VALUE INVESTING
Value In The FTSE 250

By Stephen Bland (TMFPyad)
February 13, 2004

I'll be looking at some interesting value plays in the February edition of my tipsheet. You can subscribe here.

Last week in this column, I looked at the FTSE 100 for value, but what is there from a similar trawl amongst the FTSE 250, the next 250 largest companies?

Here are the results. As before, balance sheet data is historical from the last annual accounts without amendment for interims or news since, whilst dividend and earnings per share (EPS) data is based upon consensus analysts' forecasts. Searches must be seen as just a starting point for further research and do note that databases can contain errors. I have used the raw data extracted from my database without checking on the validity of the figures.

Nothing appears in all three lists. Two shares appear in two, Jarvis and Northumbrian Water, though not in the same two lists. Jarvis is both a low price to earnings (P/E) and high yielder whilst Northumbrian is a high yielder and below tangible book situation. Jarvis is forever tripping up somewhere and consequently has seen its rating creamed in recent times. In consequence, the forecast yield and P/E figures may not be too reliable.

Some interesting observations stand out from these tables. Quite surprisingly perhaps, four of the five lowest P/E shares are housebuilders. This suggests that the market thinks the housing boom will be coming to an end in the not too distant future. We have, though, been hearing this for years. Sooner or later it will, because this is quite a cyclical business. However, I have noted that with cyclicals, and similarly with general economic booms and busts, together with share bubbles, the earliest calls that whatever it is must end soon are always too early. The trends will often go on much longer than many expect. You can do quite well by going against those who preach the end is nigh, at least the first few such, as long as you know when to get out.

Two of the lowest price to tangible book (P/TBV) shares are a property business – London Merchant – and a hotels group – Millennium & Copthorne. Property traditionally trades at a discount to book whilst hotel businesses are often seen as little more than property plays anyway, particularly if the business is not very profitable. On most occasions, I would have expected more properties to show up in this list but the reason they have not is that property share discounts have narrowed considerably over the last year or so. The sector has come into fashion.

The high yield list is not particularly remarkable. The two utilities are expected and as mentioned, Jarvis is there because of its trashed rating. Perhaps Tate & Lyle is the most interesting share in this group. The famous old sugar name has been through a lot of rough times in its history and has often been a high yielding share as I recall. Sweet dreams are made of this? Maybe.

As with any share here, give it a good scroot before you buy though. Not too good of course, as you don't want to overanalyse.

Where next? FTSE 100 Value | Stephen Bland's Value Investor newsletter