Stock Shortlist – LSE (November 2021)

This month’s UK stock shortlist comes from our filters on ADVFN & Investing.com

We filtered our UK stocks by a variety of strong statistics which meet growth, value, profitability and financial stability. We then worked through a long list with some more analysis and have come up with our final list of stocks to add to our watchlist from November 2021 onwards.

Please note this is not to be considered as financial advice and we may or may not have invested in these stocks. It’s important you do your own thorough research too before investing or trading any stocks.

More details can be found in our video:

B&M European Value Retail S.a. (LSE: BME)

B&M is a UK variety store chain. It was founded in 1978 and it’s a constituent of the FTSE 100 Index. It has a market cap of just over £6 billion.

It will publish Interim Results on 11 November 2021.

On ADVFN there are some really interesting figures.

Profitability

It has a very strong Return on Capital Employed (ROCE) of 20% & Return on Equity (ROE) of 58.41%.

The Return on Assets (ROA) of 12.36% is pretty good too.

The operating margin and net profit margins aren’t very high at 10.9% & 8.9%, however this is a high volume discount chain. 

Growth

The EPS growth rate of 375.56% and needs further investigation. The turnover (revenue) growth from the March 2020 accounts to March 2021 shows growth from £3,813m to £4,801m which is 25.9%. Covid could be a factor, but this is also up from the march 2019 figures of £3,486m.

The operating and pre-financing cash flows have shown strong growth from March 2020 to March 2021 from £542m to £826m and £572m to £757m, however the retained cash flow was negative £209m in 2021. This could be a concern and needs further research.

Value

The Price Earnings Ratio of 14.83% seems reasonable especially when it’s Average PE Ratio is 20.62%. It’s difficult to compare to similar companies as there aren’t many like for like competitors listed on the LSE.

The PEG Factor of 0.04 is really low, which is good. This links back to the high EPS.

The Price to Sales ratio of 1.32 would suggest ok value too.

The EPS/Share Price can be compared to current savings rates, it is 6.7%, which is ok.

A market to Book ratio of 8.66 would however suggest it’s overvalued.

In terms of intrinsic Value and Discounted cash Flow (DCF). Simply Wall St in August 2021 gave B&M a fair Value of £8.24. The share price is currently £6.34, so by this metric it is considered undervalued.

Financial Stability

The debt ratio of 72.10% and debt to equity ratio of 2.58 might both be considered on the high side and to debt to pre tax profits of 5.00 is ok, but not ideal.

A current ratio shows  the ability to repay short-term creditors out of its total current assets, a score above 1 is considered good as it means it is fully covered. B&M has 1.24. However, the Quick ratio which shows it’s ability to pay short-term creditors out of its most liquid assets is 0.41 for B&M, so not over the ideal 1 mark.

Cash & Securities at B&M are 6.48%, which some people might consider low.

Dividend Yield:

The dividend yield of 2.73% is quite reasonable for those looking to invest for dividends.

If we look at the current price charts we can see that B&M has recently surged back in October, so depending upon your investment style, you might want to wait for a pull back. Patience when investing is very important, however with Christmas coming the stock is likely to continue grow.

 

Dunelm Group Plc (LSE:DNLM)

Dunelm is a UK based homewares store. The share price has recently pulled back from its highs by over 15%.

Profitability

It has a very strong Return on Capital Employed (ROCE) of 29% & Return on Equity (ROE) of 45%.

The Return on Assets (ROA) of 17% is strong too.

The operating margin and net profit margins are ok at 11.8% & 9.65%, but not ideal.

Growth

The EPS growth rate of 46.77% is very strong.

The turnover (revenue) growth from the last year of accounts is 26%. Covid will be a factor, but this is also up strongly from the 2019 figures.

The operating and pre-financing cash flows are down from 2020, but strongly up from 2019.

Value

The Price Earnings Ratio of 20.36% seems reasonable although it is slightly above the Average PE Ratio of 18.9%.

The Price to Earnings growth (PEG Factor) of 0.44, suggests it is undervalued.

The Price to Sales ratio of 1.97 would suggest a slight overvalue.

The EPS/Share Price can be compared to current savings rates, it is 4.9%, which is ok.

In terms of intrinsic Value and Discounted Cash Flow (DCF). Simply Wall St in October 2021 gave Dunelm a fair Value of £14.83. The share price is currently £12.97, so by this metric it is considered undervalued.

Financial Stability

The debt ratio of 47.02%, debt to equity ratio of 0.89 and debt to pre tax profits of 3 are all solid.

The current ratio of 1.39 is considered good as it means it is fully covered. However, the Quick ratio is 0.66 for Dunelm, so not over the ideal 1 mark.

Cash & Securities at Dunelm are 16.77%, which is healthy.

Dividend Yield:

The dividend yield of 2.7% is quite reasonable for those looking to invest for dividends.

If we look at the current price charts we can see that Dunelm has had a recent pullback from it’s highs to an area of potential support. Which might be considered an ok price, considering the strong sales figures presented in June 2021.

3 other stocks which came up in our filters which make our shortlist, but require more indepth analysis are:

Boohoo Group Plc (LSE:BOO)

SDI Group (LSE:SDI)

XP Power Limited (LSE:XPP)

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