Download Top 10 Undervalued Companys August 2014

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Top 10 Undervalued Companies: August 1 2014
At London Stone Securities, we use a number of tools to analyse
and research the stock market. Most of our research revolves
around blue-chip FTSE100 and FTSE250 companies where
information is more readily available, balance sheets are generally
more transparent, and where the risks are lower.
Our research uses both fundamental and technical techniques
that we have developed over a number of years to offer our
clients the best possible opportunity to attain strong capital
appreciation and income on their portfolios. Fundamental
analysis is broadly based around the financials of a company and macro-economic factors, whilst technical
analysis is based on measuring investor sentiment through the analysis of price action depicted through
charting. As a firm we have found that the strongest results have been achieved by using both methods in
conjunction with each other irrespective of whether you are looking for long term investments or short term
trading opportunities.
Each month we hope to offer you an insight into our specific trading opportunities completely free of charge.
However, please be advised that this information is confidential and is for reading purposes only. It is NOT
investment advice, and you should not trade on these recommendations, nor should you offer this information
to any third party. Should we have reasonable doubt that either of these conditions has been broken, we
reserve the right to remove your name from future mailing lists.
Trading Strategy
As a firm we offer short, medium and long term investment strategies and so you can buy these shares either
for a few weeks, months or even years. It really is up to you. Our job is ‘simply’ to establish those shares which
offer the best return-to-risk ratio for our clients regardless of whether you want short or long term
investments.
In practice it is of course advisable to have a diversified spread of stocks, some for income, some for capital
growth, and perhaps a small amount for speculation.
Whatever your investment goals please speak to one of our advisors free of charge and with no commitment
who will assist you in reaching your goals. It’s important that you get what you want out of your account so
please make it clear to your broker your investment objectives, appetite for risk, preferred time frame and all
importantly if income is important to you. Your advisor can then help to create a strategy which best meets
your specific profile.
Document Information
Please bear in mind that the information given in this document is intentionally very basic. It does not attempt
to overload you with facts and figures. It is only a generic marketing document and is designed to be an easy
read aimed at all investors from complete novices to professional traders. If you want to hear more and wish
to register as a client of London Stone Securities (at no cost or obligation) we can give you far more detailed
information including research reports as well as specific trading levels showing entry and exit prices. To hear
more call now on 020 3697 1700
Risk Warning
All investments are speculative and will fluctuate in value. Do not ever invest money that you cannot afford to
lose and always seek independent financial advice before proceeding.
Trade 1: St James Place PLC (STJ)
Pence 1 day candles
Sector
Index
Market Cap
P/E
Dividend
Yield (%)
Dividend Cover
Life Insurance /
Assurance
FTSE 100
£3.94 billion
19.50
15.96
2.20
2.34
St James's Place PLC
Ord
880
880
STJ
840
800
760
840
800
760
720
720
10 Volume (Daily) - M's
Current Price:
726.5
3/3/14 10
50
17
24
Apr
10
14 22 28 May
19
27
Jun
16
23
14
Jul
21 29/7/14
5 RSI (Wilder - Daily)
UK wealth manager St. James's Place
www.sharescope.co.uk
Chart (c) Share Scope
has done pretty well in difficult
times after posting record funds under management in the first half of the year, in part due to a big influx of
new client inflows. A jump of 20% to £47.6 billion pounds in the first six months of the year was very well
received as you would expect but it was the impressive retention rate of 95% along with £2.4billion of new
funds was welcomed by shareholders. The stock is trading up 8% this year versus a flat FTSE 100 but it still
looks good value and with total single investments up to nearly £4 billion this is up over 20%. Figures wise it
seems this particularly palace is worth residing in for investors.
