Monday, May 26, 2008

Alliance & Leicester

A bank! A UK Bank!

The market cap. is £1.8 Billion, the PE is 7 and the dividend yield is 13%!

I have had more than enough of UK banks in the last 12 months. That probably means that now is a good time to start buying, and in fact I am, but not into AL.

AL has been hit harder than most UK banks with its share price now just over one third its peak price a year ago. This is because AL is relatively small and derives a lower proportion of its funds from savers than other banks. Also it is fundamentally a mortgage bank which means it is receiving a double whammy from the credit crunch and the housing market slowdown.

It has had to make some nasty write downs recently but excluding the "one-time" write downs trading is in line with last year.

This probably makes AL a good choice for the risk-loving investor. I would certainly rather buy AL than some pre-sales biotech that might never make money.

However I already have holdings in Barclays, RBS, HBOS and Lloyds TSB (which explains a lot about my portfolios' performances last year!) I do not need another UK bank.

Bye Bye AL.

Admiral Group

Admiral Group is a car insurance provider with operations in the UK, Spain and Italy.

The market cap. is about £2.5 Billion, the PE ratio is 18 and the dividend yield is about 2.5%.

Insurance is not the most exciting of industries but Warren Buffett has proved that there is a lot of money to be made. Admiral's revenue increased a healthy 14% in the last quarter but the PE ratio is rather high and the UK car insurance market is highly competitive.

If I do invest in insurance it will be into Buffett's Berkshire Hathaway company so I will leave this one.

Wednesday, May 21, 2008

Associated British Foods

Next up from my trawl through the FTSE100 is Associated British Foods.

ABF owns a number of well known brands such as Kingsmill, Ovaltine, Twinings and Ryvita. It also owns the Primark chain of clothes stores.

The market cap. is about £7 billion, the PE ratio about 18 and the dividend yield about 2%.

So is ABF worth dwelling on? Probably not. Its defensive nature has resulted in a higher PE ratio than Tesco and I know which company I would rather own.

For those looking for exposure to the food industry the fact that over one third of the profits come from Primark is a bit disconcerting.

Revenue growth of 15% in the latest reporting period looks nice but unless the PE ratio comes down substantially I will ignore this one.

Tuesday, May 20, 2008

FTSE100 all over again

A while ago I resolved to examine every company in the FTSE100 in turn, deciding for each one if I thought it was worth further investigation or not. I didn't get very far. There were too many dull companies to keep my attention.

Now I am going to try again but this time I will give only a very cursory look to the dull companies, rejecting them as soon as I decide they are uninvestable.

So here goes...

Anglo American

Aha an interesting one to start with!

AAL is a diversified miner in the same league as BHP Billiton and Rio Tinto. The market cap. is about £45 billion, the PE ratio is about 12 and the dividend yield is just under 2%.

AAL has six operations: platinum, diamonds, base metals, ferrous metals, coal and industrial minerals. In common with most miners its share price has been soaring, tripling over the last five years. But with brokers forecasting 2008 EPS of 320p its 2008 PE is only 11.

As with all miners, their attractiveness depends on your view on commodity prices over the next five years and longer. With continued rapid growth in China and India there is a case that current high prices will be maintained and could escalate further.

AAL's share price has gone nowhere in the last 12 months. So now could be a decent time to accumulate some.

I will mark this one as worthy of further investigation.

Saturday, May 03, 2008

I have sinned dear Graham

First, a bit of history:

A classic and underrated performance by Queen.

When Freddie was singing "I have sinned dear father" I don't think he was talking about his investment decisions.

However if I were to write a song to Benjamin Graham, the father of value investing, about some of my recent investing decisions I might have to include a similar line.

Selling a fantastic company like Google to buy into fair to middling companies like British Airways and CSR was crazy. I have been in and out of Google a number of times in the past 3 years. Overall I would have been better off just to have stayed in and enjoyed the bumpy ride.

The encouraging news is that Warren Buffet himself confesses to making similar mistakes - selling shares in a great company to lock in a profit and take advantage of a "bargain" elsewhere, only to end up buying back into the original company at a higher price.

Sometimes the hardest part of value investing is doing nothing. Buying and selling is fun. Watching from the sidelines can be quite fun but doesn't get the pulse racing.

So successful value investors have to make a trade-off: less fun but better results.

I am not going to rush into buying back into Google, but I will gradually build up a decent stake and this time I am going to keep it unless the stock becomes crazily overvalued.

As Warren once said, in investing you don't get better results just for making a hard decision. Buying into Google is an easy decision and all the better for it.