Equity analyst UK & Europe, UK Long Short

Peter Toeman

Equity analyst UK & Europe

Accelerating Tomorrow’s Independent Research

Boost Research

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Thematic (Sector/Industry)

With just two weeks left before the UK is set to leave the EU, the shape of the arrangements with country's largest trading partners is still to be decided. Imminent political developments will determine whether Brexit is hard, soft, deferred, or aborted.
The UK's principal share index the FTSE 100 is virtually unchanged since we established our Long/Short portfolio a month ago. Results from Lloyds and Centrica have lead to useful outperformance and underperformance respectively. The M&amp;S joint venture with Ocado is judged by investors to have added a lot more value to the latter than the former. We have been wrong-footed by Melrose Industries, but heck, there is always one.
Remembering that no one ever got poor from taking  profits,  we have closed out our long position in Lloyds Banking.  
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<div class="content-caption">S&amp;P Capital IQ</div>
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With just two weeks left before the UK is set to leave the EU, the shape of the arrangements with country's largest trading partners is still to be decided. Imminent political developments will determine whether Brexit is hard, soft, deferred, or aborted.
The UK's principal share index the FTSE 100 is virtually unchanged since we established our Long/Short portfolio a month ago. Results from Lloyds and Centrica have lead to useful outperformance and underperformance respectively. The M&amp;S joint venture with Ocado is judged by investors to have added a lot more value to the latter than the former. We have been wrong-footed by Melrose Industries, but heck, there is always one.
Remembering that no one ever got poor from taking  profits,  we have closed out our long position in Lloyds Banking.  


S&amp;P Capital IQ


Equity Bottom-Up

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  
<h2>Hargreaves Lansdown: What does it do ?</h2>
Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK's largest direct to investor platform administering £86bn of investments for more than 1.1m active clients
<h2>Why is it in the Short portfolio ?</h2>
Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 
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<div class="content-caption">S&amp;P Capital IQ</div>

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  
Hargreaves Lansdown: What does it do ?
Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK's largest direct to investor platform administering £86bn of investments for more than 1.1m active clients
Why is it in the Short portfolio ?
Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 

S&amp;P Capital IQ

Hargreaves Lansdown (HL/:LN) No Flow, No Go

The UK's principal share index FTSE 100 closed 2018 marginally lower than its level at the start of the Millenium
 In contrast with the lackluster performance of the stockmarket, nominal GDP of the UK economy almost doubled over the period
Relative to the domestic economy FTSE 100 looks marginally undervalued which may explain the rebound seen in the first month of this year
On the other hand, courtesy of the political decision to leave the European Union, the outlook has never been more uncertain
Major structural change involving tearing up a 40 year arrangement with the UK's largest trading partner is bound to have significant and unpredictable consequences 
We offer a long/short portfolio of UK stocks designed to exploit emerging themes

The UK's principal share index FTSE 100 closed 2018 marginally lower than its level at the start of the Millenium
 In contrast with the lackluster performance of the stockmarket, nominal GDP of the UK economy almost doubled over the period
Relative to the domestic economy FTSE 100 looks marginally undervalued which may explain the rebound seen in the first month of this year
On the other hand, courtesy of the political decision to leave the European Union, the outlook has never been more uncertain
Major structural change involving tearing up a 40 year arrangement with the UK's largest trading partner is bound to have significant and unpredictable consequences 
We offer a long/short portfolio of UK stocks designed to exploit emerging themes 

FTSE 100: Twenty Years of Going Nowhere (Almost)

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. My purpose is to identify a portfolio of UK shorts and occasional longs.   
Lloyds Banking: What does it do ?
Lloyds Banking Group is the UK's largest retail bank with a 20% share of both consumer credit and mortgage lending. It has no investment banking activities or overseas activities.
Why is it in the long portfolio ? 
After a 10 year period of rehabilitation post the Financial Crisis the group is now profitable at the statutory level and generating a healthy double return on tangible equity (ROE). This year the consensus expectation is for a dividend of 3.3p per share (+7%) leaving the shares on a yield of 5.7%. In addition management completed a GBP1bn share buyback, the combination of buy-back and divided represents 4.7p per share or an effective yield of 8.1%. If future projections prove correct then the ROE should morph into the mid-teens by 2020. A return at this level should be sufficient to lift the shares well above book value. 
What are the risks ?
A key risk is economic dislocation from Brexit. Management believe that EU exit along the lines of the current withdrawal agreement will be compatible with only a marginal increase in credit losses.

