Well, Steve Baines has been kind enough to tell us about his latest share purchase, and John Kingham, at UK Value Investor has given us a very good article on BBY (Balfour Beatty).
My turn now. I can’t promise to match the quality of their offerings, though. Here’s my big idea, anyway.
It’s LSE.L, the London Stock Exchange. You’ve heard of it, you know about it, 1980’s Big Bang, and so on, so you don’t need me to elaborate on it.
It’s on a yield of 2.98%, so it’s not a particularly nice dividend share if that’s what you’re insisting on. However, it’s on a PCFC of less than 10, and its PER is around 10. EV/EBITDA 6.25, which looks cheap. It has an operating margin of 65%, and that ROE over the last decade has a shade over 20%.
Interest cover is 10.93. In the last set of accounts, net debt was £541m, and net cash flow was £303m. So it’s not achieving a high ROE by taking on colossal debt.
Let’s turn stability of earnings. I’m borrowing some ideas from Ben Graham, and requiring that EPS has at least doubled over the last decade, with at most 2 reductions of EPS by 5% or more. LSE passes on this score. Its earning have risen from 20.70p to 99.20p over the last decade – a factor of 4.8 (that’s 19% pa) – well over the hurdle of 2. It had only down year, where EPS fell from 74.20p for y/e 31-Mar-2009 to 60.10p for y/e 31-Mar-2010 – a reduction of 19%. It did make a pretax loss in y/e 31-Mar-2009.
LSE is on a high beta: 1.26. So expect volatility.
AdvisorOne reported yesterday that “IPOs could get easier in UK”.
IPOs attract a lot of money for the companies going public, but the location of the offering can make a substantial difference in how much is raised and how the company is perceived. While some companies seek out the London Stock Exchange (LSE), more seek out U.S exchanges. But Britain hopes to change that, and to that end is considering mimicking key provisions of the U.S. Jumpstart Our Business Startups (JOBS) Act, including offering more lenient rules on IPOs.