50
Trade 2: Brewin Dolphin PLC (BRW)
Pence 1 day candles
Sector
Index
Market Cap
P/E
Dividend
Yield (%)
Dividend Cover
Financial Services
FTSE 250
£828 million
16.8
8.6
3.2
1.84
299.5
Ord
360
350
350
BRW
340
330
320
310
Current Price:
Brewin Dolphin Holdings PLC
360
340
330
320
310
300
300
1000 Volume (Daily) - th's
1000
3/3/14 10
50
17
24
Apr
14 22 28 May
19
27
Jun
16
23
Jul
14
21 29/7/14
5 RSI (Wilder - Daily)
50
Along the financials front we are
also very interested in Brewin Dolphin. It reported a good performance in the third quarter last year and is set
to hit all targets. The group also witnessed steady growth within its net funds into its core discretionary service
and is still very much in line with its growth target of 5% per annum. In fact latest reports also show an
additional 2% growth in net funds due to successful conversion from advisory services.
www.sharescope.co.uk
Chart (c) Share Scope
Net new managed/advised funds growth combined with positive investment performance in the quarter
resulted in an overall increase of 2% in total managed/advised funds to £29.3 billion. Income is also on the up
at £67 million in the quarter and 5% higher than Q3 in 2013.
Overall we are bullish on financials and so this fits well for the overall sector portfolio composition strategy.
Clearly Brewin is no match for London Stone Securities in terms of quality of service but obviously London
Stone is not listed (yet) and besides it would be inappropriate to include ourselves in the top 10 report!
Trade 3: GlaxoSmithKline PLC (GSK)
Pounds 1 day candles
Sector
Index
Market Cap
P/E
Dividend
Yield (%)
Dividend Cover
Pharma &
Biotech
FTSE 100
£68.5 billion
14.4
78
4.8
1.4
GlaxoSmithKline PLC
Ord
17.0
17.0
16.5
16.5
GSK
16.0
15.5
15.0
14.5
16.0
15.5
15.0
14.5
14.0
Current Price:
1436.5
14.0
20 Volume (Daily) - M's
3/3/14 10
17
24
Apr
20
14 22 28 May
19
27
Jun
16
23
Jul
14
21 29/7/14
5 RSI (Wilder - Daily)
50
50
Glaxo has had its fair share of
www.sharescope.co.uk
Chart (c) Share Scope
problems recently but despite these
the group also recently announced a major deal with Swiss drugmaker Novartis AG involving its Consumer
Healthcare, Vaccines and Oncology businesses. The new three way transaction could mean revenues of up to a
further £6.5 billion. That’s not all of course – existing work on new product launches such as those specifically
within the HIV field is also proving very successful with sales up by an impressive 13%. Even some of the
disappointing other pharmaceutical sales data has been offset by an increase in vaccines sales by as much as
5% in the UK and US and an even more impressive 26% within the emerging markets. Most important of all is
the boardroom and its recent change in stance to its shareholders. Running a ship is one thing but looking after
its passengers is something completely different and we find GSK as a company very much in tune with its
people. It’s no surprise then that shareholder return is on the agenda again and why the dividend has now
been increased by a further 6%. Recent negative regulatory news from the Far East means that you can buy
GSK at relatively low levels.
Trade 4: BG Group PLC (BG.)
Pounds 1 day candles
Sector
Index
Market Cap
P/E
Dividend
Yield (%)
Dividend Cover
Oil & Gas
FTSE 100
£40.2 billion
17.1
$0.29
1.3
4.5
1172
Ord
13.0
13.0
12.5
12.5
12.0
11.5
11.0
Current Price:
BG Group PLC
10.5
BG.
10 Volume (Daily) - M's
12.0
11.5
11.0
10.5
10
Full year production guidance has
14 22 28 May
19 27 Jun
16 23
14 21 29/7/14
Apr
Jul
3/3/14 10 17 24
remained high at over 600,000 barrels
5 RSI (Wilder - Daily)
50
50
of oil a day with great performances
from key project areas particularly
www.sharescope.co.uk
Chart (c) ShareScope
Australia and Brazil. In terms of the longer term picture the group's long-term strategy remains unchanged
with capital expenditure levels declining. In fact by next year we see BG being close to if not fully cash flow
positive. As a business that operates from out of 27 countries around the globe and with its main operations
concentrating on the exploration and extraction of natural gas and oil, one shouldn’t forget that it has also
diversified into other areas equally able to offer income streams; this includes some pretty serious power
generation projects. Once again the captain of this ship is taking care of its passengers, with 2013 results
combined with a healthy 10% rise in its dividend payment. Aye, aye captain!
