Sunday, February 5, 2012

Relative strength

I just had a peek at those companies with a cap of at least £100m that have fallen the month over 1 month. Amazingly, TSCO (Tesco) is third on the list, down a monster 23% relative to the Footise. Last week, its RSI was below 20%, making it aggressively oversold. TSCO was up 2.4% on Friday, and it is possible that the market might be relenting.

The only two companies that have performed worse than TSCO (over £100m - that fact is important) is CPW (Carphone Warehouse) and ESSR (Essar Energy). CPW roughly halved in share price on 27-Jan-2012 due to a special dividend of 175p. So its presence as the worst performer is just a statistical anamoly. It hasn't actually done too badly over the last month.

ESSR was floated in May 2010, entering the Footsie immediately. ESSR is in the "Alternative Energy" sector. I'm averse to this sector, but, upon reasing Google Finance, its activities seem more down-to-earth:
Essar Energy Plc is an Indian-focused energy company with assets in the existing power and oil and gas businesses. The Company combines the existing energy portfolio of the Essar Group, a diversified Indian business corporation.
Seeing the word "Indian" is almost as bad as seeing the words "Alternative Energy" in my books, though. More on that below!

ESSR has a forward PE of 9.9 (rolling figures are currently distorted by anomolous EPS figures), but it does have net debt of £2.6b against a market cap of £1.7b. Its interest cover at the recent finals stage was 1.87, which is far far from ideal. There seems to be a lot of funny-business surrounding this company at the moment. Directors own a neglible number of shares, but there is a massive shareholder, "Essar Global Ltd", that owns a whopping £1.4b. That's over 80%! I don't know entirely what the deal is here, some kind of family business pooling their interest, or something. I'm disinclined to dig deeper, given that I don't intend to touch this company with a bargepole. I sincerely doubt that I'd like what I saw, anyway.

The fun never seems to stop at ESSR, as there appears to be wrangles with the Indian authorities over a tax bill. That's just a mere entree compared to this little gem from Reuters, though:
chairman Ravi Ruia would step aside temporarily after the Central Bureau of Investigation (CBI) alleged that he had suppressed facts about the extent of an Essar Group holding in Loop Telecom, which is being probed in a multi-billion-dollar telecoms case. The CBI filed fraud charges against Ruia and other executives at Essar Group ... [ESSR said] that the charges did not relate to Essar Energy, and were not expected to have any impact on Essar Energy's business operations.
Hmmm. To borrow a quote from a poster on an RCG Holding board: "fishier than a box of flounders". Best stick to TSCO if you're looking for an oversold company.

Supermarket MRW (Morrisons) is 15th on the list - quite high up really - down 13% relative to the Footsie.

A quick scan running from the top of the list ...

Personal Goods company PZC (PZ Cussons) - famous for their Imperial Leather soap, but they also make detergents toiletries, drugs, "fats", and more besides - is down 15% relative to the Footsie, and is 8th on the list. Good company, but at a PE of 21, no wonder the share price is struggling. It's good, but not that good. Mr Market seems to be coming to senses on this one. Still a lot of froth to be knocked off this one, I would have thought.

BSY (British Sky Broadcasting) is down 9% relative to the index over 1 month. In my Defensive Portfolio over at Stockopedia, I swapped out DNO (Domino Printing Sciences) for BSY. Both are on similar PEs of 14-and-a-bit, with similar yields, but BSY has better EPS forecasts. DNO has also had a rather good run for its money lately, so there's probably more mileage to be had in BSY over DNO. Kelpie Capital wrote a nice piece on BSY on 15-Oct-2011. I'm not expecting to make a ton on it - but the defensive portfolio has actually acquited itself rather well over the last year. I'll post more news when it reaches its first anniversary.

In the real world, I continue to hold DNO, but not BSY. DNO is still a good company, and I'm getting the impression that their new egg printing investment could do rather better than I expected. To summarise the egg printing business: "that's a lot of ink". I don't want to get all rampy on this one, though. If you're looking for some quick action, you're probably better off elsewhere. DNO is looking overbought at the moment.

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