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UKM1017/20791/SSO/0118 Job No: 55294-6 Publication: Shares Magazine Size: 297x210 Ins Date: 09.11.17 Proof no: 1 Tel: 0207291 4700 EDITOR’S VIEW Why you should look beyond ‘the story’ with stocks A good company doesn’t always equate to a good investment if the price is wrong ne of the golden rules of investing is to emergence as a higher margin business now it never overpay for stocks. There are plenty has sold the transportation division which was the Oof good companies on the stock market, yet weaker part of the group. that doesn’t mean they are all good investments. TT’s management says the company has fixed Overpaying for a stock greatly reduces the some of the problems which have depressed chances of the investment working out well. performance in the past and it is now focused on Over time a pricey company will revert back to opportunities in areas such as robotics, aerospace, a more normal valuation if its earnings, margins, medical devices and electrical items in the home. opportunities and market position are average ‘This is a different business to what it was three rather than superior. to four years ago,’ says chief executive Richard You should only pay a premium valuation for a Tyson. ‘It used to be an automotive play; not now. company that displays exceptional characteristics We’re an electrical component supplier, investing in such as sustainable growth, consistent high levels future technology and enjoying a stronger balance of return on capital employed or a market position sheet.’ with considerable barriers to entry. I appreciate many readers won’t be experts IS TT WORTH BUYING? when it comes to valuing stocks. That’s why we The £366m business is certainly very interesting. regularly point out in Shares articles if something However, Tyson’s revelation that margins are low looks cheap, fair value or expensive. We also and that TT is only in the top three to five market comment on whether a stock deserves a premium positions for its sectors (rather than a dominant valuation or not. player), together with analysis of financial ratios, makes me question whether it is worth buying at LOOK BEYOND ‘THE STORY’ present. Making a judgment on valuation is crucial when The CEO says more work is needed to make the researching investments. Quite often I’ll hear about business a higher margin one. Stockbroker Peel someone buying a stock because it made a profit Hunt forecasts TT will post a mere 6.4% operating last year and is forecast to make a bit more profit margin in 2017 rising next year to 6.9%. this year. Their ‘buy case’ may also be justified The stock trades on 20 times forecast earnings by the company operating in a trendy part of the for 2018. That looks rich given the low margins – market. however, pre-tax profit is forecast to increase by Sadly those two factors do not necessarily mean 17% next year which is a positive, so too is a £57m such a company is a good investment if it is already estimated net cash position. trading at a high valuation and doesn’t possess TT’s shares have done well in 2017 after going the aforementioned characteristics to justify a nowhere for years, reflecting the turnaround premium rating. efforts. I’ll be watching this one closely to see A relevant example is TT Electronics (TTG) how the company spends its cash and what those which I met last week. At first glance it looked actions do for margins. For now, the price looks up really interesting, particularly the promise of its with events. (DC) 09 November 2017 | SHARES | 3 Contents INTERACTIVE PAGES CLICK ON PAGE NUMBERS TO JUMP 09 NOVEMBER 2017 TO THE RELEVANT STORY EDITOR’S VIEW 03 Why you should look 10 beyond ‘the story’ with stocks INTERNATIONAL BIG NEWS CONSOLIDATED 06 The fall-out from first AIRLINES SET TO rate rise in a decade INCREASE CAPEX BIG NEWS BY 24% 07 Sc ottish Mortgage pleads for patience BIG NEWS GREAT IDEAS 08 Merry Christmas for 12 Harwood Wealth Morrisons Management prospers BIG NEWS 09 Why Indivior’s opioid GREAT IDEAS UPDATE addiction treatment is 15 Elementis set for likely to be approved further growth this month WEEK AHEAD STORY IN NUMBERS 16 Financial results and 10 ‘Real’ London house ex-dividends over prices to fall the coming week GREAT IDEAS TALKING POINT 11 Turkish Domino’s 18 Retail investors miss looks tastier than the out on large gains UK operator from IPO offers 18 securities, derivatives or positions with spread betting organisations that they have an interest in should first clear their writing with the editor. If the editor DISCLAIMER agrees that the reporter can write about the interest, it should be disclosed to readers at the end of the story. Holdings by third parties including families, trusts, IMPORTANT self-select pension funds, self select ISAs and PEPs and nominee accounts are included in such interests. Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters. 2. Reporters will inform the editor on any occasion that they transact shares, Comments published in Shares must not be relied upon by readers when they derivatives or spread betting positions. This will overcome situations when the make their investment decisions. Investors who require advice should consult a interests they are considering might conflict with reports by other writers in the properly qualified independent adviser. Shares, its staff and AJ Bell Media Limited magazine. This notification should be confirmed by e-mail. do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions. 3. Reporters are required to hold a full personal interest register. The whereabouts of this register should be revealed to the editor. Members of staff of Shares may hold shares in companies mentioned in the magazine. This could create a conflict of interests. Where such a conflict exists it 4. A reporter should not have made a transaction of shares, derivatives or spread will be disclosed. Shares adheres to a strict code of conduct for reporters, as betting positions for seven working days before the publication of an article that set out below. mentions such interest. Reporters who have an interest in a company they have written about should not transact the shares within seven working days after the 1. In keeping with the existing practice, reporters who intend to write about any on-sale date of the magazine. 4 | SHARES | 09 November 2017 Contents 36 MONEY MATTERS 36 Inv estment and pension planning when you remarry MONEY MATTERS 38 HMRC repays £262m pension ‘super tax’ – how do I make 22 a claim? MAIN FEATURE 22 6 Cheap stocks in an LARGER COMPANIES expensive market 40 Stobart has attractive 34 dividends and plenty INVESTMENT TRUSTS of growth 30 The appeal of looking beyond the UK for SMALLER COMPANIES dividends 42 Footasylum shares off to an impressive start FUNDS 32 New evidence in SMALLER COMPANIES active vs passive 43 Lok’n Store set for big investment debate expension UNDER THE BONET INDEX 34 On The Beach is a 45 Index of companies superb growth stock and funds in this issue WHO WE ARE BROKER RATINGS EXPLAINED: EDITOR: DEPUTY NEWS Daniel EDITOR: EDITOR: We use traffic light symbols in the magazine to illustrate Coatsworth Tom Sieber Steven Frazer broker views on stocks.