or news since. The P/E and yield data is derived from consensus analysts' forecasts. However, in a number of cases there are no forecasts because most of these are very small caps which analysts do not follow. In those cases the data will be historical. Surprisingly perhaps for some in view of the bear market, there are only nine shares that qualify. The reason is that the pyad approach is dynamic on P/E and yield figures. I set these at about 1/3 below the market and 50% above the market respectively. This will always produce only a fairly short list when combined with the requirement for net cash and a share price below book. As happens on most occasions, these are all small caps ranging from £38m for Malcolm Group down to about £2.5m for Cassidy Brothers. The P/Es range from around 9 for Titon Holdings down to about 4 for Cassidy, so all come in well below the maximum level of the filter. The businesses are an eclectic (one of those fash words used only in journalese or lonely hearts ads by people who think they are intelligent) mix. There is a manufacturer of aircraft interiors in AIM Group for example while 4Imprint produces printed promotional products. There is no common theme though both Forminster and Albion are in the rag trade. Value investors generally pay little attention to the nature of the business. We look for cheap assets, earnings with good yields and net cash. What they do to achieve these qualities is very much of secondary importance, particularly for very deep discount asset plays where those assets consist of property, cash or investments. Many of these companies will be going through a bad patch, quite frequently the main reason why a share exhibits value characteristics in the first place. The question is whether the market has overdone things, the likelihood of a turnaround and so on. I am not making any comment as to the attractions or otherwise of these shares, they are purely the result of a mechanical trawl, a starting short list upon which further research is essential. Be careful with small caps though, they can be much riskier due to there being few, or no, forecasts and many other reasons such as large spreads, poor liquidity, lack of investor interest and, in many cases, lower director integrity. Also, because of the nature of the database construction, a lot of the fundamental data will be out of date or questionable. Personally I doubt I would buy any of these. I tend to stick with larger caps these days for value shares, preferably over £100m even though they are rare. However a good small cap pyad share can be a great investment so the way to play it is to have a portfolio of them plus a large dollop of extreme patience because they will generally take longer to out due to the lower interest that prevails.