Trade 5: Unilever PLC (ULVR)
Pounds 1 day candles
Sector
Index
Market Cap
P/E
Dividend
Yield (%)
Dividend Cover
Food Producers
FTSE 100
£33.3 billion
19.3
115
3.5
1.48
27.0
27.0
26.5
26.5
ULVR
26.0
25.5
25.0
24.0
2570
Ord
27.5
24.5
Current Price:
Unilever PLC
27.5
26.0
25.5
25.0
24.5
24.0
23.5
23.5
4 Volume (Daily) - M's
4
This stock really is a gem. It’s not
14 22 28 May
19 27 Jun
16 23
14 21 29/7/14
Apr
Jul
3/3/14 10 17 24
one that I often recommend to
5 RSI (Wilder - Daily)
50
50
clients as it has in the past been
subject to pretty heavy volatility.
www.sharescope.co.uk
Chart (c) Share Scope
However things are much tighter now and with underlying group sales up by 3.7% and that of the emerging
markets up by nearly 7%, and you can see why we are changing our stance on this one. ULVR is also focussed
on its product portfolio and the acquisition of a majority stake in Qinyuan the Chinese water purification
business. We feel this was a clever move as were the disposals of the Ragu and Bertolli pasta sauces brands in
the United States. Clearly the business is not frightened of making big decisions as we saw last year when it
spent more than $3 billion to increase its holding in its Indian subsidiary to nearly 70% from just over half
previously. Only the current dividend policy is slightly disappointing as the firm pays a lower yield less than its
peers. That said, the extra ‘oomph’ in capital appreciation potential is enough to offset any income loss and
the lower yield is also in part of course down to the fact that the share price has done so well in recent times.
In other words it’s the wrong result (low dividend yield) but for all the right reasons (higher share price rather
than struggling finances).
Trade 6: Pets at Home (PETS)
Pence 1 day candles
Sector
Index
Market Cap
P/E
Dividend
Yield (%)
Dividend Cover
General Retailers
FTSE 250
£910 million
n/a
n/a
n/a
n/a
Pets at Home Group PLC
Ord
260
260
240
240
PETS
220
200
220
200
180
180
100 Volume (Daily) - M's
12/3/14
Current Price:
178.30
50
24
Apr
100
14
22
28
May
19
27
Jun
16
23
Jul
14
21 29/7/14
5 RSI (Wilder - Daily)
www.sharescope.co.uk
50
Chart (c) Share Scope
Following a flurry of IPOs this year, it appears that many of them fell flat on their proverbial face. Pets At Home
was one point in question. However that shouldn’t put you off buying the company now. In fact artificially high
IPO prices can work well for investors who bide their time and wait for the ‘noise’ to settle down before
buying. That’s because those who have bought in at the IPO price already have their exit price planned if the
shares fall in value and so new investors already know at what price their shares will reach resistance which in
the case of Pets At Home is 245p.This is purely on a technical play and so buying shares now makes great
sense. In fact you could apply the same strategy to all of the recent IPOs including Saga and Poundland. The
only one that you couldn’t do this for is of course TSB where the shares have actually gone up since their float
but then that is the opportunity cost of the trade.
Trade 7: Burberry PLC (BRBY)
Sector
Index
Market Cap
P/E
Dividend
Yield (%)
Dividend Cover
Personal Goods
FTSE 100
£6.29 billion
18.1
32
2.3
2.41
Pounds 1 day candles
Burberry Group PLC
Ord
15.6
15.6
15.2
15.2
BRBY
14.8
14.4
14.0
14.8
14.4
14.0
13.6
13.6
5 Volume (Daily) - M's
3/3/14 10
Current Price:
1414
50
17
24
Apr
5
14 22 28
May
19
27
Jun
16
23
Jul
14
21 29/7/14
5 RSI (Wilder - Daily)
50
www.sharescope.co.uk
Chart (c) Share Scope
Burberry has swung opinion again among the London Stone clan this month but it has just about made it. This
is in no small part due to its retail sales for the first quarter which saw it go up by an impressive 17% to £370
million year-on-year. Its marketing initiatives have all paid off it seems and it recently opened another four
stores (one in Edinburgh and three airport stores in London Heathrow, Madrid and Milan). It is also expanding
within the ‘beauty’ world and once again it’s happy to follow a progressive dividend policy and the full year
dividend was increased by 10% to 32p per share and this will move the ratio from 40% to 50% over the next 3
years. Overall this is a share now worth looking to get back into if you haven’t already.
