VALUE INVESTING
Big Cap Value

By Stephen Bland (TMFPyad)
August 19, 2005

Following on from last week's mechanical trawl for value in the FTSE250, I'm returning to my traditional occasional look at the mother index, the FTSE100, which represents the 100 largest cap shares in the market. Most of the high yield portfolio shares I select for the Value Investor high yield portfolios (HYP) are drawn from this index, deliberately so, because the strategy is a relatively low risk (by equity standards) widows and orphans approach.

As usual, the figures are derived purely mechanically from a database filter on the various ratios without any further research so I am not giving any advice here. Note that my database uses only the latest annual accounts for assets with no update for interims or news. Consequently some of the information may be out of date. Dividend and eps figures are consensus forecasts. Note too that databases do sometimes contain errors.

FTSE100 Ten Lowest P/E	Price	P/E
Old Mutual (LSE: OML)	133p	7.2
Royal Bank of Scotland (LSE: RBS)	1,610p	8.5
Aviva (LSE: AV.)	622p	9.0
HBOS (LSE: HBOS)	883p	9.7
Barclays (LSE: BARC)	563p	9.8
British Airways (LSE: BAY)	286p	9.9
Xstrata (LSE: XTA)	1,290p	10.0
Royal & SunAlliance (LSE: RSA)	94p	10.1
Lloyds TSB (LSE: LLOY)	455p	10.3
Northern Rock (LSE: NRK)	813p	10.3

FTSE100 Ten Highest Yields	Price	Yield (%)
Lloyds TSB (LSE: LLOY)	455p	7.5
United Utilities (LSE: UU.)	623p	7.1
Alliance & Leicester(LSE: AL.)	864p	6.2
Severn Trent (LSE: SVT)	943p	5.4
Dixons (LSE: DXNS)	155p	5.4
BT (LSE: BT.A)	221p	5.3
Royal & SunAlliance (LSE: RSA)	94p	5.1
National Grid (LSE: NG.)	512p	5.1
Scottish Power (LSE: SPW)	486p	5.0
Rentokil Initial (LSE: RTO)	152p	5.0

FTSE100 Ten Lowest P/TBV	Price	P/TBV
British Land (LSE: BLND)	841p	0.78
Hammerson (LSE: HMSO)	863p	0.93
Liberty International (LSE: LII)	968p	0.97
Land Securities (LSE: LAND)	1,390p	1.00
Wm Morrison (LSE: MRW)	186p	1.15
Sainsbury (LSE: SBRY)	282p	1.16
United Utilities (LSE: UU.)	623p	1.17
BAA (LSE: BAA)	605p	1.19
Royal & SunAlliance (LSE: RSA)	94p	1.26
British Airways (LSE: BAY)	286p	1.42

Many of the shares in the high yield list have been selected by me for Value Investor HYPs in the past but a couple have been chosen as short term value plays too.

What do these lists tell us? Quite a bit. The low P/E table contains five banks and three insurance companies. Clearly then banks and some insurers are not the market's favourite businesses right now. Miner Xstrata is an odd one out though I am not that surprised at the inclusion of airline BA.

As expected, the high yields are biased towards utilities with four companies, five if you include BT. Two banks also feature here with electrical retailer Dixons, insurer Royal and corporate services business Rentokil making up the rest.

Also as expected, the low P/TBVs include a number of property companies, the top four all being in that business. Airport company BAA is something of a quasi property share too. Note that three of these shares have nil or tiny discounts, indicating market favour for the sector. When unloved, major property shares can easily trade at 0.8 or less.

Two supermarkets feature because of poor trading, together with BA, United Utilities and Royal.

I'm seeking repeat appearances because this indicates potentially stronger value. Only one share, Royal, appears in all three lists. Royal is an old favourite amongst old value players and I have myself traded them several times in the past as far back as pre the Royal merger with Sun, successfully on every occasion far as I recall. I'm in them now too.

By the way don't think that any value player worthy of the name would buy the shares for sentimental reasons. The regular recurrence of Royal on trawls over the years is because the company so often actually exhibits value. The reason is that its habit of banana skinning causes the market to seriously undervalue it at times. Also, given the choice, a big cap value share is always preferable to a small cap.

Some of the shares appear in two tables. Lloyds is both a high yielder and a low P/E play whilst BA is both a low P/E and low P/TBV share. United Utilities is both a high yielder and low P/TBV company. Although a regulated utility, United actually has a substantial area of its business in non-regulated activities.

I advise people interested in the shares featured here to carry out further investigation of their own but this sort of trawl provides possible starting points for likely seeming shares. Value Investor does this for you, as you can see with our free 30-day trial, doing both the initial trawl and then the weeding out. When we're talking big caps this apply both for value trading and high yield portfolio selections.

Stephen owns shares in Alliance & Leicester, BT, Lloyds TSB, Royal & SunAlliance and United Utilities.