Consumer Staples

Report by ROCGA Research

ROCGA has recently launched a product that ranks companies using their own CFROI based DCF valuation modelling tools. The list contains the UK’s largest companies ranked according to warranted value, the most undervalued to the most overvalued. CWK appears in the top part of the list, along with Sainsbury, Imperial Brands and ITV. Among others, Sage and Ocado appear at the bottom. ROCGA also covers the US and European markets, with over 2,150 companies in total.

Report by Creative Portfolios

Paul Hollingworth sifts through ~300 UK companies to ascertain their financial risk. He incorporates seven different Risk Models and scores companies by each model to come up with an aggregate Score. Investors should not be chasing high risk or "a dash for trash" (as we saw in Jan) but should combine classical valuation assessment with low risk opportunities. Companies featured in the top quartile of low risk include Renishaw, Rightmove, Sylvania Platinum, AG Barr, Rotork and Wilmington. Investors should eschew companies such as Wizz Air, Aston Martin, Mitchells & Butlers, Rolls Royce and Ocado. Let alone small caps such as Kromek, Plant Health or Pressure Technologies.

Consumer Staples

Report by Forensic Alpha

High risk - Forensic Alpha’s MI system reveals a rapid rise in the number of accounting red flags over the past 6 months. The most concerning of which relates to DSO given the sharp rise vs. historical levels. Headline "Trade and other Receivables" rose by 58% vs. an increase in sales of only 7%. Digging deeper, pure "Trade Receivables" grew by 19%, but there were a host of other asset accounts that grew even faster. Commonly known as "soft assets" they can be used to inflate earnings. A near-doubling should definitely raise eyebrows, particularly given they now represent over 60% of "Trade and other Receivables".

Consumer Staples

Report by Nutstuff

Following Asda’s buyout last year and Morrisons rejecting a £5.5bn takeover earlier this week, Will Nutting looks at what is driving private equity interest in the sector. He also explains why he believes Tesco would make an ideal candidate for activist involvement and why management should be aggressively buying back stock. While Sainsbury’s and Waitrose both remain viable acquisition targets, he remains very bearish on Ocado - besides valuation concerns, it is too small and consequently while it's best in class tech solution may give 50-100bp advantage it’s weaknesses in other areas make it ultimately uncompetitive.

Industrials

Report by Entext

Sean Maher has taken advantage of a modest day one IPO rally to add JD Logistics to his automation-themed basket of stocks (incl. Rockwell, Keyence, THK and Blue Prism). The logistics market has seen a brutal price war among major couriers, but JD Logistics’ differentiation is in offering “integrated supply chain” services. Stock to double within the next 2-3 years as a play on domestic consumption and technology licensing to third parties outside China. Its valuation vs. Ocado looks anomalous given its vastly superior relative scale, IP depth and growth opportunity.