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I've been having a look at the market's biggest fallers this year as a flipside to its biggest winners.
Now, before we get into this, let me start by saying that it's essential to look at a company on its valuation merits today. If we don't do this, there's a distinct danger of getting "anchored" in some previously perceived value.
Having said that, such previous perceptions are interesting. And looking at the year's biggest faller is somewhat contrarian. If you want to make it big, you will need the courage of your own convictions.
Also, if these are the shares that the market trashed during what have been fairly fearful times on the whole (though the FTSE's performance over the same period has been +2.4%) then they may be the ones Mr. Market will treat more leniently in the second half. But we need to look at them first.
Of course, the biggest fallers of 2012 are on the AIM, on the whole. But for the sake of this exercise, I've decided to concentrate only on fully listed stocks as, a) it's too unwieldy an exercise otherwise, and b) a full listing helps us concentrate on companies that should be at least a little safer (though I should say, almost half my portfolio is invested on the junior market).
Fully listed laggards
At the time of writing, the top 12 fallers for 2012 at what is just past the halfway stage are these:
Share price now
% fall year 2012 so far
|1. Aquarius Platinum (LSE: AQP.L )||42.75p||73%|
|3. CPP Group||37.5p||67%|
|5. Avocet Mining||70.6p||62%|
|6. Exillon Energy||96p||62%|
|8. Promethean World (LSE: PRW.L )||25.25p||54%|
|9. Man Group||70.45p||44%|
|10. Trinity Mirror (LSE: TNI.L )||28p||42%|
|11. Kesa Electricals||39.25p||42%|
Now, I've been briefly through this list of losers, and I have to say that not many interest me as a value seeker at their new lows. There are differing reasons in each case, some concerned with perceived trustworthiness, others with areas of operations, or ownership structure.
But there are a few that do.
Aquarius Platinum has had an "annus horribilis" so far, but the second half could prove better. The company is doing what is necessary to preserve its healthy cash pile and maintain cash flow while the platinum price environment remains low; cutting all non-essential capital expenditure, and placing all non-contributing assets on "care and maintenance" only. At the end of the first quarter, the company had around 28 pence per share in cash, and brokers' expectations for 2013 place the shares on a possible price-to-earnings (P/E) ratio of under 5.3. Despite these numbers, this still isn't a share for widows and orphans.
Stephen Bland took a closer look at Avocet Mining last week, concluding that it was an interesting but high-risk play.
This company was floated it at 2 pounds a share in October 2010, but public spending cuts and increased competition have cut into the techie teacher's aids provider's profits. Each trading update is worse than the last, but there should still be over 10 pence per share in net cash.
Promethean now expects to post a "high single digit (million-pound) operating loss for the first half," with its interims on July 26. The results should make interesting reading for the latest balance sheet figures and trading prospects. It could be ripe for some sort of corporate action, and the founder still owns 33% of the shares, so it's one to watch closely in my opinion.
Man Group looks an interesting punt at around 70 pence to me, but it's one I haven't taken yet as I always seem to feel there's more trustworthy value elsewhere.
Trinity Mirror is just about the cheapest company on the market on prospective and historical P/E and price-to-cash-flow. At 28 pence, brokers' expectations for the current year place the shares on a P/E of 1.2! But net debt of 221 million pounds makes the P/E more like 4.9 against enterprise value.
Trinity publishes five national newspapers (including the Daily Mirror, of course), over 130 regionals and over 500 digital products for advertising and so on.
One of the best-known Foolish investors thinks the shares are too cheap. Trinity managed to reduce its debt last year by almost 45 million pounds because of strong cash flow. Also, the group's freehold property currently valued at 177 million pounds may be worth more in practice. If you think newspapers have a viable future, Trinity looks too cheap.
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