TMF (The Motley Fool) is really making me grind my teeth these days. They headlined today with: “The FTSE 100 Is Dirt Cheap: Take Advantage With SABMiller plc, Rio Tinto plc & Banco Santander SA” (http://is.gd/QMjz4w)
They note that the FTSE 100 is now on a P/E of “just” 13.2. This agrees with Stockopedia, that has a median forecast P/E of all stocks at 13.5. Earnings growth has been estimated at 13.6%. An earnings growth of 13.6% is looks very unrealistic to me, so if I factor out growth, it puts the P/E ratio at about 15.3. This is around about historical average for the market. If I use data from Sharelock Holmes, and just use the FTSE 100, I obtain a median P/E of 16.0. This is a little above average. A claim that it is “dirt cheap” is just risible.
The problems don’t stop there. I’ve checked, and BNC (Banco Santander) is not part of the Footsie. It is a very larg-cap company, though, at around £70b, so perhaps I am being too picky. However, I do not like their choice of SAB. Sharelock Holmes puts their projected PE on 22.1. Stockopedia puts their 12m forecast rolling PE at 19.5. In Sterling terms, their revenues are up 9% over 4 years, which is a compound growth of only 2.2% pa. Stockopedia states that their CAGR in normalised EPS (in $) has been 8.3%pa over the last 5 years (EPS wehnt from $1.30 to $1.93). Operating profit has increased at a CAGR of 6.8%. The operating profit grew faster than revenues due to the improvement in the operating margin. ROCE over the last 5 years has been 9.7%, approximately twice covered. The bottom line to all this is that I really don’t see how a PE of around 20 is justified for SAB. Its median PE over the last decade was 15.8. SAB seems like a pretty stodgy company to me. So a PER of 15.8 seems about justifiable is you just want a buy-and-forget share. My suspicion is that SAB is on such a high rating because it is considered a defensive dividend stock. The current yield is 1.98%, which hardly sets my pulse racing. I’m really struggling to see much upside here, based purely on the numbers. The risk looks all downside to me.
What really gets my goat is the following sentence in TMF: “While Santander, SABMiller and Rio Tinto may be worth buying right now, none of the three companies have been awarded the title of The Motley Fool’s Top Stock Of 2014-15.” To find out their top pick, you have to provide your email address. In other words, the article is lightweight, and just a teaser. A more honest headline would be “Three company that may be worth buying, but not really”. I am really disappointed in the quality of TMF articles. Considering that their corporate tagline is “To Educate, Amuse & Enrich”, the TMF has long departed from these core principles on which it was founded. Their discussion boards are still good, though. They are healthy, and free from a lot of self-promotional ramping and de-ramping that one sees at places like ADVFN.
Stockopedia (http://www.stockopedia.com/) is much more insightful, both with regards to its general investing articles, and, of course, the excellent small-cap reports written daily by Paul Scott.
A new service which is starting up is called CommuniFin (http://uk.communifin.com/), with the tagline “Friend wisdom gives financial insight”. It will be interesting to see how it develops.
Update 07-Oct-2014 : I notice that WKRB has given a recent update on analyst ratings for SAB. The current share price is 3355p, and the Footsie stands at 6505. It looks like there is only one sell recommendation, from Investec. The following brokers have SAB as buys: Grupo Santander (3650p), Canaccord Genuity (3800p). Their target prices are in brackets. I plan to follow up on the share price performance 6 months from now.
Update 13-Oct-2014: Corrected SAB share price and link as at 07-Oct-2014.