Lack of analysis keeping stock market gems down, according to
new Grant Thornton report
Lack of adequate analysis is keeping the London Stock Exchange's
most undervalued companies down, as they are covered by on average
just half of the analysts covering the market as a whole, according
to the 2008 Hidden Gems Report, released today by leading business
and financial adviser Grant Thornton.
Following on from the firm's recently published Hidden Gems
Index, the Report examines the top fifty undervalued companies on
the London Stock Exchange for factors contributing to their
below-par share price. One factor in particular was common to
almost all 50 businesses; lack of interest from analysts.
In fact there was on average just 8.5 analysts* per top 50
undervalued company, compared with a market average of 17.
David Maxwell, National Management Partner at Grant Thornton,
said the results were a clear signal that attracting enough quality
analysts was crucial in the battle for investor confidence.
"While there is more information available to investors than
ever before, high quality insight from registered analysts is what
investors thrive on. While analyst coverage is only one component
of value creation, the strong correlation between how many
registered analysts cover a company and its value shows this is a
crucial factor."
The report indicates certain industries had even less
representation. Support services and food producers were the two
worst-off areas this year, with less than a quarter of the average
number of analysts covering undervalued companies in each sector;
27 versus six and 25 versus four respectively.
"We advise clients to make every attempt to attract analysis if
they are confident they have a good story to tell. Positive
analysis is more likely to come to a company whose financial model
is clear, whose strategy is well explained and whose prospects are
visible," Maxwell said.
The report found that apart from their business fundamentals and
the number of analysts covering a firm, issues such as relative
company size, the liquidity of shares and sector classification all
had an impact on value.
Maxwell said companies that were looking to strengthen their
share price should be putting significant resources into both
attracting analysts and creating a media profile in this age of
media driven business agendas.
The 2008 Hidden Gems Report highlights the Top 50 UK FTSE All
Share companies whose share price does not reflect the strength of
their cash flow characteristics. These 50 companies created £80
billion in shareholder value over the 12 month period examined by
the research, compared with a fall of £170 billion for the FTSE All
Share in the same period.
The Report offers 10 stories of Hidden Gem companies in detail,
including British Airways, Care UK, Diploma Plc and National
Grid.