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. My purpose is to identify a portfolio of UK shorts and occasional longs.   
Lloyds Banking: What does it do ?
Lloyds Banking Group is the UK's largest retail bank with a 20% share of both consumer credit and mortgage lending. It has no investment banking activities or overseas activities.
Why is it in the long portfolio ? 
After a 10 year period of rehabilitation post the Financial Crisis the group is now profitable at the statutory level and generating a healthy double return on tangible equity (ROE). This year the consensus expectation is for a dividend of 3.3p per share (+7%) leaving the shares on a yield of 5.7%. In addition management completed a GBP1bn share buyback, the combination of buy-back and divided represents 4.7p per share or an effective yield of 8.1%. If future projections prove correct then the ROE should morph into the mid-teens by 2020. A return at this level should be sufficient to lift the shares well above book value. 
What are the risks ?
A key risk is economic dislocation from Brexit. Management believe that EU exit along the lines of the current withdrawal agreement will be compatible with only a marginal increase in credit losses.

Lloyds Banking Group (LLOY LN): Growth Who Needs It?

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Turkiye Vakiflar Bankasi Tao / Equity Bottom-Up

We carry out an analysis of 650 bank shares. This time around, we use an earnings yield (inverse of PE ratio) based on ROE/PB, franchise valuation, and a negative technical momentum indicator (RSI). This is thus a screen heavy on valuation which pinpoints out-of-favour stocks.This time we do not use a risk filter. The PER screen arguably does that for us.We are somewhat cautious about using a PER screen. Earnings can be easily manipulated and they can change dramatically, especially in the jurisdictions which show up as "cheap". Banks for example may use low impairment charges to boost their bottom line.<div class="content-highlight">
In fact, the top quintile strikes us as a collection of risky opportunities. What comes through, mainly due to the inclusion of an earnings yield ranking, is the risk of growth and growth of risk. This is what a low PER reveals.
The market thus apportions a low valuation, backed up by franchise valuation, to a number European and mainly Japanese lenders. From EM, China, Turkey, and South Korea stand out. Sri Lanka and Nigeria feature from frontier land. 
</div>At the other end of the spectrum, in quintile 5, are less risky US banks mainly but also lenders from other jurisdictions such as Indonesia. Perhaps valuation risk is at its greatest here. But then again, maybe the optically cheap opportunities are flagging up the build up of risk and poor earnings ahead.In the screen, the lowest rankings represent the best optical opportunities. But they carry, arguably, the greatest risk.

We carry out an analysis of 650 bank shares. This time around, we use an earnings yield (inverse of PE ratio) based on ROE/PB, franchise valuation, and a negative technical momentum indicator (RSI). This is thus a screen heavy on valuation which pinpoints out-of-favour stocks.This time we do not use a risk filter. The PER screen arguably does that for us.We are somewhat cautious about using a PER screen. Earnings can be easily manipulated and they can change dramatically, especially in the jurisdictions which show up as "cheap". Banks for example may use low impairment charges to boost their bottom line.
In fact, the top quintile strikes us as a collection of risky opportunities. What comes through, mainly due to the inclusion of an earnings yield ranking, is the risk of growth and growth of risk. This is what a low PER reveals.
The market thus apportions a low valuation, backed up by franchise valuation, to a number European and mainly Japanese lenders. From EM, China, Turkey, and South Korea stand out. Sri Lanka and Nigeria feature from frontier land. 
At the other end of the spectrum, in quintile 5, are less risky US banks mainly but also lenders from other jurisdictions such as Indonesia. Perhaps valuation risk is at its greatest here. But then again, maybe the optically cheap opportunities are flagging up the build up of risk and poor earnings ahead.In the screen, the lowest rankings represent the best optical opportunities. But they carry, arguably, the greatest risk.

Global Banks: The Optically Cheap Carry Most Risk

United Kingdom

Lloyds Banking Group plc, through subsidiaries and associated companies, offers a range of banking and financial services. The Company provides retail banking, mortgages, pensions, asset management, insurance services, corporate banking, and treasury services.

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Lloyds Banking (LLOY LN)

FTSE 100 Long/Short: Beginner's Luck

With just two weeks left before the UK is set to leave the EU, the shape of the arrangements with country's largest trading partners is still to be...

Boost Research

Hargreaves Lansdown (HL/:LN) No Flow, No Go

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. A tough market...

Boost Research

FTSE 100: Twenty Years of Going Nowhere (Almost)

The UK's principal share index FTSE 100 closed 2018 marginally lower than its level at the start of the Millenium In contrast with the lackluster...

Boost Research

Lloyds Banking Group (LLOY LN): Growth Who Needs It?

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. My purpose is to...

Boost Research

Global Banks: The Optically Cheap Carry Most Risk

We carry out an analysis of 650 bank shares. This time around, we use an earnings yield (inverse of PE ratio) based on ROE/PB, franchise valuation,...

Paul Hollingworth

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)