The bargain FTSE stocks trading below their book value
The stocks currently trading below book value are largely clustered in sectors hit hard by the coronavir…
7th July 2020 09:12
by Tom Bailey from interactive investor
Share on
The stocks currently trading below book value are largely clustered in sectors hit hard by the coronavirus crisis and lockdown measures.
Investors have many tools for gauging the value of a company. One of the most popular is price-to-book value ratio (P/B).
‘Book value’ factors in all of a company’s assets — such as stocks, bonds, inventory, manufacturing equipment and property (minus debt) — as stated on its balance sheet. Based on this value, investors determine the price-to-book by dividing market price per share by book value per share.
A price-to-book value of less than one suggests a company could be undervalued because, in theory, its assets could be sold for more than its stock market value.
- Is value investing a broken model?
During times of market turbulence, such as the present, companies are much more likely to be trading on a low price-to-book value. With this in mind, Bowmore Wealth Group has worked out which UK companies are currently trading on p/b ratios of less than one.
- Invest with ii: Top UK Shares | Share Prices Today | Open a Trading Account
The research looked at UK companies with a market capitalisation of £550 million or more (the median market cap for the FTSE All Share index). In total, 33 companies were found to be trading below their book value. Nine of these are in the FTSE 100 and 23 in the FTSE 250.
According to the research, the stocks currently trading below book value are largely clustered in sectors hit hard by the coronavirus crisis and lockdown measures.
For example, cinema chain Cineworld has a p/b ratio of 0.46. Similarly, Mitchells & Butlers, which manages pubs and restaurants across the UK, has a p/b ratio of 0.47. Travel companies have also been hit hard, with IAG and First Group also on the list.
Banks are also prominent on the list owing to the likelihood of loan defaults rising.
Charles Incledon, client director at Bowmore Wealth Group, comments: “An investor could pay less than 30p for £1 of value in the case of some companies. Finding a share that is trading at a discount to its book value is a great way to identify a value investment, if the company’s other fundamentals are sound.
“Certain sectors have suffered in recent months for being heavily exposed to the effects of the coronavirus crisis – particularly consumer, travel and energy.
“Clearly some of these companies have been trading at a discount to their book values because the companies are contending with serious underlying issues that still need to be solved. In that case, investors should assess whether it’s the book value is artificially high.”
Selected companies with price to book value of less than one
This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.