Newspaper article The Evening Standard (London, England)

Household Names Up for Grabs at a Discount

Newspaper article The Evening Standard (London, England)

Household Names Up for Grabs at a Discount

Article excerpt


ECONOMISTS say it should not happen. Yet one marked feature of the prolonged bear market is that many of Britain's best-known companies are trading at less than the value of the property, cash, stock and goodwill they own. It could well be a sign that the stock market downturn has bottomed out and that there are many bargains to be had.

That certainly seems to be the view in many boardrooms if the recent upsurge in takeover activity is anything to go by. If you can pick up a juicy acquisition for less than the price you would have to pay to buy the company's constituent parts you'd be a fool not to. Right?

If latest analysis from market data specialist Hemscott is anything to go by we can expect a lot more bids in the coming months. It shows that no less than one in seven of Britain's top 100 companies are now valued by the stock market at less than their declared net assets - more than double the level of three years ago. Investors can now buy shares in household name giants such as Vodafone, J Sainsbury, Whitbread and insurance giant Aviva at a discount to their assets.

The data also shows that as much as a fifth of the market's mid-capitalisation FTSE 250 index is trading at levels below net asset value after a bear market of proportions unprecedented since the Second World War.

Not since the downturn triggered by the Depression years of the 1930s have stocks fallen for three years in a row.

That period became the heyday of "value" investors such as Benjamin Graham, the mentor of Warren Buffett who is seen by many as the father of modern scientific investment analysis.

Graham realised in the 1930s that there were huge bargains to be had, with many companies valued at a fraction of what it would cost to replace their assets.

According to Hemscott analyst Magnus Grimond: "The market seems to have overreacted to a lot of bad news and trade buyers are moving in where the stock market fears to tread."

For example, Safeway's shares traded as low as 197p in December, well below its net asset value of 207p. Within weeks, rival supermarkets chain William Morrison had launched a pound sterling2. …

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