Top 10 Undervalued Companies:
March 1st 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 both 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 Warnings
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
Lloyds (LLOY)
Sector
Index
Market Cap
P/E
Dividend (p)
Yield (%)
Dividend Cover
Pence 1 day candles
Support Services
FTSE 100
£58.28 billion
n/a
n/a
n/a
n/a
86
84
84
LLOY
82
80
78
82.53
Ord
86
76
Current Price:
Lloyds Banking Group PLC
74
82
80
78
76
74
72
Trading Notes
200
72
Volume (Daily) - M's
200
7
14 21 28 Nov
18 25
16 23
17 26/2/14
Dec
Feb
'14 13 20 27
Following some pretty slow years 26/9/13
100
100
50
immediately after the financial crisis of 50 5 RSI (Wilder - Daily)
2007/8, figures for 2013, shows the
www.sharescope.co.uk
Chart (c) Share Scope
bank has returned to profit in pretty
spectacular fashion, swinging from a £606 million loss in 2012 to a pre-tax profit of £415 million last year.
That’s a cool billion pound turnaround and no wonder, with group costs down by 5% to £9.63 billion and bad
loan charges falling by a whopping 47% to £3.0 billion.
Just a couple of months ago it also made the wise decision to sell its asset management business (Scottish
Widows) to Aberdeen Asset Management for a not inconsiderable sum. Overall we fancy Lloyds reaching
broker targets many of which are at the 100p so that’s a healthy 25% for those who want a piece of the
banking pie.
Trade 2 Shire Pharmaceuticals (SHP)
Sector
Index
Market Cap
P/E
Dividend ($)
Yield (%)
Dividend Cover
Pharmaceuticals
FTSE 100
£20.07 billion
18.50
0.20
0.40
12.91
Current Price:
3,320.00
Trading Notes
Pounds 1 day candles
Shire PLC
Ord
34
34
32
32
30
28
26
SHP
24
4 Volume (Daily) - M's
30
28
26
24
4
There’s been continued strong 26/9/13 7 14 21 28 Nov 18 25 Dec 16 23 '14 13 20 27 Feb 17 26/2/14
100
growth in product sales from a 100
5 RSI (Wilder - Daily)
50
50
number of its operations ranging
www.sharescope.co.uk
Chart (c) Share Scope
from Vyvanse which was up 19% to
Firazyr which increased by an incredible 102%. But apart from this we like Shire because of its focus on the
niche drug areas that it seems to concentrate in. Whereas some of the other pharmaceuticals spread the chips
across the roulette table waiting for their number to come in, it appears that Shire is more content on betting
on the ‘thirds’. If you are not a gambling person ignore the analogy. If you are a gambling person, avoid the
roulette table – the house always win .
However what is plain to see for all investors is that the firm has grown in size at a rapid pace due to its
aggressively acquisitive nature and that should set it in good stead for the future. As a result of its no-nonsense
approach to growth it is now one of the largest firms in its sector in the UK and growing still. Mind you big is
good but ‘biggest’ isn’t always best and so whilst we think they will continue to perform we do believe that any
further growth should be curbed.
Trade 3
Crest Nicholson (CRST)
Sector
Index
Market Cap
P/E
Dividend (p)
Yield (%)
Dividend Cover
Housebuilders
FTSE 250
£ 955m
12.8
6.5
1.7
4.6
Pence 1 day candles
400
390
380
380
CRST
370
360
340
381.90
Trading Notes
Ord
390
350
Current Price:
Crest Nicholson Holdings Ltd
400
370
360
350
340
330
330
2000 Volume (Daily) - th's
26/9/13
7
14
21
28
2000
Nov
18
25
Dec
16
23
'14
13
20
27
Feb
17 26/2/14
Where would our top 10 be 50 5 RSI (Wilder - Daily)
50
without at least one house
www.sharescope.co.uk
Chart (c) Share Scope
builder, especially after the
phenomenal success of last year of the likes of Barratt Developments, Taylor Wimpey and Persimmons. Crest
however has been less obvious and whilst other house builders have probably overextended themselves due
to irrational pricing by investors who were scared from missing the proverbial boat, the valuation of Crest
seems a more sensible one. Revenue is good and it pays a dividend of 6.5p per share which is fair in relation to
its retained earnings.
Of course Government intervention to artificially stimulate the housing sector through its new home policies is
difficult to value but the return to risk ratio still works well in this case. That said don’t leave it too late as this
one stock that seems to have passed most investors the first time round, it’s unlikely to happen for a 2nd time.
Trade 4
Merlin (MERL)
Sector
Index
Market Cap
P/E
Dividend (p)
Yield (%)
Dividend Cover
Travel & Leisure
FTSE 250
£3.70 billion
n/a
n/a
n/a
n/a
Current Price:
363.00
Trading Notes
Pence 1 day candles
Merlin Entertainments PLC
Ord
380
380
370
370
360
350
340
330
320
200
MERL
360
350
340
330
320
200
Everyone loves a good theme park
and nobody does them quite as 7/11/13 18 25
16
23 30 '14
13
20
27
17
Dec 9
Feb 10
26/2/14
good as supreme park operator
5 RSI (Wilder - Daily)
50
50
Merlin
Entertainment.
