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st 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!