Trade 8: WPP PLC (WPP)
Sector
Index
Market Cap
P/E
Dividend
Yield (%)
Dividend Cover
Media
FTSE 100
£15.9 billion
16.4
34.21
2.50
2.46
Pounds 1 day candles
13.0
13.0
12.8
12.6
12.2
12.0
1184
Ord
13.2
12.4
Current Price:
WPP Group PLC
13.2
WPP
12.8
12.6
12.4
12.2
12.0
10 Volume (Daily) - M's
3/3/14 10
17
24
Apr
10
14 22 28 May
19
27
Jun
16
23
Jul
14
21 29/7/14
Revenue growth is on the up in line
5 RSI (Wilder - Daily)
50
with a recovering global economy
www.sharescope.co.uk
Chart (c) Share Scope
and so clearly this helps the world's
largest advertising group. It also reported a better than expected 7% rise in first quarter like-for-like revenue
growth and said it had seen a surge in new client wins due to changes in the advertising and marketing
industry. Strategically the firm is on track to do well and certainly the World Cup in Brazil has not done it any
harm at all.
Our director recently came back from the World Cup and saw first-hand just how big the games were over
there. Certainly we would expect WPP to have some strong advertising revenue coming through in the next
reported results. Group net debt was also down to £450million and average debt cut by £600 million over the
same period.
50
Trade 9: BT Group PLC (BT.A)
Sector
Index
Market Cap
P/E
Dividend
Yield (%)
Dividend Cover
Telecoms
FTSE 100
£30.7 billion
13.5
10.9
2.9
2.59
Pence 1 day candles
Ord
410
410
400
400
BT.A
390
380
370
360
Current Price:
BT Group PLC
388.5
390
380
370
360
350
40
350
40
Volume (Daily) - M's
BT continues to impress with BT
14 22 28 May
19 27 Jun
16 23
14 21 29/7/14
Sport strengthening its football
Apr
Jul
3/3/14 10 17 24
5 RSI (Wilder - Daily)
proposition after having won the
50
50
exclusive live broadcast rights for
www.sharescope.co.uk
Chart (c) Share Scope
the UEFA Champions League and
the UEFA Europa League for three seasons from 2015/16. Of course this doesn’t come cheap (unless you have
a spare £300 million in your pocket!) but the value added to BT on this is immeasurable.
In the last quarter the group added nearly 400,000 new net fibre connections which is a staggering 30%
increase. And once again the theme for August is one of companies adopting a progressive dividend policy. In
fact don’t be surprised if BT announce a dividend increase of at least 10%-15% for each of the following two
years.
BT is one of those big friendly giants that will serve you well so look after it.
Trade 10: GKN PLC (GKN)
Pence 1 day candles
Sector
Index
Market Cap
P/E
Dividend
Yield (%)
Dividend Cover
Automobiles
FTSE 100
£5.76 billion
13
7.9
2.1
3.63
GKN PLC
Ord
410
410
400
400
GKN
390
380
370
360
350
390
380
370
360
350
340
340
Volume (Daily) - M's
3/3/14 10
Current Price: 342.5
50
17
24
Apr
14 22 28
May
19
27
Jun
16
23
Jul
14
21 29/7/14
5 RSI (Wilder - Daily)
www.sharescope.co.uk
50
Chart (c) Share Scope
GKN has had a torrid time over the past few months but recent strong data could mean the turning of a
corner. Profit margins grew to 8.9% (2013: 8.3%, or 8.9% excluding £25 million of restructuring) whilst the
return on average invested capital (ROIC) was 17%. Sales are also on the up by 11% over the six month period
with "external forecasts suggest that global light vehicle production should grow around 3% in the second half.
Commercial aircraft production is expected by management to remain strong and yes you’ve guessed it – a
progressive dividend policy is currently being pursued with a half year dividend payment of 2.8 pence per
share, which is an increase of 8%.
One final point, despite their amazing fans (according to the director who saw them first hand in Rio)
Argentina is unfortunately in all sorts of problems in terms of potential default on their debt. If it does default
then we are likely to see the whole market tumble so just be aware before buying!