UPGRADES

Welcome to this month’s “Upgrades” update.

It works for me in this format, but I welcome suggestions for any improvements which may make it better for everyone else, so let me know in the comments below…

INTRODUCTION

Broker upgrades, to Earnings Per Share (EPS), are something I check for pretty much every morning.

Upgrades typically come in the day, or a few days, after an “ahead” or favourable statement by a company. Quite often, thanks to Research Tree, I get to have an idea of the affect these statements will have on EPS forecasts on the day. However, not all companies provide us Private Investors with such information, so it’s usually a case of waiting to see the impact reflected in the Stockopedia forecasts. I always consider it useful to watch out for those updated forecasts on Stockopedia.

I have a simple Stockopedia screen that identifies all companies that have had a Y1 EPS upgrade greater than 5% in the past month. From this screen, I export the data into Excel and manipulate it so it looks like this.

Companies in my universe (as with “Bowls”), included in the above screen, are those with a Market Cap greater than £50m and less than £1.5bn. I exclude those in the “Residential & Commercial REITs”, “Collective Instruments” or “Holding Companies” Industry groups – Just my personal choice which leaves me with around 500 “Companies In My Universe”.

Here I can quickly identify…

• Companies with a Y1 EPS upgrade greater than 5% in the past month (Dark Green)

• Companies where Y2 EPS has also been upgraded in the past month (Dark Green), it’s good to see both years upgraded is it not!

• The relative performance (strength) of the Share Price in the past month, Dark Green highlights those where that performance is less than the Y1 EPS upgrade (percentage)

• The forecast growth from the Y1 EPS forecast to the Y2 EPS forecast, Dark Green highlights those where there is growth, it’s good to see growth is it not!

• The forecast PER’s for Y1 and Y2

• The Y2 PEG, which is Not Applicable (n/a) if there is no growth forecast (from Y1 EPS to Y2 EPS), Dark Red if it’s greater than 1 (no real value*), Green if between less than 1 and greater than 0.75 (some value*), Dark Green if between 0.75 and 0.25 (THE SWEET SPOT FOR VALUE*), Green if less than 0.25 (could be great value but probably indicates something is not quite right*)

* Observations based on my interpretation of PEG, which you may or may not agree with, and which is of course not applicable to all shares.

IMPORTANT NOTE – Some of the above EPS have been manually converted from their reporting currency to Sterling, so please check these where appropriate.

So, it would be nice to identify, would it not…

• Companies with a Y1 EPS upgrade greater than 5% in the past month (Dark Green)

• Companies where Y2 EPS has also been upgraded in the past month (Dark Green)

• Companies where the relative performance (strength) of the Share Price in the past month has not yet caught up with the new forecasts (Dark Green)

• Companies where growth is forecast from Y1 EPS to Y2 EPS (Dark Green)

• Companies with a Y2 PEG in the “SWEET SPOT”, between 0.25 and 0.75 (Dark Green)

Well, that’s what this speadsheet gives me.

GREEN

This month three companies meet all criteria (shaded Green).

AS I AM AWAY AT PRESENT AND NOT DUE BACK UNTIL NEXT WEEK, COMMENTARY WILL BE MORE BRIEF THAN USUAL - AND MY APRIL “BOWLS” POST WILL NOT BE PUBLISHED UNTIL NEXT WEEKEND.

GYM remains on the list month, however as I mentioned in the last report, I just reckon, given the dilution and forecsst Revenue’s, even with a recovery to pre-COVID margins etc., there’s little value here. I still don’t think they can do much more than 10p EPS in the next few years and even if I give that a PER of 15, a target of 150p is not much improvement on today’s SP of 130p. As also noted previously, there have been a couple of reasonable director buys in the past few months at higher prices than today.

FOXT and EKF both look like they are in quite the sweet spot value wise. FOXT has Y1 > Y2 EPS f/c Growth at 20%, a Y2 f/c PER of 10, a PEG of 0.5, and a yield of 2%. EKF has Y1 > Y2 EPS f/c Growth at 19%, a Y2 f/c PER of 12, a PEG of 0.6, but there is no supportive yield in this case, probably making FOXT the pick of the Greens this month.

AMBER

11 companies are shaded Amber (they meet all of the criteria except one).

As mentioned above, I just don’t have time to do much more than brief comments on the Greens and even less so on the Ambers. Most importantly is getting the list up to ensure I catch the March upgrades. That at least allows us all to use the list and look into those stocks we find more interesting.

So, of the Ambers two stand out to me, one more so than the other. I am able to comment on these as I briefly covered them whilst helping out Paul Scott on his Substack last week, you can find that coverage, and Paul’s Substack and his additional comment here.

AVON, Y1 > Y2 EPS f/c Growth is 28%, the Y2 f/c PER is 18 giving a PEG of 0.66, and there’s a ~1.5% yield too. The reason it is Amber is a slight downgrade to Y2 EPS which is a little concern. The quite racy Y2 f/c PER of 18 could also be a concern, given that any update that is not at least inline or better could see a negative response from the market.

Partly due to the concerns mentioned above, but mainly due to better baseline numbers, I much prefer ECEL here, in fact I think ECEL is the bext pick from both the Greens and Ambers this month. The reason it is Amber is only because price is up with events, meaning that it’s up 13% vs an 8% Y1 EPS upgrade. The Y1 > Y2 EPS f/c Growth is 20%, the Y2 f/c PER is 7 giving a PEG of 0.32, there’s a ~4% yield too, and a recent £5m Buyback announced last month. Even if I give this a conservative PER of 12 (10, just half the f/c 20% EPS growth, plus 2, half the yield) I get a price target of ~300p, almost 2x the current SP.

As mentoned above, you can find additional comment by me and Paul on AVON and ECEL over on Paul Scott’s Substack here.

That’s all I have time for this month, hopefully I can get April “Bowls” out next weekend, and next month return to normal with a bit more detail than this month.

SUMMARY

I may hold all, some, none, of the stocks mentioned in this article.

No investment advice intended, for information only, Do Your Own Research.

Do please give feedback on this so I can make it more useful to as many of you as possible going into the new year.

Until next time!

Jon