Their
www.sharescope.co.uk
Chart (c) Share Scope
advertising is second to none and
they seem to have punters coming in from afar, (despite the weather!). Last year revenue jumped up by nearly
11% to around £1.2billlion and that’s despite the company investing huge sums in new rides and attractions to
keep their fans coming back for me.
Volume (Daily) - M's
But it wasn’t just revenues as earnings were also on the rise by a healthy 13% to just shy of £400m coupled
with a jump in visitors of more than 11%. Profits weren’t too shabby either as they were up by nearly a third to
close to £190m. No wonder Investec have now issued a ‘buy’ rating and target price of 415p. However like
their rides the share price of this one could be a bit of a rollercoaster so be warned.
Trade 5
WPP (WPP)
Pounds 1 day candles
Sector
Index
Market Cap
P/E
Dividend (p)
Yield (%)
Dividend Cover
Media
FTSE 100
£17.31 billion
16.40
28.51
3.20
2.73
Current Price:
1,308.00
WPP Group PLC
Ord
14.0
14.0
13.6
13.6
WPP
13.2
12.8
12.4
13.2
12.8
12.4
Trading Notes
4 Volume (Daily) - M's
4
18 25
16 23
17 26/2/14
Dec
Feb
26/9/13 7 14 21 28 Nov
'14 13 20 27
The recent pullback witnessed a few
5 RSI (Wilder - Daily)
weeks ago took the market by surprise as
50
50
the FTSE100 retreated from 6,850 down
www.sharescope.co.uk
Chart (c) Share Scope
to 6,400 in the space of less than a week.
Not surprisingly WPP didn’t fare much better but a good indication of any stock is how it reacts to adverse
conditions and WPP seems to have picked itself up from the canvas well within the ‘10 count’. How it fights on
from here is anyone’s guess but we do feel that the company is poised for great things, at least in the medium
term.
Also and critically the firm has finally got a grasp on its difficult debt situation that was threatening to spiral out
of control. However with some careful management the level of net debt has fallen by £244 million to £2.98
billion, compared to £3.23 billion in 2012. Not great we accept but as shareholder returns remain the firm’s
focus (dividends were increased by 20% to 34.2p) and a share buy-back is on the cards for 2-3% of share
capital, it’s good news for investors.
Trade 6
Bank of Georgia (BGEO)
Sector
Index
Market Cap
P/E
Dividend (p)
Yield (%)
Dividend Cover
Banking
FTSE 250
£798.9m
12
-
Current Price:
2,320.00
Pounds 1 day candles
Ord
26
25
25
24
24
23
22
21
Trading Notes
Bank of Georgia Holdings PLC
26
20
BGEO
19
200
23
22
21
20
19
Volume (Daily) - th's
200
A wise (or crazy) person once said that every 26/9/13 7 14 21 28 Nov 18 25 Dec 16 23 '14 13 20 27 Feb 17 26/2/14
100
person at least once in their lifetime should take 100 5 RSI (Wilder - Daily)
50
a walk on the ‘wild side’; well at London Stone 50
www.sharescope.co.uk
Chart (c) ShareScope
this stock is our ‘wild side’ (yes, we know we
should really get out more). Bank of Georgia, who most investors haven’t heard of isn’t for the faint hearted so
if you’re on medication look away now. If you’re not on medication time to call your pharmacist just in case.
The firm currently holds more than a third of all of the total loans and deposits in Georgia and with the country
experiencing growth of over 6% it is well ahead of any developed country (and most developing countries). It
also has a surprisingly low PE of less than 10, which is well below the average for the banking sector. A yield of
2.6% isn’t great but it’s better than a kick in the teeth and with over a million deposit accounts and growing
who is to say this won’t be a stock to watch out for. In fact some brokers have already targeted 300p so pop
those pills now and come take a walk on the dark side with us.
Trade 7
BAE Systems (BA.)
Sector
Index
Market Cap
P/E
Dividend (p)
Yield (%)
Dividend Cover
Aerospace and Defence
FTSE 100
£13,678m
12.4
20.1
4.9
2.2
Current Price:
410.90
Pence 1 day candles
BAE Systems PLC
Ord
460
460
BA.
440
420
400
440
420
400
Trading Notes
20 Volume (Daily) - M's
7
14
21
20
28
18
25
16
23
13
20
27
17 26/2/14
Nov
Dec
Feb
'14
BAE system seems to have made more 26/9/13
5 RSI (Wilder - Daily)
50
appearances in our top 10 than David
www.sharescope.co.uk
Chart (c) Shar e Scope
Moyes has in recent weeks in newspapers
(albeit for all the wrong reasons). And why not? It’s hard to resist the lure of the UK and Saudi Arabian
government deal which has finally agreed terms of the Salam contract (for the purchase of 72 Eurofighter
aircrafts). If you recall the Saudis planned to buy 72 Eurofighters in 2007 for £4.5 billion, but the contract never
got off the ground (yes the jokes get worse!) due to the escalating costs.
