1 sharescope how investors evaluate company performance tim clarke general manager, sharescope
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1
ShareScope
How investors How investors evaluate company evaluate company
performanceperformanceTim ClarkeTim Clarke
General Manager, ShareScopeGeneral Manager, ShareScope
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Stock markets
Initial Public Offering
Ltd v Plc• Share ownership• Control• Accounts / reporting• Money-raising• Cost
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Compounding
Bob’s Grocery Stores Plc
Share price 100p Holding period 30 years
Dividend 4p Share price remains unchanged
Value of shares £1000 1000 x 100p
Income received £1200 4p x 1000 x 30yrs
Investment value £2200 £1000 + £1200
Annual income £40 1000 x 4p
Yield on cost 4% 4p / 100p
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Compounding
Initial value of shares £1000 1000 x 100p
Income received £0 Dividends reinvested
Final value of shares £3243 3243 x 100p
Annual income in year 30 £130 3243 x 4p
Yield on cost 13% 13p / 100p
Bob’s Grocery Stores Plc
Share price 100p Holding period 30 years
Dividend 4p Share price remains unchanged
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Compounding
Initial value of shares £3325 1000 x 332.5p
Income received £0 Dividends reinvested
Final value of shares £69,335
Annual income in year 30 £2754
Yield on cost 83% £2754/ £3325
British American Tobacco Plc (BATS)
2nd Jan 2000 Share price = 332.5p Dividend = 22.2p
2nd Jan 2015 Share price = 3522p Dividend = 144.9p
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PrivateInvestors
Merchant Banks / Fund
ManagersStockbrokers
SELL SIDE BUY SIDE
Stock Market
Structure of the market
Market capitalisation
Share price x No. Shares
e.g. Tesco Plc
Share price = 219.25pNo. Shares = 8,123,000,000Market cap. = £17,809,677,500
R R R
14/3/11 14/9/12'12Jul Jul
Sainsbury (J) PLC
Oct Apr
Pence Ord
360
350
340
330
320
310
300
290
280
270
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ScopeShareChart (c) www.sharescope.co.uk
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City Expectations
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Stock Screening
• Search the stock market• Use understanding of financial metrics to
find attractive investment opportunities• Criteria to use depend on the type of
investor you are
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Growth - Warren Buffett• Capitalisation above £250m
• Exclude property stocks
• Below average PE in subsector
• EPS has increased in four out of the last five years
• Operating margin is trending upwards
• Net gearing below 100%
• Interest cover of 1.5 or more
• Cash flow higher than EPS
• ROCE of at least 12% for last three years
• ROCE trending upwards over last three years
• Ideally above average in sub-sector for most of PE, ROCE,
Op margin, Net Gearing, Price to cash flow
Stock Screening