However this more recent announcement removes this uncertainty and in fact BAE will even start receiving
cash from the deal in next few months. Add to that the backdrop of an ambitious but achievable share buyback of a £1 billion over three years (of which £271 million has already gone through) and it’s easy to see why
this is such a hit with the traders at London Stone. And with a progressive dividend policy to boot (4.5%) and a
focus on group costs, this household name should also make regular appearances in your portfolio.
Trade 8
Wood Group (WG.)
Sector
Index
Market Cap
P/E
Dividend (p)
Yield (%)
Dividend Cover
Food Produce
FTSE 100
£ 14,748m
22.5
28.5
1.55
2.9
Current Price:
763.00
Pence 1 day candles
Ord
800
800
WG.
760
720
680
Trading Notes
640
As an international energy services
company with over $7bn sales, a
work force of over 40,000 and
operating out of 50 countries
around the world this firm has
three distinct businesses.
Wood Group (John) PLC
760
720
680
640
2000 Volume (Daily) - th's
26/9/13
50
7
14
21
28
2000
Nov
18
25
Dec
16
23
'14
13
20
27
Feb
17 26/2/14
5 RSI (Wilder - Daily)
www.sharescope.co.uk
50
Chart (c) Share Scope
One of those three, Wood Group ODL has just secured an impressive 5 year, multi-million pound contract providing
information management services to BP’s North Sea business and this was via a competitive tender process (not always the
easiest thing in the world) and it means an impressive 11 years of continuous service to BP by Wood Group.
Another part of the trio is WGPSN which has secured two major contract extensions in Africa, worth around $250mn USD,
one being a five year contract extension worth more than $140 million USD where it employs almost 600 people and the
other a three year contract extension worth more than $110 million USD taking the contact up to 10 years.
Serious numbers for a serious company for a serious investor I think you’ll find.
50
Trade 9
Tate & Lyle
(TATE)
Sector
Index
Market Cap
P/E
Dividend (p)
Yield (%)
Dividend Cover
Consumer Goods
FTSE 100
£2,922m
11.1
26.2
4.12
2.2
Current Price:
642.00
Pence 3 day candles (dyn.)
Ord
880
880
840
840
TATE
800
760
720
Trading Notes
Tate & Lyle PLC
800
760
720
680
Now make no mistake, this is a high 680
risk play but we feel that the risk
640
justifies the investment. Following a 640
horrendous fall of over 20% in a single
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
26/2/13
'14
26/2/14
www.sharescope.co.uk
Chart (c) Share Scope
day just a few weeks ago the company
has started to consolidate establishing a side-ways movement pattern. From a technical point of view the longer this sideway movement can be maintained the greater the possibility of a rebound.
Many brokers of course have cut their price targets and their ratings (Citigroup from 900p from 800p and JP Morgan from
900p to 825p) but as you can now see even these discounted targets are well above current market value suggesting that
investors have panic sold and overreacted to the downside.
Group debt from figures at the close of play last year was down by over £250 million which is close to £100m
better off than the year before. at 31 December 2013 was £253 million, down from the 30 September 2013
(£336 million) and with a progressive dividend policy that saw an increase in its rate by 5% from last year
coupled with a lower price thus raising its yield and it’s shaping up to be quite a sweetener for both short term
traders as well as long term investors..
Trade 10 BG Group (BG.)
Sector
Index
Market Cap
P/E
Dividend (p)
Yield (%)
Dividend Cover
Oil & Gas Services
FTSE 100
£37,267m
17.25
18
1.64
2.4
Current Price:
1,088.50
Pounds 1 day candles
Ord
13.5
13.0
13.0
12.5
12.0
11.5
11.0
10.5
Trading Notes
BG Group PLC
13.5
BG.
10.0
20 Volume (Daily) - M's
12.5
12.0
11.5
11.0
10.5
10.0
20
Despite a recent profit warning due to
18 25
16 23
17 26/2/14
Dec
Feb
26/9/13 7 14 21 28 Nov
'14 13 20 27
continued turmoil in Egypt, it’s 4th quarter
5 RSI (Wilder - Daily)
50
50
earnings stood strong at an impressive $1.1
www.sharescope.co.uk
Chart (c) Share Scope
billion which was slightly ahead of
expectations and it had an earnings figure which jumped over 10% for the same period. However we feel that this is more
of an investment for 2014 rather than looking any further beyond this period as its production forecast for 2015 has been
cut by as much as 14%. That doesn’t bode well with us at London Stone and from a technical standpoint it will cause jitters
next year for sure.
However for now and the next few months at least the stock remains strictly in ‘oversold’ territory according to the moving
averages and so buy now, enjoy the ride and then get off before it reaches its final destination. Good luck!